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T+2 to T+1

BaluBalu
in Other Investing
The following is from an email from Schwab:

"The trade settlement period will be shortened to one day beginning May 28, 2024.
Starting on May 28, 2024, the settlement period for most securities traded on U.S. exchanges or over the counter will shorten from two business days (T+2) to one business day (T+1). For most investors, this event may have little or no impact. However, there are a few key things to know.

New shortened settlement period reduces risk.

The T+1 settlement period may benefit investors like you by reducing credit and liquidity risks present between the trade date and the settlement date. This is an industry-wide change for most security transactions and types, such as stocks, bonds, municipal securities, exchange-traded products, secondary market CDs, unit investment trusts, and certain mutual funds and limited partnerships that trade on U.S. exchange or over the counter. There will be no change to the settlement period for treasuries, options, or futures as they already use the T+1 settlement period.

Cost basis Implications

After T+1 goes into effect, any changes to your cost basis method will have to be made within one business day of the trade, not two.

Margin interest implications

If you place a trade in a margin account and then need to sell money market funds (“MMFs”) to cover your purchase, the funds will need to be available prior to or on the same day as the trade settlement to avoid being charged margin interest. For trades placed for bonds, equities and other securities, the MMFs will need to be sold by 4 p.m. ET the same day the purchase trade is placed.

To avoid accruing margin interest:

• MMFs will need to be sold by 4 p.m. ET to cover trading in the after-hours market that same day.
• MMFs will need to be sold by 4 p.m. ET to cover purchases of Fixed Income securities that can be traded until 5 p.m. ET the same day.

Your next steps.

The new settlement period will automatically apply to any new trades executed on or after May 28, 2024. You may need to pay closer attention to how the shorter settlement time could affect your investment, trading, or tax decisions."

[bold added]

Comments

  • MikeMMikeM
    If I read this correctly, this sucks for me. I've always played the sweep to MM game Schwab makes you play. I put in orders with little to nothing in the sweep. The order takes and the next day I transfer from MM to sweep which equals the 2 days. This change lessons my time to make the MM to sweep move - I think. It only pisses me off more that the sweep account makes no interest. Maybe a move to Fidelity is worth considering.
  • yogibearbullyogibearbull
    @MikeM, T+1 will reduce the payment time by 1 day at all brokers - whether m-mkt fund is core (Fido, Vanguard) or not (Schwab).

    So, on the 0-day (trade day), buy a stock/ETF/CEF anytime during the day. Also enter m-mkt order at Schwab to fund the purchase before the 4pm market close. One need to do this for mutual fund orders now. All will settle fine on T+1. But in cash or IRA a/c without cash available in core, the online buy may not be allowed (at Fido, Schwab, but OK at Vanguard) - however, no issues with margin a/c.

    Flip side is that on sale of stock/ETF/CEF on 0-day, one can also enter a buy order for m-mkt fund at Schwab by the 4pm market close. Right now, it's different for the sale of mutual fund vs stock/ETF/CEF.
  • BaluBalu
    edited May 8
    If you do not have free cash in your sweep, you will not be able to place after hour buy orders in your IRA and non- marginable taxable accounts, and margin interest charge in the margin taxable account. With high MM rates, liquidity in the after hour market should be lower than before.
  • rforno
    Either way you still need to buy/sell a MMF or other cashy fund @ Schwab to make the $$$ available to avoid a short-term margin loan. (T-1 helps, but still, that friction is annoying)
  • BaluBalu
    I tend to make after market buys which means I have to leave some amount of unrestricted cash in sweep which is good for the brokerage that pays nothing on the sweep.
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