4 ms·

> Stock trades don't settle until T+2 This too smells fishy and rigged to me. Modern databases don't need T+2 to achieve consistency. Ask PayPal or Visa or Ali

by dheera 6y ago

> Stock trades don't settle until T+2 This too smells fishy and rigged to me. Modern databases don't need T+2 to achieve consistency. Ask PayPal or Visa or Alibaba. They can do it in a matter of seconds. But the people up at the top of the stock market choose to not implement it. Why? > on margin What about high frequency trading instiutions on Wall Street? Who gives them their margins, and why is it that they are subject to much less interference than RobinHood users?

stu2b50 6y ago
>Modern databases don't need T+2 to achieve consistency. Ask PayPal or Visa or Alibaba But that's actually not true though, it takes days to settle those transactions, the payment processors just provide the illusion of instaneousness by smoothing it over with their own fungible cash reserves.
- db579 6y ago
  It may well be that it does take payment processors t+2 days but I think the point remains that it should not.
  - MrMan 6y ago
    The reasons are a combination of human factors. Technologically it is possible for atomic transactions to be completed far earlier, but commerce is a web of interactions between mostly real humans.
  - beezle 6y ago
    Even if trades settled at T+0 (overnight) there are still rules against good faith and free riding violations in addition to liquidation issues.
- mschuster91 6y ago
  > it takes days to settle those transactions The question is: why? There's absolutely no technical (e.g. nightly batch processing) or process (e.g. physical cross-country mailiing of paper stocks) reason any more. It's 2021 not 1960, technology should have evolved over the last decades. To wait days for money and stock transfers is ridiculous
  - gruez 6y ago
    >The question is: why? legacy systems. Someone in another thread mentioned a lot systems still use the "move file to this ftp folder and we'll process it in the morning" method to process transactions.
    - db579 6y ago
      If that's genuinely the case then it's no wonder people are angry. At the scale of money involved legacy tech just shouldn't be an acceptable excuse.
    - MrMan 6y ago
      I think it is legacy thinking more than systems. If we wanted to we could have a system more like European one, but for whatever reasons we don't care enough. The behavioral side of this is far more interesting than the superficial technical issues.
    - NovemberWhiskey 6y ago
      Moving from T+3 to T+2 is estimated to have cost the industry over half a billion dollars in technology and process re-engineering.
      - wnoise 6y ago
        Honestly, that's minuscule compared to the flows involved.
  - pomian 6y ago
    I have always been impressed at the speed of financial transactions in Europe. Since SMS became a thing, I have watched in amazement, how people have been buying cars, houses, other goods, transferring money, with their cell phones. It all happens 'instantly.' Meanwhile, when we send money from bank to bank, or to Europe, or UK, it takes 3 days, or more! Surely, it is set up by the system to collect interest during that time period? Multiply by thousands, millions transactions, that is a lot of interest collected.
- walkedaway 6y ago
  T+2 is an artifact from the days where there was paper trading and everything was done via open outcry. There's no technical reason it can't be done much faster. ATM transactions are atomic within 60 seconds. Credit cards are faster than that writing to their ledgers. And yes, while behind the scenes those transactions don't settle until next day via bank or credit card processor, there's no technical reason that they can't be done in near real-time. In the US the reason we still have T+2 is that it benefits the financial institutions to do so at the expense of the individual. One of the many reasons I have zero empathy for the industry.
  - Jommi 6y ago
    Howabout KYC,Security,fixing errors? You're really saying that there are no downsides in doing this faster?
    - walkedaway 6y ago
      1. KYC done ahead of time. 2. Security? How is doing it faster less secure? If anything it would be more secure because of the reduced threat area, right? 3. Errors should not happen in an electronic system. That's a bug, not an error with the parties involved. If we can do T+3 in an era with zero computing power, it's obvious we can do much faster in the year 2021. Again, we do this in other areas where consumers demand it. Yes, I'm really saying there are no downsides. Can you name one?
tonfa 6y ago
> Why? Because it allows for more internal netting, and more time to reconcile discrepancies with the tape. If you're familiar with computers, it's the same kind of tradeoffs as doing lots of rpcs vs. batching.
mlyle 6y ago
> This too smells fishy and rigged to me. Modern databases don't need T+2 to achieve consistency. The problem is, you have lots and lots of databases-- there's not one central ledger of every position. Settlement is effectively an atomic commitment protocol, so that if you are selling a stock you expect to receive from one firm to another, and someone else fails to deliver, you need to be able to unwind the downstream trades-- but also need all transactions to eventually become final. The T+1, T+2, T+3 periods are convenient in human units, because sometimes it's desirable to have a human in the loop when unexpected things happen.
- vinniejames 6y ago
  If only a public shared ledger was available for these institutions to settle trades on. People love knocking Bitcoin here, but this is why the technology exists. No reason to continue letting these institutions run smoke-and-mirrors with everyone's money
  - MrMan 6y ago
    Don't get confused - other markets have end of day settlement, stocks are a different animal but its not because humans in NYC aren't familiar with databases and transaction processing.
    - mlyle 6y ago
      That's the thing. If we were to start from scratch building a stock market or banking system today, we might take different approaches. But there's a market that exists at substantial scale that was originally built around T+14 settlement (and then T+7, T+5, T+3, all the way down to T+2 which is really still brand new). And while there's substantial risks and costs that come from delayed settlement, there's also substantial benefits... and an entire global financial system that relies upon the properties we get from these settlement delays. Another equilibrium being perhaps slightly better overall doesn't necessarily justify reinventing the wheel. I suspect we'll get to T+1 settlement for stocks and many banking transactions in a few more years (we're already there for options)... and then it may be time to discuss the benefits of various types of "instant" settlement for some subset of financial activity.
azinman2 6y ago
https://thismatter.com/money/stocks/settlement-and-clearing.htm https://thismatter.com/money/stocks/settlement-and-clearing.... It’s shortened over time, but things across many parties still need to be sorted out, including buffets for fraud. Visa also doesn’t work the way you think it does, much like checks, ACH transfers, and wires also take days to clear.
SkyMarshal 6y ago
T+2 is not a database limitation, it’s a deliberate decision by clearing houses to provide a window for cancelling a trade in case there are problems - fraud, etc.
- MrMan 6y ago
  Or breaks due to executions that are nonconforming
skybrian 6y ago
Stock trades can be corrected. I'm not sure when they will do it, but apparently you get 30 minutes to ask for a correction and they need longer to review it manually. See: https://www.investopedia.com/terms/e/erroneous-trade.asp https://www.investopedia.com/terms/e/erroneous-trade.asp
QuesnayJr 6y ago
Whether or not it is fishy, it is the literally, honest-to-God truth. Not only that, it is well-known within the industry. People have floated replacing the system with something that settles faster, but they haven't. There's a Wikipedia page on it (last edit December 2019): https://en.wikipedia.org/wiki/T%2B2 https://en.wikipedia.org/wiki/T%2B2
MrMan 6y ago
Brokers! Provide short term funding. T+2 is a fact of life in North American equities trading.

by dheera 6y ago

stu2b50 6y ago

>Modern databases don't need T+2 to achieve consistency. Ask PayPal or Visa or Alibaba But that's actually not true though, it takes days to settle those transactions, the payment processors just provide the illusion of instaneousness by smoothing it over with their own fungible cash reserves.

db579 6y ago
It may well be that it does take payment processors t+2 days but I think the point remains that it should not.
- MrMan 6y ago
  The reasons are a combination of human factors. Technologically it is possible for atomic transactions to be completed far earlier, but commerce is a web of interactions between mostly real humans.
- beezle 6y ago
  Even if trades settled at T+0 (overnight) there are still rules against good faith and free riding violations in addition to liquidation issues.
mschuster91 6y ago
> it takes days to settle those transactions The question is: why? There's absolutely no technical (e.g. nightly batch processing) or process (e.g. physical cross-country mailiing of paper stocks) reason any more. It's 2021 not 1960, technology should have evolved over the last decades. To wait days for money and stock transfers is ridiculous
- gruez 6y ago
  >The question is: why? legacy systems. Someone in another thread mentioned a lot systems still use the "move file to this ftp folder and we'll process it in the morning" method to process transactions.
  - db579 6y ago
    If that's genuinely the case then it's no wonder people are angry. At the scale of money involved legacy tech just shouldn't be an acceptable excuse.
  - MrMan 6y ago
    I think it is legacy thinking more than systems. If we wanted to we could have a system more like European one, but for whatever reasons we don't care enough. The behavioral side of this is far more interesting than the superficial technical issues.
  - NovemberWhiskey 6y ago
    Moving from T+3 to T+2 is estimated to have cost the industry over half a billion dollars in technology and process re-engineering.
    - wnoise 6y ago
      Honestly, that's minuscule compared to the flows involved.
- pomian 6y ago
  I have always been impressed at the speed of financial transactions in Europe. Since SMS became a thing, I have watched in amazement, how people have been buying cars, houses, other goods, transferring money, with their cell phones. It all happens 'instantly.' Meanwhile, when we send money from bank to bank, or to Europe, or UK, it takes 3 days, or more! Surely, it is set up by the system to collect interest during that time period? Multiply by thousands, millions transactions, that is a lot of interest collected.
walkedaway 6y ago
T+2 is an artifact from the days where there was paper trading and everything was done via open outcry. There's no technical reason it can't be done much faster. ATM transactions are atomic within 60 seconds. Credit cards are faster than that writing to their ledgers. And yes, while behind the scenes those transactions don't settle until next day via bank or credit card processor, there's no technical reason that they can't be done in near real-time. In the US the reason we still have T+2 is that it benefits the financial institutions to do so at the expense of the individual. One of the many reasons I have zero empathy for the industry.
- Jommi 6y ago
  Howabout KYC,Security,fixing errors? You're really saying that there are no downsides in doing this faster?
  - walkedaway 6y ago
    1. KYC done ahead of time. 2. Security? How is doing it faster less secure? If anything it would be more secure because of the reduced threat area, right? 3. Errors should not happen in an electronic system. That's a bug, not an error with the parties involved. If we can do T+3 in an era with zero computing power, it's obvious we can do much faster in the year 2021. Again, we do this in other areas where consumers demand it. Yes, I'm really saying there are no downsides. Can you name one?

tonfa 6y ago

> Why? Because it allows for more internal netting, and more time to reconcile discrepancies with the tape. If you're familiar with computers, it's the same kind of tradeoffs as doing lots of rpcs vs. batching.

mlyle 6y ago

> This too smells fishy and rigged to me. Modern databases don't need T+2 to achieve consistency. The problem is, you have lots and lots of databases-- there's not one central ledger of every position. Settlement is effectively an atomic commitment protocol, so that if you are selling a stock you expect to receive from one firm to another, and someone else fails to deliver, you need to be able to unwind the downstream trades-- but also need all transactions to eventually become final. The T+1, T+2, T+3 periods are convenient in human units, because sometimes it's desirable to have a human in the loop when unexpected things happen.

vinniejames 6y ago
If only a public shared ledger was available for these institutions to settle trades on. People love knocking Bitcoin here, but this is why the technology exists. No reason to continue letting these institutions run smoke-and-mirrors with everyone's money
- MrMan 6y ago
  Don't get confused - other markets have end of day settlement, stocks are a different animal but its not because humans in NYC aren't familiar with databases and transaction processing.
  - mlyle 6y ago
    That's the thing. If we were to start from scratch building a stock market or banking system today, we might take different approaches. But there's a market that exists at substantial scale that was originally built around T+14 settlement (and then T+7, T+5, T+3, all the way down to T+2 which is really still brand new). And while there's substantial risks and costs that come from delayed settlement, there's also substantial benefits... and an entire global financial system that relies upon the properties we get from these settlement delays. Another equilibrium being perhaps slightly better overall doesn't necessarily justify reinventing the wheel. I suspect we'll get to T+1 settlement for stocks and many banking transactions in a few more years (we're already there for options)... and then it may be time to discuss the benefits of various types of "instant" settlement for some subset of financial activity.

azinman2 6y ago

https://thismatter.com/money/stocks/settlement-and-clearing.htm https://thismatter.com/money/stocks/settlement-and-clearing.... It’s shortened over time, but things across many parties still need to be sorted out, including buffets for fraud. Visa also doesn’t work the way you think it does, much like checks, ACH transfers, and wires also take days to clear.

SkyMarshal 6y ago

T+2 is not a database limitation, it’s a deliberate decision by clearing houses to provide a window for cancelling a trade in case there are problems - fraud, etc.

MrMan 6y ago
Or breaks due to executions that are nonconforming

skybrian 6y ago

Stock trades can be corrected. I'm not sure when they will do it, but apparently you get 30 minutes to ask for a correction and they need longer to review it manually. See: https://www.investopedia.com/terms/e/erroneous-trade.asp https://www.investopedia.com/terms/e/erroneous-trade.asp

QuesnayJr 6y ago

Whether or not it is fishy, it is the literally, honest-to-God truth. Not only that, it is well-known within the industry. People have floated replacing the system with something that settles faster, but they haven't. There's a Wikipedia page on it (last edit December 2019): https://en.wikipedia.org/wiki/T%2B2 https://en.wikipedia.org/wiki/T%2B2

MrMan 6y ago

Brokers! Provide short term funding. T+2 is a fact of life in North American equities trading.