This is the sad state of US stock markets and Regulation T.
Yes, while options have cleared & settled for t+1 (trade +1 day) for years and now actually clear "instantly" on some exchanges, stocks still clear & settle in t+3. There really is no excuse for it.
If you are in a margin account, regulations permit the trading of unsettled funds without affecting margin requirements, so your funds in effect are available immediately after trading but aren't considered margin loans. Some strict brokers will even restrict the amount of uncleared margin funds you can trade with (Scottrade used to be hyper safe and was the only online discount broker that did this years ago); others will allow you to withdraw a large percentage of your funds immediately (I think E*Trade lets you withdraw up to 90% of unsettled funds immediately).
If you are in a cash account, you are authorized to buy with unsettled funds, but you can't sell purchases made on unsettled funds until such funds clear, or you'll be barred for 90 days from trading as your letter threatened; besides, most brokers don't allow this. You certainly aren't allowed to withdraw unsettled funds (by your broker) in such an account as it would technically constitute a loan for which you aren't even liable since you've agreed to no loan contract, a margin agreement. I can't be sure if that actually violates Reg T, but when I am, I'll edit.
While it is true that all marketable options are cleared through one central entity, the Options Clearing Corporation, with stocks, clearing & settling still occurs between brokers, netting their transactions between each other electronically.
All financial products could clear & settle immediately imo, and I'd rather not start a firestorm by giving my opinion why not.
Don't even get me started on the bond market...
As to the actual process, it's called "clearing & settling".
The general process (which can generally be applied to all financial instruments from cash deposits to derivatives trading) is:
- Transact (deposit money, make a trade, etc)
- Clear: agents give initial acknowledgement to each other that the transaction occured
- Settle (& net): "physically" exchange the necessary net assets (nowadays, this is merely account entries on the books)
The reason why all of the old financial companies were grouped on Wall St. is because they'd have runners physically carting all of the certificates from building to building. Then, they discovered netting so slowed down the process to balance the accounts and only cart the net amounts of certificates they owed each other. This is how we get the term "bankers hours" where financial firms would close to the public early to account for the days trading. While this is all really done instantly behind your back at your broker, they've conveniently kept the short hours.