T+1结算周期：理解证券交易的结算期限

T+1 settlement cycle: understanding the settlement period of securities transactions

T+1 (T+2, T+3) refers to the abbreviation of the settlement period of securities transactions. The "T" represents the trade day, which is the day the transaction occurs, and the numbers 1, 2, or 3 represent the number of days after the trade date for settlement, that is, the transfer of currency and security ownership.

Summary of key points

• T+1 (or T+2, T+3) is the abbreviation for the settlement date of the transaction.
• The letter "T" indicates the transaction day, and the numbers 1, 2 or 3 indicate the number of days after the transaction day for settlement.
• Stocks are T+1, while bonds, mutual funds and money market funds have different settlement periods, including T+1, T+2 and T+3.

Understand T+1 (T+2, T+3)

When determining the T+1 (T+2, T+3) settlement period, only the trading days when the stock market is open are calculated. For example, T+1 means that if the trade occurs on Monday, settlement must be completed on Tuesday. T+3, on the other hand, means that if a transaction occurs on a Monday, settlement must be completed on Thursday, provided there are no holidays between these days. But if a security with a T+3 settlement date is sold on a Friday, the transfer of ownership and funds must wait until the following Wednesday.

Knowing a stock's settlement date is important for investors or strategic traders who follow dividend-paying companies, as the settlement date determines which party receives the dividend. In other words, the transaction must settle before the dividend record date in order for the buyer of the stock to receive the dividend.

In the past, securities trading was done manually rather than electronically, with investors waiting for delivery of the security, which was a physical certificate, and not paying until it was received. Because delivery times can vary and prices can fluctuate, market regulators set time periods within which securities and cash must be delivered. For many years, the settlement date for stocks has traditionally been T+5, five business days after the trade date. Until recently, the settlement period was shortened to T+3, and in 2017 it was changed to T+2. In 2024, the stock settlement period is shortened to T+1.

Settlement dates vary depending on the type of security. Currently, all stocks are at T+1; however, bonds, mutual funds, and some money market funds may vary between T+1, T+2, and T+3.

Tip: The settlement date is the date the investor becomes the shareholder of record. Weekends and public holidays are not included in the number of days. Investors should be aware of the settlement date because it determines when they officially become the shareholder of record, which may affect their eligibility to receive dividends.

T+1 settlement cycle of stocks

In May 2024, the U.S. stock market will officially shift to the "T+1" settlement cycle, and securities transactions will be settled one working day after the trading day. The change, initially proposed by the Securities and Exchange Commission (SEC) in February 2023, will shorten the settlement cycle from the "T+2" standard since 2017. The last time the U.S. stock market had a one-day settlement cycle was about 100 years ago.

The new “T+1” settlement cycle applies to listed stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds and exchange-traded limited partnerships. Under the new rules, if an investor sells a stock on Monday, the trade will settle on Tuesday, meaning the securities are officially transferred to the buyer's account and the cash transfer to the seller's account occurs one business day after the trade date.

The SEC noted that as settlement cycles shorten, there may be a risk of "short-term incremental" unfilled trades that dealers will need to adjust to. In rare cases, investors may be required to deliver securities certificates to their brokers in advance or by other means, and investors purchasing securities may also be required to pay for the transaction one business day before the transaction. This change may also affect certain terms of the margin agreement, so investors should discuss with their broker any changes that may specifically affect their accounts.

The transition to the “T+1” settlement cycle also occurred in other regions, including Canada and Mexico, and was implemented on the same day. The changes are expected to bring the U.S. stock market into line with modern information and communications technology, allowing for faster settlement times.

Important: Please note that the time between trade and settlement does not mean that investors can exit the trade during this period. The transaction is completed on the transaction date, only the transfer has not yet occurred.

T+1 settlement example

Assume that on Monday, June 3, an investor named Sarah decides to sell 100 shares of Company XYZ stock at $50 per share. She places the order through her broker and the trade is completed that same day.

Under the "T+1" settlement cycle, the settlement date for this transaction is Tuesday, June 4 (assuming there are no holidays). This means:

If the transaction was conducted under the "T+2" settlement cycle, the settlement date would be Wednesday, June 5, so the transfer of securities and cash would be two business days after the trade date, rather than one.

History of U.S. Equity Settlement Cycles

A century ago, stock settlement was T+1, but it was all done manually. As interest in stock trading and the number of shares grows rapidly, so does the need to streamline the settlement process. The SEC initially set a standard settlement cycle of five business days (T+5) for most securities transactions to provide sufficient time for physical delivery of stock certificates and corresponding payments. This standard was revised to T+3 in 1993, shortening the mainstream settlement practice at the time. In 2017, the SEC shortened the standard settlement cycle from T+3 to T+2; and in 2024, it shortened from T+2 to T+1.

Are there any exceptions to the new "T+1" settlement cycle?

Yes, certain types of securities and transactions may be exempt from the “T+1” settlement cycle. For example, some major offerings, such as initial public offerings (IPOs), may have different settlement periods depending on the rules of the listing exchange. In addition, certain fixed income securities, such as U.S. Treasury securities and many money market instruments, are already settled on a "T+1" or even "T+0" basis (same-day settlement).

What is settlement risk?

Settlement risk refers to the possibility that one or more parties will fail to fulfill the terms of the contract within the agreed time. Settlement risk is a counterparty risk related to default risk and timing differences between parties. Settlement risk is also known as delivery risk or Herstatt risk. The time period between trade and settlement is designed to reduce settlement risk by ensuring that all parties have access to all information and payments.

Conclusion

The settlement period of securities transactions, abbreviated as T+1, T+2 or T+3, etc., refers to the number of days after the transaction day when actual settlement occurs. As of 2024, the U.S. stock market has moved to a T+1 settlement cycle, meaning that most stock trades are now settled one business day after the trade date. This change is intended to reduce settlement risk and align with modern technology and practices. However, it is important to note that certain securities and transactions may have different settlement periods across markets or regions.

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