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Fidelity Announcement On Transaction Time Reduction

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  • @Maurice: Source please ?
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  • This is regulatory and "should" apply to everyone at every broker. I thought mutual funds already settled faster so this wouldn't affect them, but the email I received mentions them so maybe something is changing. I don't buy without cash on hand so I don't think it matters for me but could for some people. The email I received from E*TRADE said basically the same thing as the one we both received from Fidelity:

    We're writing to make sure you know about an important upcoming change in U.S. securities markets.

    What’s changing

    The Securities and Exchange Commission (SEC), in cooperation with the financial services industry, is shortening the trade settlement period for many types of securities from three business days to two. This new rule is designed to increase efficiency and reduce risk. Products affected by the change include stocks, corporate bonds, municipal bonds, ETFs, and mutual funds, among others.

    NO ACTION IS REQUIRED FROM YOU. The shortened settlement period will take effect automatically on Tuesday, September 5, 2017.

    What this means to you
    If you sell a security, you’ll receive cash one day sooner
    If you buy a security, it will be delivered one day sooner
    If you are using margin, purchases will create a settled debit balance one day sooner and selling will decrease your settled debit balance one day sooner
    You will have one less day to execute a tax-lot swap
  • @Maurice: Thanks, I'm sure something from Fidelity will show up sometime tomorrow.
  • Received same info from Schwab, via both US Mail and email, apparently well before Fidelity's notification, for what interest that may have (as David would be the first to say).
  • edited September 2017
    Any mutual fund company I've dealt with allows trades to be placed among their in-house funds up until 4:00 PM (ET) and executes the trade at that day's closing price. I have, on occasion, seen with certain companies (like AC) a 3:00 PM deadline for certain bond funds if the market for that type of security closes at 3:00 PM. Not a trader either, but in very volatile markets it's nice to wait until the last hour before committing. I have successfully put through trades as late as 3:59 PM. Obviously better to do it on their website at that time of day than through an agent.

    I realize dealing with a third party like Schwab has always been different. Same day execution is one of the perks, I guess, of dealing directly with a fund family. Not aware of any changes coming to these policies. Another perk is that there are no fees for trading (unless you violate the minimum holding period for the fund you are selling).
  • Hank- yes, all of the in-house funds that I've ever dealt with are as you describe. Someone else (Ted, perhaps?) will be more knowledgeable on this, but I'm under the impression that this deals with trades that don't necessarily involve funds. All of the many funds that I've bought or sold at Schwab also close same-day at end of trading. It isn't so much regulating the trade close as the trade settlement, which is a somewhat different animal between trading houses, I believe.
  • Here's the Schwab info link with all of the gory details, fwiw.
  • edited September 2017
    Thanks OJ. Had a feeling I was overlooking something. It's becoming clearer. Somehow had the impression that fund trades executed through a third party (i.e. broker) took an extra day to go through. And that the next day's price applies. However, the article I linked below clears that up. I was mostly wrong - though some brokerages have a 2 PM cutoff.

    Found your link highly interesting. Not sure why it takes 2-3 days for some trades to settle. It's a world I'm not acquainted with. Never desired to own individual stocks. Perhaps a fear that I might become "consumed" by the process and trade frequently to my detriment. I'll stick with what I know (a recurrent theme in another thread tonight).

    From Investopedia: Mutual fund shares are highly liquid. They can be bought or sold (redeemed) on any day that the markets are open. Whether working through a representative (such as an advisor) or directly through the fund company, an order can be placed to buy or redeem shares and it will be executed at the next available net asset value (NAV), which is calculated after the market close each trading day. Some brokerages and fund companies require orders be placed earlier than the market close (2 p.m. Eastern Time), while others allow same day execution right up to the market close.

    Settlement for mutual fund transactions varies from one to three days, depending upon the type of fund.
  • edited September 2017
    Settlement for Dummies (like me).

    "A settlement period is the period of time between the settlement date and the transaction date that is allotted to the parties of a transaction to satisfy the transaction's obligations. The buyer must make payment within the settlement period, while the seller must deliver the purchased security within this period. For certificates of deposit and commercial paper, the transaction must be settled on the same day; for U.S. treasuries, it is the next day (T+1). Forex transactions are settled two days after (T+2"

    The fuller article alludes the recent changes (shortened period) - which apparently were under study but hadn't yet been finalized. Yikes - I had assumed you needed cash on hand, assets convertible to cash (like fund shares) or an established line of credit to trade securities. Apparently not so.
  • I got the same notice from Vanguard Brokerage. It is now T+2. I've always had the funds in the account before I made a purchase, so I don't see this affecting me.
  • edited September 2017
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  • If you wanted to move money from an ETF to a mutual fund, under T+3 you had to wait a couple of days to buy the mutual fund (or buy on margin). That's because the proceeds from the ETF weren't available for three business days, but you had to have the money for the mutual fund purchase available just one day after you place the order.

    So you were out of the market for two days (at least I think I got the arithmetic right). Now with T+2, you can place your mutual fund order a day sooner.

    Note that when purchased through a broker, most (but not all) mutual funds settle T+1.
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