OEIC settlement dates

aroominyork

When selling OEICs on HL/ii I have been able to reinvest the funds the day after they are sold. Does this mean the platform is bridging the amount since they know they will receive the funds a few days later? And, presumably, if I want to withdraw the proceeds of the sale I have to wait the c.5 days of the settlement period?

SonOf

A number of platforms will prefund a range of transactions from their own money. It varies from no prefunding at all, just prefunding switches or prefunding withdrawals, tax free cash from pensions etc.

chazzo

SonOf wrote: »

A number of platforms will prefund a range of transactions from their own money. It varies from no prefunding at all, just prefunding switches or prefunding withdrawals, tax free cash from pensions etc.

Thanks, that's interesting. Hargreaves Lansdown (as per the OP) certainly make me wait for SIPP withdrawals :-)

bowlhead99

1) HL will usually 'fully' bridge 90% of the proceeds of a sale based on most recent published fund price.

- That is, if you have £10,000 of Fund A based on Monday's price and put an order in on Tuesday morning, they would let you do a switch order to take £9000 out of Fund A and buy £9000 worth of fund B. They will know that you *should* have enough units of A to sell to be able to generate £9000 of sales proceeds even if there is a sizeable drop of value from Monday to Tuesday, and can therefore let you commit £9000 on a Tuesday order of B fund units.

- As the proceeds of a Tuesday sale order of A will settle on the same day as the costs of a Tuesday purchase order of B, and they are broadly comfortable that A proceeds would cover B costs, they would let it go through. They can say this before the Valuation Point is actually reached; i.e. before the fund accountants have published the actual price and therefore the actual amount of units that would be redeemed or purchase for a transaction of the requested £9000 size.

- You could refer to that as a 'bridge' because they are saying that they or you will be on risk for the money being committed to the new fund before they even get confirmation of the exact amount/value of units being sold out of the old fund, but they're comfortable letting you take that leap of faith.

2) Once the Valuation Point has actually been reached and the price published, they will have the information to know how much proceeds you are actually getting from your OEIC redemption.

- The actual settlement proceeds will follow into your account within the standard settlement period (eg. T+3 or Valuation Point + two clear business days or however it is defined).

- As they now know your account will receive X amount of proceeds on a specific date, they are not really 'bridging' you if they allow you to place OEIC subscription orders up to that amount of money from that point onwards, because those subscription orders could not require settlement (ie payment out of your account) before the proceeds of the redemption orders settled (ie money had been received into your account). You would not be short of cash (overdrawn) at any point so they are not really giving you a bridge facility.

3) Note that UK Crest-settling transactions (eg sale of Tesco or Shell shares) can be booked in the market in real time and have a T+2 settlement, which is faster settlement than the time between placing an OEIC order and the money settling after the OEIC order, and may also be faster than certain overseas stock markets, hence with some providers you may be able to use a share sale to fund an OEIC order but not vice versa.

4) Other providers may do more comprehensive bridging - e.g. they may pre-fund a tax relief claim, or let you switch 100% of your holdings knowing that you have other assets that they could sell if one pre-funded deal failed due to a sharp market movement. The cost of their balance sheet being available to fund this may result in higher ongoing platform fees than would otherwise have been the case if they didn't offer that facility.

chazzo wrote: »

Thanks, that's interesting. Hargreaves Lansdown (as per the OP) certainly make me wait for SIPP withdrawals :-)

5) waiting for withdrawals, as opposed to being able to reinvest quite quickly, is completely standard in the DIY market. You need to request withdrawals out of cleared funds. You can't take money out until it has settled. However if you are buying Fund B with the proceeds from A, they can allow you to place the B order immediately after the A sale because by the time it needs to settle, you'll have the sales proceeds money settled into your online account as described above.

Albermarle

Other providers may do more comprehensive bridging - e.g. they may pre-fund a tax relief claim

I think the majority (all?) of the big insurers do this ( Aviva, Standard Life etc ) but the majority (all?) of the SIPP providers ( HL, II etc ) do not .
Not sure what the newer auto enrolment pension providers ( NEST, Peoples pension etc) do, or the newer personal pension providers ( like Nutmeg, Penson Bee) ?

aroominyork

bowlhead99 wrote: »

1) HL will usually 'fully' bridge 90% of the proceeds of a sale based on most recent published fund price.

- That is, if you have £10,000 of Fund A based on Monday's price and put an order in on Tuesday morning, they would let you do a switch order to take £9000 out of Fund A and buy £9000 worth of fund B. They will know that you *should* have enough units of A to sell to be able to generate £9000 of sales proceeds even if there is a sizeable drop of value from Monday to Tuesday, and can therefore let you commit £9000 on a Tuesday order of B fund units.

I found out about the 90% option too late when I was with HL. In autumn 2018 I was making a big switch, sold OEICs to move into different ones and the market movement in that 24 hours cost me a few grand. I'm now with ii who do not have a switching service so there is no way around the 24 hour gap within tax wrappers.