The SEC's New 2-Day Trade Settlement Rules Go Into Effect Sept. 5: What That Means For You

One of the oldest financial adages tells us “time is money.” Perhaps in that spirit, the SEC is set to make sure stock and ETF investors needn’t wait so long to see the fruits of their trades finalized.

What’s Happening

Starting Sept. 5, the settlement cycle for stocks and ETFs will reduce from three to two market days.

What It Means

Access to funds after selling stock, and delivery of shares after purchasing will now happen a day sooner than before.

Why It’s Happening

Last changed in 1993, the SEC faced criticism that the three-day window was outdated, given the speed afforded by advances in technology.

Related Link: SEC Shortens Trade Settlement Period From 3 Days To 2

Why It Matters

Hoping to enhance efficiency and expedite transactions for market participants, the SEC announced in March that it would reduce “T+3” as it was called, to “T+2.”

For retail traders not allowed to trade on margin, using proceeds from a stock sale that hasn’t settled yet too often can be punished by a 90-day account restriction. During this time, their broker will not allow them to use funds from transactions until the settlement period has passed in its entirety.

While some brokers “freeze” customers’ accounts to keep them from incurring such a restriction, others do not, leaving the onus on traders.

The shortened settlement period should help reduce the threat of these restricitons and keep the stock market flush with plenty of sweet, precious liquidity.

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