Purchasing ETF Settlement T+2

Pat38493

If I have purchased shares in an ETF on Interatctive Investor SIPP, and the transaction details says settlement T+2, what does this actually mean in practice?

From what I can tell, it means the actual payment of the money doesn't happen till 2 days later and the shares are not given to me till 2 days later?

However what does this mean for the returns?  Do I still benefit (or lose) from the returns from the moment the trade is executed or only from the settlement date?

Marcon

Pat38493 said:

If I have purchased shares in an ETF on Interatctive Investor SIPP, and the transaction details says settlement T+2, what does this actually mean in practice?

From what I can tell, it means the actual payment of the money doesn't happen till 2 days later and the shares are not given to me till 2 days later?

However what does this mean for the returns?  Do I still benefit (or lose) from the returns from the moment the trade is executed or only from the settlement date?

T is the trade date - the day you place your order. '+x' indicates the settlement date, which is when the legal transfer is actually executed between buyer and seller. 

So the settlement date is the key - you own the shares from that date and benefit/lose from that point.

Pat38493

Marcon said:

Pat38493 said:

If I have purchased shares in an ETF on Interatctive Investor SIPP, and the transaction details says settlement T+2, what does this actually mean in practice?

From what I can tell, it means the actual payment of the money doesn't happen till 2 days later and the shares are not given to me till 2 days later?

However what does this mean for the returns?  Do I still benefit (or lose) from the returns from the moment the trade is executed or only from the settlement date?

T is the trade date - the day you place your order. '+x' indicates the settlement date, which is when the legal transfer is actually executed between buyer and seller. 

So the settlement date is the key - you own the shares from that date and benefit/lose from that point.

OK - but the ETF are already showing up in my II account with the value changing during market opening times.  I guess that once I execute the order, the number of units and the price is locked in so effectively I will still benefit or lose from price changes during these 2 days?

Hoenir

Settlement is undertaken on CREST . Have a Google

shortseller09

The price you pay on the trade date is the price that you own the ETF at, any movement from then is your profit or loss. 

Pat38493

[Deleted User] said:

Marcon said:

So the settlement date is the key - you own the shares from that date and benefit/lose from that point.

I don't think that is right.  You buy the shares on day T and that is when the price is fixed.  So you benefit from any increase in value after that date (or suffer any loss).  If the shares price has changed by T+2 that does not change anything to do with the purchase.

So I guess that from my perspective as a DIY platform investor, the settlement date is pretty meaningless.  It would only apply if somehow the funds failed to be transferred or the shares was not provided in accordance with teha greement.

Pat38493

shortseller09 said:

The price you pay on the trade date is the price that you own the ETF at, any movement from then is your profit or loss. 

Yes this is the first time that I purchased something that is not a fund, and I noted that if you purchase it when the market is open, it seems like you know the exact price you are getting before you commit.  This is not the case with funds where it seems like I usually get the price of the next day after I requested the purchase, which I cannot know in advance.

artyboy

You also gain (or lose) dividend entitlements based on T and not S date. So for example, I can buy HSBA today - ex-div date is tomorrow and I will gain entitlement to the 31c/share dividend as a result, even though the trade won't settle till this Friday.

Settlement date IS important though, because that's the point where the shares become free to trade (if bought) or the cash proceeds become free to withdraw (if sold). It's something of an anachronism and is due to lack of efficiency in market processes in the stock/cash transfer flow (actually that's not really true, long settlement cycles can be beneficial to banks that know how to manage their stock and cash inventory). Although it was T+5 for a lot of products when I started working in the city, so it is getting better...