Lesson 8 of 25 · 6 min

Same-day, next-day, and no-day cures

The deadline changes who chooses the securities and the price, and changes the arithmetic not at all.

Three deadlines appear in practice and they are usually discussed as though they differ in severity. They differ in something more specific: who executes, at what price, and whether settlement can possibly keep up.

Hold the arithmetic fixed so the comparison is clean. Collateral value $742,000, threshold 64 percent, permitted balance $474,880, balance $502,480, shortfall $27,600. A cure by sale requires $27,600 ÷ 0.36 = $76,666.67 in every one of the three regimes, because the multiple depends on the threshold and not on the deadline.

What the three deadlines actually change:

Same-day: satisfaction is required before a cut-off, often 16:00 or earlier. Outside cash can arrive by wire; proceeds of a sale generally cannot, because they settle the following business day.
Next-day: one business day, which is enough for a sale to be executed and settled, and enough for prices to move again before either happens.
No-day: the lender sells when it decides to, at 10:12 the next morning or during the same session, choosing the holdings itself.

The same-day case contains a trap that is structural rather than unfair. A same-day cash cure is achievable if the cash exists outside the pledge. A same-day cure funded by selling pledged collateral is generally not achievable, because the sale produces settled cash tomorrow, not today. Whether the lender credits unsettled proceeds against the balance is a matter of its own operational policy, and where it does not, the deadline cannot be met by the route the borrower has available.

Under a no-day regime the arithmetic is identical and the execution is not. The lender picks the holdings, the hour and the order type, and it is sizing the sale from its own figure computed overnight rather than from a live one.

Key terms

Cut-off: The hour by which an action counts as happening today. Missing it by minutes moves the action to the next business day.
Unsettled proceeds: Cash from a sale that has been executed but not yet settled. Whether it counts against the balance today is a lender policy, not a market fact.
No-day cure: A regime with no stated period, in which the lender may sell pledged collateral at a time of its own choosing.

Worked example

One shortfall under three deadlines

Collateral value $742,000, threshold 64 percent, balance $502,480.

Shortfall: $27,600
Sale required, same-day: $76,666.67
Sale required, next-day: $76,666.67
Sale required, no-day: $76,666.67
What differs: Who executes, and at which day's prices

The deadline moved the price and the decision-maker. It did not move the $76,666.67.

Check yourself

A shortfall of $27,600 arises at a 64 percent threshold. Does a same-day deadline require a larger cure than a next-day deadline?

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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.