Apex Fintech Solutions, a custody and clearing firm to some of the most popular trading and wealth management companies, plans to send cash immediately to investors when they sell stocks, rather than waiting until a transaction settles.
Giving investors immediate access to their funds after they sell any U.S. equity securities will simulate an instant settlement process, Apex said in an announcement on Tuesday, but the company will still complete the standard settlement normally (which takes the trade date plus two business days).
The new service is expected to be available to all Apex clients in the third quarter. More than 200 companies, including Stash, SoFi, Betterment, and RIA technology company Altruist, use Apex. About 15 million end customers use it.
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Financial services firms are continuously marching toward more efficient transactions, like ATMs over bank tellers, credit and debit cards, and electronic payments services. Apex believes transactions related to investments are due for a shakeup.
“The required two-day settlement period for trading U.S. equities has lagged behind and by streamlining the delivery of cash following the sale of securities, Apex is creating yet another tool that simplifies and modernizes the investment process for end-users,” the company said in Tuesday’s announcement.
There is precedent for a better settlement process, according to Bill Capuzzi, CEO at Apex Fintech Solutions.
“The focus for Apex is real-time, removing all the friction from the system,” Capuzzi said in an interview with Bloomberg in March. “Think about the way a cryptocurrency executes and clears today, it’s real-time. So there is precedent out there, when you think about cryptocurrency, and it’s a safe, secure function.”
Doing the same for equities or options is challenging because financial services companies are using old technology and infrastructure, Capuzzi told Bloomberg. Capuzzi could not be reached Wednesday to comment further.
Active traders, especially during volatile markets, might like to sell stocks and have those funds immediately to invest elsewhere, but that is a minority of investors. “This isn’t going to have a large impact on the average retail investor but can be a differentiator among those trying to maximize their short-term investing power,” said Scott Smith, a director at Cerulli Associates, a Boston-based research and consulting firm.
The decision by Apex could goad other custody and clearing firms to make similar changes, according to Doug Fritz, a technology strategy consultant and CEO of Santa Cruz, Calif.-based F2 Strategy.
“It will put pressure on the big guys to follow!!” he said in an email.
However, investors can already transfer or withdraw cash right after a trade if they need using a margin account, which most custody and clearing firms support. “This is not necessarily a new feature, as margin accounts already automatically do this. A margin account essentially would be more efficient,” Steve Sanders, executive vice president of Marketing and Product Development at Interactive Brokers, said in a statement.
At Fidelity Investments, stocks and exchange-traded funds settle two business days after the trade date, and mutual funds and options settle one business day after.
Charles Schwab, TD Ameritrade could not be reached to comment on their respective trade settlement periods.
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.