Hi There is an important difference between the Ending cash balance and the Ending Settled cash balance. I allways finish the trading day, 12:00 pm EST, with a positive cash balance, every day, but I am not able to finish every day with a positive settled cash balance. That was like a mistery for me, and I tried to figure out why. Stock settlement is trade day + 2 days. Options settlement is only +1. But that doesn't explain what happens with my settled cash. I'd like to make a question. My broker settles the ending cash balance at 17:00 for USD. And you are going to receive or pay interest depending if it's positive or negative. _It's the same hour , the same procedure for all brokers or each one can determinate a different hour to look at the settled cash ? Is there any industry regulation for that ? thanks.
I thought that maybe two o three people in the forum could answer this question. I think I have found a bad praxis from my broker, but before I post it to the forum, I have to be sure of a couple of things. Let me ask a new question about options. If my short puts are early assigned, the transaction occurs at night. Usually at 2:00 am EST , when the Option clearing corporation has done his work. Only at that moment I would see the stock in my account. It is going to settled 2 days after, but it's placed in my account at that moment. Would be legal to account that transaction like if it has happened the day before, i.e before 12:00 am ? I think the logical answer is that not, but I would like to know the opnion of the bosses here, hehe.
I did not respond because if was not sure how to answer based on the way you asked. Can you just focus on what your concern is?
Thank you Robert . Yes, I was thinking of you. I think my broker accrues improper, undue, interest. But I might be wrong. I don't understand how the broker can receive interest for a transaction that has not happened yet. When the transactions happens ? E.g. If my short puts are early assigned at 2:00 am, you as a broker at what time would annotate this transaction as done ? that is important in order to determinate the cash balance and the interests. thank you.
I responded to your private message but also wanted to post publicly. Time of day of each transaction or assignment is not relevant. What is relevant is settlement date. If on settlement date you have a debit balance that exceeds the liquidating equity you will be charged interest from settlement date to settlement date until those positions are closed.
Time of day of the transaction is important indeed , in my opinion , as the cash balance is settled at 17:00 pm .That is why I did the first question, if it is the same hour for all brokers. So depending of the hour of the transaction it will be taked in consideration or not in order to establish the settled cash balance at 17:00 pm . A transaction done at 18:00 will only be important to detrminate the next day settled cash. I 'm asking the same question. A transaction, in this case early asignment of puts and take delivery of stock, that occurs at 2:00 am of the 5 th Oct. can be accounted as done the day 4th Oct. at 16:00 pm ? It is a straight question now. thank you.
Hi I have to explain it more clearly and with more details . My fault, Robert Morse. Now let's take into consideration the settlment for stocks, trade day + 2 A very easy and simple single position. _ Wednesday day 1 , I sell 1 Spy put. During the day it goes itm . that night at 2:00 am EST I recieve an early assigment notice. It is the night between Wednesday and Thursday, but its technically Thursday. _ Thursday, day 2 , Due to the assignment I have to purchase 100 Spy. My cash balance becomes negative only at that moment, in the moment I receive the stock at 2:00 am . This transaction, the purchase of stocks, is a stock transaction so it will settled that day + 2. That is Thursday + 2 , so it will settle on Monday. My settled cash balance for that transaction will be negative only on monday. I won't pay interest during the weekend. It makes sense I think. Ok, my broker is doing a very very different thing.
It doesn't matter that you don't receive the assignment notice until Thursday in the early morning. It was exercised on Wednesday and settles on Friday. As you've noticed, this can leave you unexpectedly short cash with no chance to react (or short stock if you're assigned a call). That's part of the risk of being short an option. Some brokers allow you to trade stock with T+1 settlement to address this. For example: https://www.interactivebrokers.com/en/index.php?f=13437
Thank you @elt894 A very useful answer. I didn't know that IB offers T+1 settlement in certain equity securities. I will take a look. The problem , as you stated, is the no chance to react. _It is not only about the assignment notice, it's also about the transaction per se, it is realized on Thursday. For instance, first the Clearing House send to your broker the assignment orders, and then the broker assigns randomly to their clients. Until that moment you have not been assigned, and that moment occurs at night, on Thursday. I mean , that has to be legal, of course. I don't know the USA regulation. But at least is strange that a broker can account a transaction before that has been realized. Please any lawyer in the house? _But that is not all. Ok Let's assume that the broker has the right to do it. At what time will the broker consider that the transaction occurred ? My broker annotates the assignment as done at 16:20 on Wednesday. That is 10 hours earlier than the transaction really occurs. But at 16:20 the put holder maybe hasn't sent his early assignment order. And do you know why they do this ? Because they look at the settlement cash at 17:00. So, I pay interest for a whole day, for a transaction that they say happened 40 minutes before, but really will happen 10 hours later. You know what I mean. I think it is not fair, but I don't know if it's legal. If the broker would annotate the transaction as done at 17:20, I would not pay interest until the next day at 17:00 and I would be able to restore the short cash on the next morning. Please is the same procedure for all the industry? Thanks.
You're not paying interest for Wednesday or Thursday. The transaction settles Friday, and that's the first day that the cash leaves your account and you start paying interest. It's the same whether it is nominally booked as occurring on Wednesday or Thursday. This is standard across the industry. Look at it from the perspective of your counterparty. They exercised the option on Wednesday and expect to receive payment on Friday. If your broker had to float that payment for you it would open them up to arbitrages. Btw, the same goes for after hours trades. Even if you buy a stock at 20:00 on Wednesday, it still affects your settled cash balance on Friday.