Escaping the T+2 settlement cycle

[TaranveerSingh]

So I’m a resident Indian and Interactive brokers would allow me to use just the cash segment.
I intend to use a rotational system in 2-3 trenches.
In rotational systems, 100% of your capital can be expected to be employed frequently. Now IB is saying that if my capital is indeed employed in cash stocks, I can’t sell 3 and buy another 3 for the same amount as it’d need a T+2 cycle for the freed up capital to reflect in my account.

Has anyone else dealt with this already? Kindly share your suggestions?

[Nick Radge]

I don’t think Trent uses margin, so he might know.

[GlenPeake]

I have a cash account and thus far, I haven’t hit any hurdles regarding T+2 settlement…. and I’m constantly getting in and out of positions via my MRV systems.

That said, I don’t think I’ve had a period whereby I’m 100% invested in my MRV strategies and 100% Rotational strategies all at the same moment. So that could be masking any/the T+2 settlement scenario…. however I’m always able to place 100% of my MRV orders, which requires having the necessary cash in your account prior etc.

As an example, there have been a few occasions where I’ve sold 90-100% of my MRV holdings at market OPEN and placed the necessary new BUY orders for the next round of MRV trades shortly after and I’ve not had issues (this could’ve/would’ve triggered any T+2 settlement issues….. at least I think it would)…. but the situation might be being negated slightly if some of my MRV positions were being held for a few days e.g. 3-4 days etc….

I’ll keep an eye on it in the future and report back if I experience anything related…. but so far all OK. (I also have a little bit of spare cash maybe 1% or 2% in the account as a buffer/overflow, which might be having a positive effect around the T+2 scenario).

Just reading through the IB website, maybe the Exchange / Stocks / other instruments being traded can also play a role in the T+2 scenario…. i.e. US Stocks might be different to another country etc….. maybe that’s something to double check….additionally how your residency might/might not affect T+2 etc

[TrentRothall]

As Glen said, I haven’t had any issues and by the sounds Glen’s setup is the same as mine.

[JulianCohen]

My guess is that if you place sell orders and also buy orders to replace the stocks you are selling at the same time, they won’t allow it, as they will incorrectly read you as trying to use leverage.

If you physically sell the existing positions on the open and then place buy orders at market, then you will probably be OK. As they will see the position as closed and then a new order coming in. You will get some slippage, but in the long run it will all be negligable.

[Nick Radge]

You could exit positions on open then place the new buys using a Good After Time (GAT) order. Set that for a few minutes after open.

https://www1.interactivebrokers.com/en/index.php?f=587

[GlenPeake]

Julian Cohen wrote:

My guess is that if you place sell orders and also buy orders to replace the stocks you are selling at the same time, they won’t allow it, as they will incorrectly read you as trying to use leverage.

If you physically sell the existing positions on the open and then place buy orders at market, then you will probably be OK. As they will see the position as closed and then a new order coming in. You will get some slippage, but in the long run it will all be negligable.

Yep…. I think Julian makes a solid point here…. something to double check….

I get around this issue by using the API to BUY new positions after my existing SELL orders are filled…. more details in the following thread(s) here

Cash Account Usage

API Screen Shot

More Details

[TaranveerSingh]

Glen Peake wrote:

there have been a few occasions where I’ve sold 90-100% of my MRV holdings at market OPEN and placed the necessary new BUY orders for the next round of MRV trades shortly after and I’ve not had issues (this could’ve/would’ve triggered any T+2 settlement issues….. at least I think it would)….

Ya I’d assume one would face a problem here itself if it were to happen.

Glen Peake wrote:

I’ll keep an eye on it in the future and report back if I experience anything related…. but so far all OK. (I also have a little bit of spare cash maybe 1% or 2% in the account as a buffer/overflow, which might be having a positive effect around the T+2 scenario).

I’ll keep that in mind.

Glen Peake wrote:

additionally how your residency might/might not affect T+2 etc

Yes that could be the case. I’ll just check again with them. Might just be this.

[TaranveerSingh]

Julian Cohen wrote:

My guess is that if you place sell orders and also buy orders to replace the stocks you are selling at the same time, they won’t allow it, as they will incorrectly read you as trying to use leverage.

If you physically sell the existing positions on the open and then place buy orders at market, then you will probably be OK. As they will see the position as closed and then a new order coming in. You will get some slippage, but in the long run it will all be negligable.

Thanks for specifying the scenarios. I had described (correctly I hope) the second scenario to the IB rep. I’ll be placing the orders physically and only after closing the current positions. Let’s see what they say. As Glen said, my tax residency could be a factor.

[TaranveerSingh]

Nick Radge wrote:

You could exit positions on open then place the new buys using a Good After Time (GAT) order. Set that for a few minutes after open.

https://www1.interactivebrokers.com/en/index.php?f=587

This should help if it’s permitted. So that’d be an MOO order to close positions and GAT to initiate?

[TaranveerSingh]

Glen Peake wrote:

I get around this issue by using the API to BUY new positions after my existing SELL orders are filled…. more details in the following thread(s) here

Thanks a bunch Glen. Once IB approves that I could do it by physically placing orders (which seems to be the issue), an API would really help.

Could you please point me to a relevant thread to know how API works in conjunction with IB? I’m an absolute muggle here.

[TaranveerSingh]

IB rep –
“If you do not intend to close the fresh position created out of sale proceeds received before the settlement period of the original trade then it should *not* be a problem. This is because Free riding restrictions are applicable. Accounts which have been set up as a ‘Cash’ type do not have access to the proceeds from the sale of securities until such time the transaction has settled at the clearinghouse and proceeds have been issued to IB. Securities settlement generally takes place on the second business day following the sale transaction. Providing access to the funds prior to settlement would constitute a loan, a transaction which is precluded from taking place within this account type. The one exception is under the Free-Riding rule. Clients with a cash account can use the proceeds from the sale of a security to purchase a different security under the condition that the second security is held until settlement of the initial sale. If the client sells the second security prior to settlement of the initial trade, they will be in violation of the Free-Riding rule and will be locked for 90 days from utilizing this exception.”

That explains it. Shouldn’t be a problem in any kind of rotational strategy.

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