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Currently US stocks are settled in T+2 and options are settled in T+1 days.

Their is SEC proposal that is going to make stocks settlement to T+1 ( side comment, don't know if options will be cleared in T+0, i.e same day).

I am interested in knowing in due to lag in settlement ( when it was T+5 or T+3), if firms or individuals have really faced any loss.

As an individual investor, I do not see any situation where if I have bought some shares of an stock, I can deny payment. Similarly I do not see if I have sold some stocks, I do not see any way not to deliver the stocks.

Does this proposed change have any cons ? or if it all have both pros and cons.

I see issues for retirees who if are on vacation and have limited internet and if they have an open order to buy some stocks while renaming fully invested (suppose $200K+ in stocks) with zero cash in the brokerage account and buying power of $100K+ if the buy order gets through, they will need to immediately do the transfer from their high yield external checking/savings account( assuming they have this kind of account as brokerage pays very less on sweep account). And if these retirees are on vacation they may not come to know about transaction on time and will be delayed in the transfer and hence paying margin interest.

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  • I have noticed EFT are faster now and are going through same day
    – puzzled
    Aug 22, 2022 at 23:56

1 Answer 1

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I am interested in knowing in due to lag in settlement ( when it was T+5 or T+3), if firms or individuals have really faced any loss.

Many times brokerages will not allow withdrawing or reinvesting unsettled funds. Especially for captive clients who can't go elsewhere. In my case, for example, I cannot withdraw the proceeds of my RSU sales until after they've settled, leaving me with a several days gap between the vest event and the cash actually hitting my pocket.

Does this proposed change have any cons ? or if it all have both pros and cons.

No. In the ancient ages, when people lived in caves, to settle a trade a seller had to send the certificate somewhere, have it endorsed, etc, while the buyer had to do the same with checks. With telegraphs, computers and trustees - gradually the actual delay in settling became shorter and shorter. Nowadays, when everything is online and electronic, even T+1 seems a bit excessive, but given the archaic American banking system may still be needed.

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  • I am asking the risk has anyone lost money
    – puzzled
    Aug 21, 2022 at 21:58
  • @puzzled are you referring to the term "risk" in the SEC announcement? It doesn't refer to any consumer risk
    – littleadv
    Aug 21, 2022 at 22:14
  • I am not refering to consumer risks, but I have not seen any news where any brokerage house has lost money due to T+2
    – puzzled
    Aug 21, 2022 at 22:19
  • in Restricted stock units (RSUs) or otherwise on sale fund cannot be withdrawn till settlement, but on flip side, also on purchase fund does not need to be paid to broker and that should balance
    – puzzled
    Aug 21, 2022 at 22:21
  • @puzzled no, you pay the brokerage immediately when your order is filled. The T+2 is for the money to move from your brokerage to the seller, there's a whole chain. So the individual consumers on the opposite sides of the transaction have 3 business days for the money to travel from one to the other. This time is for brokerages' accounting, clearing houses' processing, and any potential reversals (which is the risk).
    – littleadv
    Aug 21, 2022 at 22:27

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