Contributed by: Mallory Hunt
In the ever-evolving landscape of financial markets, efficiency is the name of the game. Every advancement that streamlines processes not only saves time and resources but also enhances market dynamics. One significant recent development is the shortened trade settlement cycle.
In the past, trade settlements took several days to complete, which meant longer periods of time until you could access your money. On May 28th, 2024, the U.S. Securities and Exchange Commission (SEC) is shortening the settlement cycle from the current two business days (Trade date + 2 or T+2) to one business day (T+1) for most securities transactions, including but not limited to trades for stocks, corporate and municipal bonds, mutual funds, and unit investment trusts (UITs).
What does this mean for you, and why does it matter? At its core, a shortened settlement cycle reduces the time it takes for a trade to be finalized, allowing you to receive faster payment following the sale of a security. Keep in mind that this also means you will be required to provide funds more promptly following the purchase of a security or interest, which will begin accruing after the settlement date if the debit has yet to be covered.
While the benefits of shortened settlement cycles are clear, the implementation is not without challenges. Market infrastructure, including trading platforms, clearing and settlement systems, and regulatory frameworks, must adapt to support faster settlement processes effectively by investing in technology and operational enhancements. Coordination between exchanges, clearinghouses, custodians, and regulators is essential to ensure a seamless transition in these processes and compliance with new requirements.
Nevertheless, the benefits of a shorter settlement cycle far outweigh the challenges and are a testament to the industry's ongoing commitment to efficiency and innovation. By streamlining the process of buying and selling securities, market participants can enjoy greater confidence, increased liquidity, and enhanced operational efficiency. You can find more information about this industry-wide change here. As with anything, if you have any questions on this upcoming change, please do not hesitate to reach out to us!
Mallory Hunt is a Portfolio Administrator at Center for Financial Planning, Inc.® She holds her Series 7, 63 and 65 Securities Licenses along with her Life, Accident & Health and Variable Annuities licenses.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Mallory Hunt and not necessarily those of Raymond James.
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.