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I was reminded the other day of the practice known as 'Cash & New'. This was very prevalent during the period when we had account trading as opposed to the current system of rolling settlement. The cost was cheaper then as stamp duty could be claimed back for 'closing' bargains. However it may still have its uses and I will therefore describe the process.

Some investors will be trading over a short period and be trying to avoid having to settle payment in full. To do this they extend the settlement from the default T+3 (Trade date plus three days for payment) to T+10, T+15 or even T+20.

These days the market makers will usually charge extra on the price but it means that the trade can be run for two weeks or more before payment is due. If the buy trade is then sold with a coinciding settlement the trader need only settle on balance. That is, take the profit or pay the loss. To get the settlement to coincide means you sell with a T date adjusted to match your purchase settlement date. For example, buying today (29th July) T+10 will give a settlement date of 12th August. This is business days so watch out for bank holidays. Now, as the settlement is rolling, tomorrow's T+10 settlement date will be 13th August so if we wanted the settlements to coincide we would have to sell T+9 and on Monday it would be T+8 and so on down to T+1.

As I say this is to legitimately avoid paying for the purchase in full. If you buy T+10 and sell a few days later, also T+10, you will have to pay for the purchase and then wait to get your proceeds for the sale back.

Onto the 'cash & new'

Again this is a legitimate process although you will be restricted to only do it one time in any particular stock. It is useful if you believe the share price will rise in the short term but this rise has not occurred during your settlement period - but you still think it will happen soon. The process is fairly expensive so should only be contemplated if you believe that the potential profit justifies the cost.

The day before the settlement date of your purchase (T+1) you place two orders, specifying that it is a 'cash & new'. One order will be to sell your shares T+1 (to close) and the other will be to buy the shares back for T+10. You are thereby rolling the settlement date over. Of course you will have to settle the difference on the first settlement.

The cost of the 'cash & new' should be cheaper than two unconnected trades. Although SDRT is not now claimable on a closing bargain (I suppose technically there is no such thing now as a 'closing' bargain) there should be savings on the 'closing' commission and the 'jobber’s turn' or 'spread'.

For example the trade that reminded me of this was 5000 shares with a market price of 75-80p. A sale and buyback would be 5000*75p (£3750, commission £69) and 5000*80p (£4000, £74+ £20). The same transactions as a 'cash & new' would be something like 5000*77p with nominal commission and 5000*77.75p. Note that the sale & buy back prices can be anywhere within the spread.

Of course, if your expectation of a rise in the share price does not happen then you have spent this extra money for nothing.

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