Quick Answer
The standard settlement cycle is T+1 (one business day after trade date). Regulation T gives cash-account customers until T+3 to pay, and freeriding triggers a 90-day cash-account freeze. Order tickets carry required fields, get principal review, and are kept three years. Buy limits and sell stops reduce on cash dividends; reverse splits cancel open orders.
The whole unit on one sheet: the settlement clock, the credit rules, the order ticket, the operational plumbing, and the traps the exam loves.
Core Concepts at a Glance
- Settlement cycle: T+1 (one business day after trade date) is the current standard under the standard-settlement-cycle rule. Equities, corporate and municipal bonds, Exchange-Traded Funds (ETFs), and mutual funds via Fund/SERV all settle T+1.
- Regulation T (Reg T): Federal Reserve Board rule on credit extension by broker-dealers (BDs). Cash-account payment period is T+3 (settlement plus two business days).
- Order ticket: created at or before order transmission, reviewed by a registered principal, kept 3 years (first 2 easily accessible).
- Uniform Practice Code (UPC): broker-to-broker operational plumbing (settlement date, good delivery, ex-dates, DK rejections). Not customer-facing duties.
- Open-order adjustment rule: corrects open orders for corporate actions before execution.
- NSCC systems: Fund/SERV (trading), Networking (reconciliation and dividends), ACATS (account transfers).
The One-Liners That Win Points
- T+1 is the current cycle. Any claim that T+2 is the standard is outdated (T+2 was the previous cycle).
- Reg T payment period = T+3 (settlement T+1 plus two business days). A "T+4 payment period" is outdated.
- Freeriding = selling a security before paying for it in a cash account. Consequence: a 90-day freeze.
- A "freeze" does not close the account; it removes the credit privilege, so the customer must pay in full on trade date for 90 calendar days.
- BLISS: Buy Limit and Sell Stop reduce on cash dividends; sell limits and buy stops do not.
- Forward split adjusts; reverse split cancels open orders entirely.
- Do Not Reduce (DNR) blocks cash-dividend reductions only; it does not block stock-split or stock-dividend adjustments.
- Fund/SERV is for trading; Networking is for reconciliation and dividends.
- Municipal securities are exempt from the standard-settlement-cycle rule but settle T+1 by convention.
- Symbol, account number, and price are examples, not the complete ticket.
Numbers to Lock In
| Item | Value |
|---|---|
| Standard settlement cycle | T+1 (one business day after trade date) |
| Reg T cash-account payment period | T+3 (settlement plus two business days) |
| Freeriding cash-account freeze | 90 calendar days (pay in full on trade date) |
| Mutual-fund redemption ceiling | 7 calendar days (Investment Company Act; operational practice T+1) |
| Order-ticket retention | 3 years (first 2 easily accessible) |
| Underwritten offering priced after 4:30 PM ET | T+2 unless parties agree otherwise |
| Cash-dividend de minimis (no adjustment) | less than $0.01 |
| Mutual-fund shares eligible as margin collateral | after 30 days from purchase |
| Variable-annuity principal review | within 7 business days after the customer signs |
Memory Aid: BLISS
Buy Limit / Sell Stop are the two order types the holder wants lower, so they get reduced on cash dividends to keep the original market relationship. Sell limits and buy stops sit above the market and stay put.
Top Gotchas
- Order tickets sit in the 3-year tier, not the 6-year customer-account tier. Do not conflate a ticket with a new-account form.
- As-of processing: a firm-caused mutual-fund error books at the originally-intended Net Asset Value (NAV); a customer-caused error reprices at the next NAV.
- Rounding depends on distribution type: stock distributions round the stock value UP; cash distributions round the reduced price DOWN.
- Unknown distributions: if the value cannot be determined, the firm may not adjust or execute without reconfirming the order with the customer.
- Wash TRADE vs. wash SALE: a wash trade (no change in beneficial ownership, done to fake activity) is a regulatory violation; a wash sale is the tax rule disallowing a loss when a substantially identical security is repurchased within 30 days.
- Manipulation turns on PURPOSE, not pattern. Legitimate accumulation at rising prices is not manipulation.
- The UPC governs broker-to-broker duties. A rep's duty to the customer flows from suitability, Regulation Best Interest, and the confirmation and best-execution rules, not the UPC.
- Municipal fund securities (529 plans, ABLE accounts) follow MSRB rules, not the FINRA UPC. Customer disputes point to the MSRB customer confirmation rule; dealer disputes point to the MSRB inter-dealer settlement rule.
- Series 6 reps cannot open or recommend margin accounts. Reg T reduces to payment period, freeriding, and the 90-day freeze.
One-Breath Recap
The settlement clock is T+1, so Reg T cash payment lands at T+3, and selling before you pay freezes the account for 90 days without closing it. Tickets are made up front, principal-reviewed, and kept three years; buy limits and sell stops reduce on cash dividends while reverse splits cancel open orders outright. Nail the settlement numbers and the BLISS rule and this unit answers itself.
Need more than the recap? This is a condensed summary. If it is not enough, read the full Transaction Processing and Settlement unit for the complete lesson.