What Is ‘T+1’ Rule? US Stock Trades to Settle in One Day Starting on May 28

Even in an age of instant communication and live financial data, investors still have to wait days to take ownership of the stocks they purchase or to receive payment for the stocks they sell. That’s about to change. Starting on May 28, US trades will “settle” (complete the exchange of dollars for stock) in one day rather than two. US banks, brokers and investors have been forced to review all of their post-trade technologies and procedures to ensure they are ready for the new pace of stock trading. The change poses a special challenge to investors outside the US who need to buy dollars as part of their stock trades.

Stock trades before the computer age involved the physical exchange of stock certificates, which often took five days or more. That became a problem in the late 1960s as the stock market finally climbed its way back to its 1929 peak. As public participation in the stock market increased, trading volume skyrocketed to 12 million shares a day in 1970 from 3 million a day in 1960. With the industry’s growth prospects threatened by a “paperwork crisis,” the New York Stock Exchange created a central clearinghouse that would hold the millions of certificates owned by its member firms. That set the stage for transactions to become computer-automated.

This article was originally published by a www.bloomberg.com

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