Value points are the time frame between contract creation and payment completion, typically two days for spot transactions. Tomorrow value and T+0 transactions offer faster payment options.
Point of value is the common designation for the time frame that is generally used to describe the period between the creation of a contract and the actual payment remittance that completes the terms of the contract. Often used with spot transactions, value points allow the seller to arrange payment in the manner required by the seller and deliver payment within the agreed time frame. The typical value point is two calendar days from the date the transaction begins.
Spot value is considered the standard time frame for the successful completion of transactions involving a spot trade. Many financial institutions refer to a value point as a T+2 transaction. Basically, it is understood to be the trade date plus two additional days for completion.
Trading a spot security is often the preferred method of trading for investors and sellers dealing in spot trades. The two-day deadline provides sufficient time to allow for the preparation of all necessary documents to allow for the legal transfer of the assets involved in the trade. A value point also creates a time pocket for the buyer and seller to work out any details involving where documents should be delivered once the transaction is complete. At one time, the two-day turnaround was considered the most efficient way to complete a transaction. However, as the electronic transmission of documents and verification of relevant details have become easier to perform, more spot transactions are completed in less time.
Although the point of value is still the most common application for sending payments, there are other faster processes today. Some transactions are carried out with the understanding of what is known as a tomorrow value process. Tomorrow’s value simply means that if the transaction takes place before the market closes today, the full payment will be made before the market closes the next business day. Similarly, a T+0 transaction refers to a transaction that is initiated today and is paid in full before the market closes for the day.
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