Settlement

Settlement ## What Is Settlement? Settlement is the process by which a securities transaction is finalized -- the buyer pays for the securities and the seller delivers them. The trade date is when the transaction is agreed upon (T). The settlement date is when the actual exchange of money and securities occurs. The period between trade date and settlement date exists because securities markets process millions of transactions daily. Settlement infrastructure (DTCC -- the Depository Trust & Clearing Corporation) nets, clears, and settles these transactions in a centralized process. --- ## T+1 Settlement: The New Standard As of May 28, 2024, the SEC moved U.S. equity markets to T+1 settlement (from the previous T+2 standard). This means: Equities (stocks, ETFs, REITs): Settle T+1 -- one business day after the trade date. - Trade on Monday? Settle Tuesday. - Trade on Friday? Settle Monday. Corporate bonds: T+1 Municipal bonds: T+1 (effective 2024) U.S. Treasury securities (bills, notes, bonds): T+1 Options: T+1 (the premium/position) Options exercise/assignment: Same day (T+0) Government agency securities (FNMA, FHLMC): T+1 Mutual funds: Next business day for most purchases/redemptions --- ## Ex-Dividend Date Mechanics Under T+1 The ex-dividend date is the cutoff date to be eligible to receive a declared dividend. Under T+1 settlement, to receive a dividend you must own the shares BY the ex-dividend date (i.e., purchase the shares ON or before the ex-date). Timeline: - Declaration date: Board declares the dividend - Ex-dividend date: First day the stock trades WITHOUT the right to receive the dividend - Record date: Company identifies shareholders of record (typically T+1 after ex-date) - Payment date: Dividend is distributed If you buy the stock ON the ex-dividend date or…