T+1 is Coming on May 28th, 2024

By John H. Robinson, Financial Planner (May 19, 2024)

When I first entered the investment business in the late Pleistocene Epoch, investors had five business days after the trade date (T+5) to pay for purchases.  In 2004, the settlement period was shortened to three days (T+3).  In 2017, the major U.S. exchanges adopted T+2. On March 28, 2024, the exchanges are adopting "Next-Day Settlement" (T+1).  

The practical implication of T+1 is that, for most secondary market trades in stocks, bonds, ETFs, and mutual funds, the money to pay for purchase must be in the account at the time of purchase or delivered via Fed Funds wire transfer no later than the day after the trade.  Electronic funds transfers (a.k.a. ACH transfers) promise delivery of funds in two business days, which is too long for "good delivery."  Although this may be regarded as an  inconvenience for investors, keep in mind that securities sales also settle quicker.  

While I do not see this change having a major impact on Financial Planning Hawaii clients, it is worth mentioning that new-issue certificates of deposit usually trade with extended settlement dates that may be several days longer than regular-way, next-day settlement.  

Fun Fact: Treasuries already settle on a T+1 basis.

Related Reading 

SEC Investor Alert: What Investors Need to Know About T+1 Settement

John H. Robinson is the owner/founder of Financial Planning Hawaii and Fee-Only Planning Hawaii, and he is a co-founder of software maker Nest Egg Guru