When Can I Buy a GIC or Mutual Fund After I Sell a Stock in my BMO InvestorLine Self-Directed Account?

When you sell a stock in a self-directed brokerage account, such as a BMO InvestorLine account, the actual settlement date is 3 full trading days later. So, for example, if I sold a stock on a Thursday, and Friday, Monday and Tuesday are all normal trading days, the settlement will take place on Tuesday. So when can you buy a GIC or a mutual fund after you sell a stock in your InvestorLine account?


What is the Settlement Date?

Settlement is when my broker hands over the share certificates (admittedly electronically nowadays) and the other broker hands over the enormous sum of cash to pay for my shares. It dates back to the days of paper certificates which had to be physically moved from a secure location to the buyer.

So If I Want to Buy a GIC, How Long Do I Have to Wait After Selling a Stock?

When I sold some shares on a recent Thursday, to my surprise, the sale value showed up immediately in my “cash” listing with BMO InvestorLine. Being a suspicious sort, I emailed BMO and asked when I could actually use that money to buy a GIC.

BMO replied that I have to wait until at least Monday, 2 full business days after the trade.

The GIC purchase order would go in overnight to take place on Tuesday, and the settlement of my stock sale would also take place over that same night, so the cash would be in my account on Tuesday to pay for the GIC.

GICs, as you can see, settle one full business day after the purchase order is placed. Stock sales settle 3 full business days after the purchase or sale order is placed. Because these deadlines don’t line up, you have to be careful.

Being a naturally cautious person, I think I would wait till the Tuesday (the settlement date) to place a GIC order. Although if there was a super-incredible rate available, I guess I might test the system and place the order on the Monday, as suggested.

If I Want to Buy a Mutual Fund, How Long Do I Have to Wait After Selling a Stock?

Presumably, the BMO answer would be the same for a mutual fund. The order could be placed on the second of two full business days after the sale of the stock, since it would not be effective until the third business day after the sale. Again, as an ultra-conservative investor, I would likely wait till the third day itself to place the order.

If I Want to Buy Another Stock, How Long Do I Have to Wait After Selling the First Stock?

Stocks are easier. For either a purchase or a sale of a stock the settlement date is the trading date plus 3 trading days. So if you sold a stock and then bought another different stock later that same day, it would work, because the settlement dates would be the same day.

The Moral of the Story: Watch Out for Differing Settlement Dates!
I have a sneaking suspicion that these self-directed brokerage accounts have been set up so that they will not let you buy or sell unless your settlement dates line up. But I guess if you have the option (little financial pun there, catch it?!) to spend money you don’t have in your account (I believe that’s called working on “margin”) then it might let you put through a purchase when you don’t have the funds available yet from your sale. So make sure you know your dates will line up, and as the Sergeant used to say on Hill Street Blues “Be careful out there.”

High Interest Savings Account Saga Update
For those of you curious about my High Interest Savings Account saga, I’m making progress slowly. I sold some stock last week. This week (after the settlement date!) I’m trying to invest $25,001 in the Dundee High Interest Savings Account offered by ScotiaBank. I’ll keep you posted on developments.

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Have you ever ended up buying something with money you didn’t have in your self-directed brokerage account? Did it turn out Happily Ever After, or did you get burned with an unexpected fee? Please share your experiences with a comment.

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