So, what exactly happens on day T+1 of an equity / ETF trade?

[corbco]

My timeline:

• Thursday morning, limit order triggered within half an hour of market open.
  • The whole shares have been removed from my "Positions" display.
  • The fractional share shows that I (appear to) own it.
  • The cash proceeds show as "Pending activity".
• Friday ALL DAY, absolutely nothing changes.
  • The fractional share still shows that I appear to own it.
  • The cash still shows as "Pending".

I'm willing to bet that on Monday, ALL DAY, nothing will change as well. Settlement will actually appear to take nearly three business days -- Thursday morning to Monday night -- because T+2 means "the -end- of the second day later".

After market close on Monday, the loose ends will wrap up.

SO. WHAT'S ACTUALLY HAPPENIN' behind the scenes all day Friday, and all day Monday?

(And: is ANY part of this brokerage-dependent?)

 

[otherpsychotichalf]

@corbco

SO. WHAT'S ACTUALLY HAPPENIN' behind the scenes all day Friday, and all day Monday?

Time is being provided to the buyer to come up with the funds, and to the seller to produce the stock certificate (nowadays, the electronic equivalent), and address any issues with clearing these trades that may arise. There are a lot of details that you can dig into by looking up stock clearing houses.

(And: is ANY part of this brokerage-dependent?)

No, T+2 isn't determined by your brokerage, it is determined by the standards of the exchanges.

The SEC has issued guidance that will transition US exchanges to T+1 by May of 2024. The T+1 Implementation Handbook contains a history of settlement times, the purpose of this time, and the risks and benefits associated with shortening the settlement period.

 

[corbco]

@otherpsychotichalf Wow. That's a bunch of -really- interesting material. Thanks!!

 

[sergepb]

@otherpsychotichalf Was all this not yet automated?

 

[nhwarmbythefire]

@sergepb It is automated. Many settlement and post-trade processing processes are batch based because of the transaction volume.