THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Wednesday, June 7, 1995 TAG: 9506070454
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Long : 162 lines
In an era when money can be moved around the globe in seconds, paying for stocks and bonds is still measured in days.
But the process is picking up speed.
Beginning today, investors must deliver cash or securities to their brokers within three business days of buying or selling stocks and bonds.
Until this week, investors had five business days to settle up with brokerage firms. As part of the transition to a shorter settlement period, orders placed on Monday and Tuesday had to be completed within four days.
Partly because sluggish payments by customers can raise their costs and hamper operations, brokerage firms are watching closely to make sure customers conform to the new rules.
Scott & Stringfellow Inc., for example, has devised a computer program to monitor the speed of customers' payments and deliveries of securities.
``We can analyze which branches and which brokers might be having problems,'' said Sandra Glass, director of operations at the Richmond-based brokerage firm.
If the customers of a particular branch or broker are not meeting the new deadlines, the firm can move quickly to address the problems, she said.
The speed of payments is significant because a high volume of delinquent payments could force some brokerage firms to borrow money to cover their obligations. In some instances, firms may decide to liquidate an account if they have not been paid on time.
When investors had five days to settle a trade, they were able to wait for a confirmation order from their broker before sending in a check or their securities. With the settlement period reduced to three days, it's unlikely that a check will arrive in time if they sent the payment by mail.
``It's not like you can set aside the bill and think about it for a few days before writing a check,'' said Ron Thomas, director of the State Corporation Commission's Division of Securities and Retail Franchising.
Difficulty adjusting to a shorter settlement period is likely to prompt some investors to complain to state securities regulators, Thomas predicted. ``There will be some people who get caught and lose money by not getting their payments or securities in on time,'' he said.
The impetus for cutting the time between the date of a customer's order and the payment date was the stock market crash of October 1987.
With so many orders in the pipeline and stock prices plunging, brokerage firms were vulnerable to customers who backed out of transactions. Breakdowns in communications with customers, failed trades and customers reneging on purchases left some brokerage firms with heavy losses following the 1987 market crash.
To reduce the risk of another collapse in the securities market, the Securities and Exchange Commission decided two years ago that the industry should adopt a three-day settlement period.
And for more than a year, brokerage firms have been preparing for this change, dubbed ``T+3'' for ``trade day plus three days.''
Part of that preparation involved testing the capacity of their computer programs and telephone lines. To settle transactions within the required time, firms will have to transmit data to clearinghouses more frequently, said Allen Waring, software development manager at the Richmond-based firm Wheat First Butcher Singer.
``Instead of waiting until tonight to process information and get it out, we will have to do it several times a day,'' he said.
In an effort to have the money at hand to pay for customers' orders, brokers have been urging their customers to open asset management accounts. These accounts combine brokerage accounts with money market accounts that offer check-writing features and credit cards.
Brokers also have been recommending that customers keep their securities in a ``street name'' at the brokerage firm rather than holding stock and bond certificates at home or in a safe-deposit box. When a customer's securities have been entered into their computers, brokerage firms can settle a trade without waiting for delivery of certificates.
Despite the peace of mind that some people have from holding stock and bond certificates, it makes sense to have a brokerage firm hold their securities, said Thomas of Virginia's Division of Securities and Retail Franchising.
However, investors should explore the alternatives before opening an asset management account at a particular firm, he said. ``Even if someone has been with a firm for many years, it certainly doesn't hurt to shop around.''
Like brokers and brokerage-firm managers, Thomas predicted that this week's transition to a three-day settlement period is a step toward the day when all transactions are settled electronically on the date of the trade.
When that day arrives, there will be no paper certificates, and stocks and bonds will be handled in the ``book-entry'' fashion used for Treasury securities, said Thomas.
In an era when money can be moved around the globe in seconds, paying for stocks and bonds is still measured in days.
But the process is picking up speed.
Beginning today, investors must deliver cash or securities to their brokers within three business days of buying or selling stocks and bonds.
Until this week, investors had five business days to settle up with brokerage firms. As part of the transition to a shorter settlement period, orders placed on Monday and Tuesday had to be completed within four days.
Partly because sluggish payments by customers can raise their costs and hamper operations, brokerage firms are watching closely to make sure customers conform to the new rules.
Scott & Stringfellow Inc., for example, has devised a computer program to monitor the speed of customers' payments and deliveries of securities.
``We can analyze which branches and which brokers might be having problems,'' said Sandra Glass, director of operations at the Richmond-based brokerage firm.
If the customers of a particular branch or broker are not meeting the new deadlines, the firm can move quickly to address the problems, she said.
The speed of payments is significant because a high volume of delinquent payments could force some brokerage firms to borrow money to cover their obligations. In some instances, firms may decide to liquidate an account if they have not been paid on time.
When investors had five days to settle a trade, they were able to wait for a confirmation order from their broker before sending in a check or their securities. With the settlement period reduced to three days, it's unlikely that a check will arrive in time if they sent the payment by mail.
``It's not like you can set aside the bill and think about it for a few days before writing a check,'' said Ron Thomas, director of the State Corporation Commission's Division of Securities and Retail Franchising.
Difficulty adjusting to a shorter settlement period is likely to prompt some investors to complain to state securities regulators, Thomas predicted. ``There will be some people who get caught and lose money by not getting their payments or securities in on time,'' he said.
The impetus for cutting the time between the date of a customer's order and the payment date was the stock market crash of October 1987.
With so many orders in the pipeline and stock prices plunging, brokerage firms were vulnerable to customers who backed out of transactions. Breakdowns in communications with customers, failed trades and customers reneging on purchases left some brokerage firms with heavy losses following the 1987 market crash.
To reduce the risk of another collapse in the securities market, the Securities and Exchange Commission decided two years ago that the industry should adopt a three-day settlement period.
And for more than a year, brokerage firms have been preparing for this change, dubbed ``T+3'' for ``trade day plus three days.''
Part of that preparation involved testing the capacity of their computer programs and telephone lines. To settle transactions within the required time, firms will have to transmit data to clearinghouses more frequently, said Allen Waring, software development manager at the Richmond-based firm Wheat First Butcher Singer.
``Instead of waiting until tonight to process information and get it out, we will have to do it several times a day,'' he said.
In an effort to have the money at hand to pay for customers' orders, brokers have been urging their customers to open asset management accounts. These accounts combine brokerage accounts with money market accounts that offer check-writing features and credit cards.
Brokers also have been recommending that customers keep their securities in a ``street name'' at the brokerage firm rather than holding stock and bond certificates at home or in a safe-deposit box. When a customer's securities have been entered into their computers, brokerage firms can settle a trade without waiting for delivery of certificates.
Despite the peace of mind that some people have from holding stock and bond certificates, it makes sense to have a brokerage firm hold their securities, said Thomas of Virginia's Division of Securities and Retail Franchising.
However, investors should explore the alternatives before opening an asset management account at a particular firm, he said. ``Even if someone has been with a firm for many years, it certainly doesn't hurt to shop around.''
Like brokers and brokerage-firm managers, Thomas predicted that this week's transition to a three-day settlement period is a step toward the day when all transactions are settled electronically on the date of the trade.
When that day arrives, there will be no paper certificates, and stocks and bonds will be handled in the ``book-entry'' fashion used for Treasury securities, said Thomas. by CNB