What Happens After You Sell Your Shares on the Stock Market? Understanding the Settlement Process

When you sell shares on the stock market, the transaction may seem complete once you see the proceeds in your account, but there's more going on behind the scenes. 

The process of finalizing a stock sale is known as settlement. Understanding this process can help you manage expectations and ensure you’re informed about when you can access your funds.

What is the Settlement Process?

The settlement process refers to the series of actions that occur after a trade is executed to transfer ownership of the shares and settle the financial transaction.

It involves the delivery of the securities (the shares you sold) to the buyer and the transfer of cash (the sale price minus fees and commissions) to the seller.

The settlement period for a trade is required to occur two business days after the day a trade takes place. This change occurred in 2016 and impacted all financial products on the securities market in Australia. 

A faster settlement means a broker has quicker access to their money after selling shares and an earlier delivery after purchasing shares. This keeps the ASX globally competitive, reducing risk and improving efficiencies in the securities market.

Steps in the Settlement Process

1. Trade Execution: When you place an order to sell shares, the trade is executed at the prevailing market price, and your broker confirms the sale.
2. Trade Clearing: After execution, the trade goes through a process called clearing, where the details are confirmed, and both the buyer and seller’s brokerages agree on the terms of the transaction. The clearing is handled by a clearinghouse, which ensures that both sides have the necessary funds or securities.
3. Transfer of Securities and Funds: Once the trade is cleared, the shares are transferred from your account to the buyer's account, and the payment (minus transaction fees) is transferred to your brokerage account.
4. Settlement Finalization: The final step occurs when the transfer is officially recorded in the market's system, and both parties fulfill their obligations. At this point, the sale is fully settled, and you are free to withdraw or reinvest your funds.

Why Does Settlement Take Time?

Through its two-day settlement window, it allows for the necessary time for the transfer and reconciliation of securities so as to minimize the risk of errors and fraud. Also, as a kind of tourist tax, this design accommodates the various time zone, clearing process, and administrative checks. There are markets that have different settlement periods from T+2, which is often a norm in global markets.

To sell ASX-listed shared in Australia you will need a broker or broking service to execute the trade for you. Share Sales Direct offers a online solution to sell issuer-sponsored shares with an SRN without having to open a trading account.

What are the benefits of ASX’s Settlement Process?

• Full control: Investors can choose to have their holdings registered either on the Clearing House electronic sub-register system (CHESS) subregister or on the issue-sponsored subregister. With CHESS, investors hold securities in their own name, enabling them to retain legal title to their holdings, allowing full portability of assets.
• A consolidated view: All of an investor’s broker-sponsored holdings are consolidated under one holder identification number (HIN), providing a consolidated view of their portfolio.
• Standardised holding statements: investors receive monthly holding statements notifying them of any changes to their holdings on the CHESS subregister.
• Ease of administration: When an investor’s address or other details change, they may only need to notify their sponsoring broker (or brokers).
• Ready to trade: Securities held on CHESS are ready to trade at any time during trading hours, removing the need to move shares from an issuer-sponsored account onto CHESS.

Conclusion

Though the sale of shares might initially seem simple, the settlement process ensures how that transaction is safely and precisely finalized. Once they have understood how this works, investors can better handle their expectations in trading knowing that within the settlement period, money and stocks are already being transferred.