Selling settlement: What do T+1, T+2, and T+3 Mean?

Whenever you buy or sell stocks, bonds, exchange-traded funds, or mutual funds, there are two important dates to know: transaction date and selling settlement date. “T” is the transaction date. The abbreviations T+1, T +2, and T+3 refer to the settlement date of securities transactions that occurred on the transaction date plus 1, 2, and 3 days, respectively.

As the name implies, the transaction date represents the date when the actual transaction occurred. For example, if you buy 100 shares today, today is the trading date. The date will not change because it will always be the date you made the transaction.

Key points

  • To clear the transfer of securities from the seller to the buyer, the securities must go through a settlement process, which creates a delay between the time of the transaction (“T”) and the time of settlement.
  • Historically, stock transactions can take up to five business days (T+5) to complete the transaction.
  • Nowadays, with the development of technology and electronic trading, most stock transactions are settled within two working days (T+2).

However, the settlement date is a bit cumbersome because it represents the time when the ownership transfers. It is important to understand that this does not always happen on the transaction date and will vary depending on the type of security. For example, Treasury bills are one of the few securities that can be traded and settled on the same day.

Why delay actual selling settlement?

In the past, secure transactions were done manually, rather than electronically. Investors will wait for specific securities to be delivered in the form of actual certificates and pay after receiving the certificates.

Since delivery times may vary, and prices will always fluctuate, market regulators have set a certain period within which securities and cash must be delivered. A few years ago, the selling settlement date for stocks was T+5 or five working days after the transaction date.

Until recently, the settlement time was set at T+3. Today is T+2 or two business days after the transaction date.

When do you actually own the stock or get the money?

Selling settlement What do T+1, T+2, and T+3 Mean

If you buy (or sell) T+2 settlement securities on Monday, and we assume that there are no holidays in the week, the selling settlement date will be Wednesday, not Tuesday. the ‘T’ or transaction date is counted as a separate date. Not every security has the same settlement period.

Currently, all stocks and most mutual funds are T+2. However, bonds and certain money market funds will vary between T+1, T+2, and T+3. If you buy shares of Microsoft (MSFT) on Friday, June 2, and your broker will deduct the total cost of the investment from your account immediately after the order is executed, your status as a Microsoft shareholder will not be The company’s stock is resolved.

Keep records before June 6 (Tuesday). Therefore, the settlement date is the date when you become a shareholder of record. Please note that weekends and public holidays are not included. In this case, if Monday is a public holiday, the settlement date is Wednesday, June 7.

Knowing the settlement date of the stock is also important for investors or strategic traders who are interested in dividend payment companies because the settlement date can determine which party receives the dividend. In other words, the transaction must be settled before the dividend record date for stock buyers to receive the dividend.

How do you Manage Risk in an upside down world?

Almost all the developments this year have impacted almost every aspect of personal and business life since the coronavirus outbreak and the resulting global economic recession. The world of online trading is no different, with financial markets volatile.

While there have been numerous geopolitical uncertainties in the global market on a roller coaster, the market volatility we have experienced since March is undeniably different from any time before. 

For the online trading environment, the rise of volatility has proved enticing to those who want to benefit from it, this is also a tough time.

However, because the chance for more gains also brings the chance of loss, how will the online trading environment shift in 2020 and how can retail investors remain secure?

With CME Group, you can trade all investable asset classes, optimize them throughout the trading cycle, and use industry-leading data solutions to analyze performance. Learn more about why CME Group has become the world’s leading derivatives market and get started now.