Welcome to Clearance and Settlement: the unit that follows a trade from the confirmation the customer receives through to the close-out that runs when somebody fails to deliver.
Exam Weight: about 2 of the 50 scored items (CertFuel planning estimate; FINRA publishes weights only by function, and Function 2, Maintaining Books and Records, Trade Reporting and Clearance and Settlement, is 9 items / 18%)
What You'll Learn
In this unit, you'll cover:
- Confirmations: the SEC content list and its timing, the four moments that count as completion, and the five items FINRA adds on top: settlement date, callable equity, mark-up, a Trade Reporting and Compliance Engine web page reference and execution time
- Standard Settlement Time Frames for Various Products: the SEC cycle written as a ceiling on the contract, the delivery day each Uniform Practice Code contract type takes, and the separate clocks for options and when-issued contracts
- Ex-Dividend, Ex-Rights and Ex-Warrants Dates: who designates the date, and why a distribution of 25 percent or greater moves the anchor from the record date to the first business day following the payable date
- Clearing and Settling Facility and Corporate Debt Trades: the three routes to a registered clearing agency, the ex-clearing escape that needs both parties, and the carrying-member exception on corporate debt
- Options Clearing Corporation Assignment Procedure: how a trade reaches the clearing corporation, how the assignment wheel picks a clearing member, and how that member allocates the assignment to a customer
- Close-Out Requirements for Various Products: the buy-in notice clocks, the stay and extension branches, the liability notice route, reclamation windows, and the seller's sell-out
Why This Matters
Clearance and settlement is where a trading desk's errors become somebody's money. A confirmation that omits a required disclosure is a violation on its face, and a fail that is closed out on the wrong clock leaves the firm defending a price it cannot support.
The material is also unusually dense in dates and hours, and the exam uses that. Several rules print two different times for two different acts, and several print a proviso that reverses the result:
- Which day a contract type actually delivers, and whether an early tender is performance or an offer
- Whether a notice is due at noon or by 6:00 p.m., and which party it goes to
- When a close-out may run with no prior notice at all
- Which duties belong to the exchange, which to the clearing corporation, and which to the clearing member
Let's start with the confirmation, the first document a customer sees after a trade.