Indiana Trust Wealth Management
Investment Advisory Services
by Clayton T. Bill, CFA
Vice President, Director of Investment Advisory Services

  • The U.S. equity market, represented by the S&P 500 index, was flat for the week.

For many years, the trading of securities such as stocks in the US went like this: on Monday, an investor buys a share of stock, and a dealer agrees to sell them that stock. Two days later, on Wednesday, the investor sends the cash to the dealer, and the dealer delivers the stock.

This arrangement allowed the investor a few days to locate cash and the dealer a couple of days to find the stock. It also gave the parties time to exchange confirmation information about the trade. In financial markets jargon, this settlement arrangement is known as “T+2”, or trade date plus two days. In the 17th century, the settlement period was T+14, but gradually fell to T+5 in the 1960’s.

After three years of preparation, starting Tuesday, the US securities settlement cycle will move from T+2 to T+1. Settlement of funds and shares will occur the next day after the trade. Mutual funds and US government bonds already settle on a T+1 basis. Now, stocks, bonds, and ETFs will all settle the next day as well.

This may not sound like a big deal, however it required the coordination of market participants across the globe. Given the myriad of back-office operational capabilities in the broker / dealer world, there will surely be a few hiccups as the shift is made next week.

For the aggregate financial system, the move to T+1 will reduce market risk and lower margin borrowing requirements. For our clients at Indiana Trust, it will allow more operational flexibility and will provide quicker liquidity for investors, as access to cash from security sales will be a day sooner.

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IMPORTANT DISCLOSURES: All info contained herein is solely for general informational purposes. It does not take into account all the circumstances of each investor and is not to be construed as legal, accounting, investment, or other professional advice. The author(s) and publisher, accordingly, assume no liability whatsoever in connection with the use of this material or action taken in reliance thereon. All reasonable efforts have been made to ensure this material is correct at the time of publication.  Copyright Indiana Trust Wealth Management 2024.