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The “T+2” Trade Settlement Has Arrived…

?If you don’t know what the headline means, maybe just skip this one. Otherwise, read on!
David N. Feldman is a partner at Duane Morris LLP, where he concentrates his practice on corporate and securities law and mergers and acquisitions, as well as general representation of public and private companies, entrepreneurs, investors, and private equity and venture capital firms. Mr. Feldman also advises small businesses with regard to alternatives to traditional financing through initial public offerings. His popular blog at www.DavidFeldmanBlog.com, focusing on entrepreneurship and the regulatory environment, has been recognized by LexisNexis as a Top 25 corporate law blog, and his videos appear on his YouTube channel, The Entrepreneur’s Advocate. Mr. Feldman is a 1985 graduate of the University of Pennsylvania Law School, where he was managing editor of the student newspaper, the Penn Law Forum, and a graduate of the Wharton School of the University of Pennsylvania. He has served as chair of the board of Wharton’s global alumni association.
David N. Feldman is a partner at Duane Morris LLP, where he concentrates his practice on corporate and securities law and mergers and acquisitions, as well as general representation of public and private companies, entrepreneurs, investors, and private equity and venture capital firms. Mr. Feldman also advises small businesses with regard to alternatives to traditional financing through initial public offerings. His popular blog at www.DavidFeldmanBlog.com, focusing on entrepreneurship and the regulatory environment, has been recognized by LexisNexis as a Top 25 corporate law blog, and his videos appear on his YouTube channel, The Entrepreneur’s Advocate. Mr. Feldman is a 1985 graduate of the University of Pennsylvania Law School, where he was managing editor of the student newspaper, the Penn Law Forum, and a graduate of the Wharton School of the University of Pennsylvania. He has served as chair of the board of Wharton’s global alumni association.

Last week, the SEC approved a rule change that shortens the typical settlement period for public trading through brokers (known as “T+” for “trading plus”) to two business days from three. The SEC feels this will reduce trading risks. The rule comes into effect officially in September.

Does this matter to investors? Well, if you are selling stock it means the money will now be in your account in two business days. The prior rule for most trades was three business days. But be careful, because some trades, like in mutual funds, settle quicker. So if you’re buying one and selling another, make sure the settlement times match, or there is enough money in your account to cover. Some brokerage firms let all trades go through as long as they are made on the same day even if they settle differently.

What’s the bigger picture? In the olden days when horses had to bring stock certificates from place to place, settlement periods were typically 14 days. Then in the 70s and 80s with computerized trading it went to T+5, then T+3, and now T+2. The speed with which everything happens in the stock markets continues to accelerate thanks to everything being computerized at this point. So everything, including money, moves faster than ever. So when will it be T+one millisecond? Maybe not that far away.

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