Stock Sale Question

Last week I decided to sell a few shares of stock out of my Schwab account. It wasn’t a lot of money, about $2,000 worth. When I put in the sell order I got the normal disclaimer saying that it takes 3 business days to settle the account, after which a check would be cut and mailed to me. I had the option to have the money wired to my account instead of waiting for a check, but there would be a $40 wire transfer fee. :rolleyes:

I went ahead and placed the sell order and within 10 minutes the sale had been completed and the shares disappeared from my account. Now I realize that money has to change hands but does it really take 3 days to settle a $2,000 sale? I assume the money is transferred from the buyer’s account to the seller’s account electronically, so that takes about a thousandth of a second to complete. Then everything stops for 3 days while someone is holding my money in their account. Seems like a float scheme to me.

In this day and age small stock sales such as mine should be handled within a day. Why must I wait 3 days (plus 2 days for the check to arrive) to get my money? I’m sure the buyer’s money was deducted from their account within a minute or two of the sale occuring… :dubious:

I think it is because the SEC lets them take that long. They don’t have to settle for three days, so they don’t.

(Warning: completely uneducated guess here) If the SEC made it “same day”, then they would settle it the same day. Like you said, I imagine the vast majority of trades happen within seconds of the order and are fulfilled electronically.

Also here (wiki)

Thanks Hermitian. I wonder how much large brokerage houses make on the 3 day float considering how much money they are transacting each day. IMHO this is legalized robbery.


Did you mean to create a new thread with that?

As has been mentioned it currently takes 3 days for a stock transaction to settle (T+3). Reducing it to T+2 or T+1 has been discussed, but isn’t really that big of a priority. In that link it mentions that up to 30% of buyside (large funds) aren’t completely automated when it comes to stock settlement. They actually have back office people personally working on it daily. Also, apparently there is still a non-zero amount of trading done in physical certificates which can’'t realistically be delivered in one day.

It doesn’t take long to move funds, but is it equally fast to transfer title to the securities?

This is one of the things that I’ve wondered about. I know about the T+3 policy, but when I buy stocks with Scottrade it won’t let me buy if I don’t have the money in my account right now. Are there brokers where you can put in a buy limit order for 100 shares of Conglom-O at $10/share and wait and then give your broker a check for $1k if and when the order is matched with a seller?

It takes longer than minutes to conduct a transaction. What you see is your account information changing, but that doesn’t mean the transaction is actually completed. Large brokerages deal with so many transactions that they are often 12 to 24 hours behind in completing the processing. I’m not saying it should take 3 days, but there are some practical realities in conducting business.

If you had a margin account, you could do this. The broker would essentially loan you the $1000 from the margin account when the transaction took place and then you’d pay off the loan. You’d probably incur some interest expense, but only a few days’ worth.

Legalized robbery in what sense? What asset of yours has been taken?

Instead, look at it this way: Your broker, when you created the account, promised to have your money to you within three days. Your broker fulfilled their promise and had the money to you within three days.

I think the delay is imposed to give time for any claims or corrections to occur. I don’t know of any such claims that would be likely, but the NYSE will (rarely) cancel trades after the market closes.

At a 9% rate, a day’s interest on a million dollars is a whopping $250, and doubtless many systems were designed to take advantage of that. At today’s interest rates, however, the gain is much less. Perhaps banks and brokers keep these 3-day floats in place, preparing for higher rates in the future. (The delay for wire transfers dropped from days to hours(?) several years ago at about the same time that interest rates fell worldwide. Coincidence?)

As far as the wire transfer fee is concerned, you can generally have the funds transferred via EFT for free. This usually happens overnight (while the wire transfer can happen same day). Wire Transfers are generally only needed in very specific situations.

I worked as a programmer for a financial institution when we went from T+5 to T+3 (sometime in the early nineties). It was a substantial effort. They don’t make changes like that quickly.

A normal stock transaction is not a “today” transaction, like buying a loaf of bread at the grocer. Stock sales are normally a 3-day future. Today (the date of trade), both buyer and seller are agreeing to complete the transaction in three business days. This 3-day rule was five days (a week) 40 years ago.