On May 28, 2024, the financial services industry will shorten the trade settlement cycle from two business days to one.  Buyers will be expected to pay for securities purchased and sellers will be expected to “deliver” securities to the buyer the business day after the trade takes place.  This new rule will affect stocks, corporate and municipal bonds, mutual funds, and any security that trades on an exchange, like ETFs.  Government bonds already settle the day after the trade.

When I started in this business in the early 80s, settlement was 5 business days, so if you purchased a stock on Tuesday, you knew you generally had to pay for it by the next Tuesday.  On the other hand, if you sold a fund on a Friday, you knew you would generally be paid on the following Friday.  In 1993, for the first time in many decades, settlement was shortened to 3 days.  In 2017, settlement was shortened to just 2 days.  And now, thanks to technological advances, settlement will be in just one day, known as T+1.

This change will primarily affect banks and institutions.  Most individual investors keep their securities and money markets at their brokerage firm or custodian, so there will be limited practical impact on them.  The main exception is that if you absolutely need money the next day, for example, to pay taxes, you will be able to sell investments and know that the proceeds are indeed available the very next business day.