Who is Responsible / Liable?

[Jetheat]

I have a technical question regarding settlement date which I suppose requires a deeper understanding of the way the system works.

I want to know, if I buy a share on a particular day, will I become liable for the bought shares immediately or will I only become liable for those shares after the settlement date?

Conversely, if I sell shares on a particular day, will I hand over the liability of the shares (responsibility of the shares/stocks) immediately or will I retain liability of the stock until the settlement day?

By liability, I mean, If something were to happen to the shares, who would be responsible?

I know that ownership changes hands after the settlement date, but I specifically want to know about the liability/responsibility of the shares. Will that be transferred immediately or only after the settlement date?

JH

 

[tomorton]

Long time since I bought and sold shares but the system is (was?) as follows - at least with my brokerage.

As soon as the buy order is executed you own the shares. I don't mean when you placed the order to your broker, its when the broker executed your order to them to buy the shares for you. The time difference between order and execution should be virtually zero and its really just a technicality.

The settlement date is the date on which the money for the purchase is drawn by your broker. Some accounts have a set settlement date, perhaps 3 days after the order is executed - this was always referred to as T3. Some accounts allow you to specify the settlement period - so I could select either T3 or T10, which was 10 days later.

You own the shares as soon as your order is executed by your broker.

PS:
On many occasions when running share trades on T10 I had sold the shares before the T10 settlement date, and bought others with the money and sold them too before any capital was drawn from my account. Not sure I would recommend this to a new trader as normal practice..............

 

[barjon]

PS:
On many occasions when running share trades on T10 I had sold the shares before the T10 settlement date, and bought others with the money and sold them too before any capital was drawn from my account. Not sure I would recommend this to a new trader as normal practice..............

oh, come on Tomo, it’s likely how lots of us started when we had no money!! Mind you, the commissions in those days were horrendous.

 

[Jetheat]

Thanks, so if I sell shares today to a buyer, who is responsible for those shares as soon as I sell them? Would it still be me (until the settlement date) or would the buyer be responsible immediately after execution?

JH

 

[postman]

oh, come on Tomo, it’s likely how lots of us started when we had no money!! Mind you, the commissions in those days were horrendous.

And if you bought AND sold the shares within the T+10 period you didnt need to hand over the cash! Ahh that takes me back a few years (oops decades).

 

[postman]

Thanks, so if I sell shares today to a buyer, who is responsible for those shares as soon as I sell them? Would it still be me (until the settlement date) or would the buyer be responsible immediately after execution?

JH

As soon as you sell the shares they are no longer yours. You dont get the dividends and you are not 'responsible' for them.

 

[Jetheat]

Does the buyer take responsibility as soon as I sell them?

btw, is there an official body or text on this which can confirm this transfer of liability anywhere?

JH

 

[tomorton]

You keep using words like responsibility and liability, associated with owning shares.

As far as I can think the only responsibility to owning shares is from the tax office when you buy or sell them. In the UK, the buyer pays Stamp Duty, calculated as a percentage of the purchase price. The owner might have to pay Capital Gains Tax, based on a percentage of the profit difference between the purchase price and the selling price, when he sells them.

Other countries / states have different requirements and tax liabilities also vary depending on what type of shares are bought, how long they are retained etc. so check locally. Start with your broker.

 

[postman]

Does the buyer take responsibility as soon as I sell them?

btw, is there an official body or text on this which can confirm this transfer of liability anywhere?

JH

Which exchange did you use.

 

[Jetheat]

I haven't started trading yet. I am looking into the technicalities to see if they comply with religious laws.
The religious law says that you can't sell something which you do not own.

Thus, if you buy shares today, and it settles 3 days later, I can't sell it within the 3 days.

However, if the liability and responsibility of those shares transfers to me straight after the execution (without having to wait until settlement day), then the law would allow me to resell those shares (as long as I have become responsible for those shares/stocks (also known as constructive possession) ).

Hope this makes sense.

JH

 

[tomorton]

I haven't started trading yet. I am looking into the technicalities to see if they comply with religious laws.
The religious law says that you can't sell something which you do not own.

Thus, if you buy shares today, and it settles 3 days later, I can't sell it within the 3 days.

However, if the liability and responsibility of those shares transfers to me straight after the execution (without having to wait until settlement day), then the law would allow me to resell those shares (as long as I have become responsible for those shares/stocks (also known as constructive possession) ).

Hope this makes sense.

JH

Yes this makes sense. As soon as your broker executes your buy order, you own the shares. You can sell them immediately if you wish, that is your right.

The settlement date can be whatever you agree with the broker, it does not affect your ownership.

 

[Jetheat]

That's great to learn.
Is it different with every broker or is there a central body which states that this is what happens?

JH

 

[postman]

I haven't started trading yet. I am looking into the technicalities to see if they comply with religious laws.
The religious law says that you can't sell something which you do not own.

Thus, if you buy shares today, and it settles 3 days later, I can't sell it within the 3 days.

However, if the liability and responsibility of those shares transfers to me straight after the execution (without having to wait until settlement day), then the law would allow me to resell those shares (as long as I have become responsible for those shares/stocks (also known as constructive possession) ).

Hope this makes sense.

JH

Context generally does make things easier to understand.
I dont know who your trying to convince that its ok but once you buy the shares you cant back out, they are yours you just havent paid for them yet, and once you sell you get the money the trade cant be reversed.
Shria law has been bent (not broken) to allow mortgage lending and there are plenty of Islamic banks that buy and sell shares.
The key part about this is "You havent paid for them yet" so if you sell them before settlement you are trading on credit which is haram.
If you are strict, day trading is not for you in my non imam opinion.

 

[Jetheat]

If you cant back out because they are yours, what happens if you don't end up paying for them?
Whose shares are they?
If they are yours, how are they yours if you haven't paid?

JH

 

[postman]

If you cant back out because they are yours, what happens if you don't end up paying for them?
Whose shares are they?
If they are yours, how are they yours if you haven't paid?

JH

If you cant back out because they are yours, what happens if you don't end up paying for them?
If you dont pay for something you bought they send in the creditors like anyone else.

If they are yours, how are they yours if you haven't paid?
I'm making an assumption you're a young chap, - when us oldies buy a house we exchange contracts, that is a commitment to buy and sell, if you dont pay you can and will be sued. Generally a deposit is paid and if you fail to complete you will lose that money (they try to take 10% but if you've done a lot of business with them that can be overlooked).

Buying shares is the same thing, you enter an agreement to take possession of something.

 

[tomorton]

If you cant back out because they are yours, what happens if you don't end up paying for them?
Whose shares are they?
If they are yours, how are they yours if you haven't paid?

JH

If you have a standard account the broker "holds" the shares for you. If you fail to settle by the due date, they will be legally entitled to sell some or all of the shares to meet your settlement costs. Even after the settlement date, they continue to "hold" the shares for you.

 

[Jetheat]

ok, so if you sell your shares, then ownership and responsibility and liability is transferred to the buyer immediately right?
That means, if anything happens, the buyer has to bear the cost of whatever mishap has occurred.
Is that correct?

If this is so, then day trading should be permissible according to religious law because liability has been transferred as soon as you buy or sell, thus allowing you to transact with the same shares on the same day without having to wait until settlement day.

Would you concur?

JH

 

[postman]

ok, so if you sell your shares, ...

Your delving into deep religious debates about whether trading within the settlement period violates Sharia law, I'm not sure anyone on here is that qualified to give you an answer.
Here is someone who has attempted to reconcile trading with his faith and a web site that explains how a "mortgage" can be obtained.

https://uaelaws.files.wordpress.com/2012/06/delorenzo-copy.pdf

Guidance Residential

Guidance Residential is the largest U.S. provider of Shariah compliant home financing has provided over $6.0 billion in home financing to American Muslim hom...

www.youtube.com

 

[Jetheat]

I'm not looking for a religious verdict. I'm just looking for the technical explanation so then I can explain that process to someone who is religiously qualified to make a decision.

This is why I want to know about liability and responsibility of the shares/stocks straight after buying or selling.

JH

 

[postman]

I'm not looking for a religious verdict. I'm just looking for the technical explanation so then I can explain that process to someone who is religiously qualified to make a decision.

This is why I want to know about liability and responsibility of the shares/stocks straight after buying or selling.

JH

Your question was asked and answer here 4 years ago.

Buying shares and selling them on same day

I trade in the stock market I follow the sharia rules in choosing companies while buying stocks I have read on your website or somewhere else that buying and selling in the same day intraday trading is similar to gambling and is thus prohibited as there is a common fact that one cannot sell what...

www.islamweb.net

If you want a religious person to 'authorise' your trading to salve your conscience that's up to you, but everyone on here knows that daytrading IS gambling. There is no way you can predict short term movements in shares, there are too many variables and it involves humans which are unpredictable. We are just trying to trade when the 'odds' are in our favour.