The time period between when you buy or sell a security and when the trade is settled is about to shrink. Currently, the U.S. operates on a three-day settlement cycle. Effective Tuesday, September 5, 2017, the U.S. will switch to a two-day settlement cycle. The moniker is T+2, which stands for trade date plus two days. A trade executed on September 5, 2017, will be settled on September 7, 2017. Thereafter, executed orders to buy and sell will be settled on a two-day cycle.
This shortened cycle will apply to stocks, corporate bonds, municipal bonds, unit investment trusts and financial instruments composed of these security types. Most, but possibly not all, mutual funds will shift to a two-day settlement cycle on September 5. Exchange-traded funds and closed-end funds—which trade like stocks—will also make the shift to T+2. (The T2 Settlement website has a full list of the investment products moving to a two-day settlement.) The European Union, Hong Kong and South Korea have already moved to T+2. Canada, Mexico and Peru will join the U.S. in switching over on Tuesday.
The change is a big deal for the financial industry. Shortening the settlement cycle will significantly reduce the amount of capital that clearing firms (the entities who ensure trades are processed) are required to hold. The Depository Trust & Clearing Corporation (DTCC) estimates the change will reduce daily average capital requirements for its equity clearing fund by 25%, or $1.36 billion. The change will also give various financial firms and institutional investors more flexibility.
The T+2 switch will also have implications for individual investors. Continue Reading »
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More on AAII.com
- A Behind-the-Scenes Look at How Trades Are Executed – An industry insider sheds light on the stock market’s increasing complexity.
- Cash Dividend Types, Dates and Taxes – Definitions of the various dividend terms along with a discussion of their implications for your portfolio and taxes.
Highlights from this month’s AAII Journal
- Technology Takes Over the Top-Performing ETF List – This year’s list of the best ETFs over the past five years is led by two semiconductor funds, as we discuss in the new September issue.
- Expanding the Driehaus Growth and Momentum Screen – This growth and momentum screen’s criteria were loosened to identify more stocks with potential upside.
AAII Sentiment Survey
Pessimism rose by a cumulative 15.6 percentage points in August and is now at the top of its typical range. More about this week’s results.
- Bullish: 25.0%, down 3.1 points
- Neutral: 35.1%, up 1.5 points
- Bearish: 39.9%, up 1.6 points
- Bullish: 38.5%
- Neutral: 31.0%
- Bearish: 30.5%
Take the Sentiment Survey.
The Week Ahead
The U.S. financial markets will be closed on Monday in observance of Labor Day. Have a good, and hopefully dry, holiday weekend.
As noted above, the U.S. will switch to a two-day settlement cycle on Tuesday.
September, which starts tomorrow (Friday), has historically been the “worst” month of the year for the major indexes. Though the month’s average return is negative—The Stock Trader’s Almanac calculates the Dow and the S&P 500 as averaging declines of 0.8% and 0.5%, respectively, between 1950 and 2015—not all Septembers have experienced declines. Rather, the averages should simply be kept in mind if (and I’m not saying it will) the market hits a few bumps in the road as we head into fall.
The week’s first economic report will be July factor orders, released on Tuesday. Wednesday will feature July international trade, the ISM’s August non-manufacturing index and the Federal Reserve’s periodic Beige Book. The last economic report this week will be revised second-quarter productivity, released on Thursday.
Eight Federal Reserve officials will make public appearances: Governor Lael Brainard, Minneapolis president Neel Kashkari and Dallas president Robert Kaplan will speak on Tuesday; Cleveland president Loretta Mester, New York president William Dudley, Atlanta president Raphael Bostic and Kansas City president Esther George will speak on Thursday; and Philadelphia president Patrick Harker will speak on Friday.
Local Chapter Meetings
AAII Local Chapter Meetings offer you a variety of presentations from expert speakers who will give you their view on the world of investing. A bonus of attending a Chapter Meeting near you is the opportunity to meet other AAII members who share your interest and enthusiasm for investing. You can even share the Chapter experience with your family and friends by inviting them to attend Chapter Meetings with you! Upcoming Meetings »