Settlement Date

When you buy shares, the trade is agreed instantly, but the actual exchange of money and securities happens a short time later. That later date is the settlement date.

Settlement cycles are often described as "T plus" a number of days, where T is the trade date. Many major markets, including the United States, Canada and India, moved to T+1, meaning settlement one business day after the trade, and others have announced plans to follow. Some markets still use T+2, and some instruments, such as certain government bonds and foreign exchange trades, settle on different timetables.

For example, under T+1, shares bought on a Monday would settle on Tuesday. The buyer becomes the legal owner, and the seller receives the money, on Tuesday.

The settlement date matters for several reasons. It determines who is entitled to dividends, since ownership on the record date depends on settled trades. It affects when money from a sale becomes available to withdraw.

Shorter settlement cycles reduce the risk that one party fails to complete the trade, which is why regulators have pushed to shorten them.