Quick Answer
Almost everything settles regular way at T+1 (one business day after the trade date); cash trades settle same day (T+0). Under T+1, the ex-dividend date equals the record date. Delivery Versus Payment (DVP) and Receive Versus Payment (RVP) exchange securities and cash at the same instant, and a fail keeps the trade binding.
The whole unit on one sheet: settlement timing, dividend entitlement, good delivery, and failure and reporting rules.
What Are the Settlement Cycles?
- Regular way = T+1 (one business day after the trade date) for stocks, corporate bonds, municipal bonds, ETFs, options, U.S. government securities, and mutual fund shares.
- Cash trades = T+0 (same day): the only cycle shorter than regular way.
- Firm commitment offerings priced after 4:30 PM ET = T+2, for issuer-to-underwriter and initial-purchaser sales only.
- "T" is always the trade date; weekends and market holidays are not business days.
- Government and municipal securities are technically exempt from the federal T+1 rule but still settle T+1 by market convention.
How Do When-, As-, and If-Issued Securities Settle?
- Trade before the security is actually issued (new muni issues, new corporate offerings), with no set settlement date.
- Settlement is fixed only after issuance; if the issue is cancelled, all when-issued trades cancel.
- No accrued interest is calculated until the settlement date is established.
Which One-Liners Win Points?
- Under T+1, the ex-dividend date equals the record date; buy before the ex-date to get the dividend.
- On the ex-date, the stock opens with its price reduced by the dividend amount.
- DVP = buyer's view; RVP = seller's view of the same simultaneous exchange. DVP is also called Cash on Delivery (COD).
- Cede & Co. is the single nominee name for the Depository Trust Company (DTC), not a separate company.
- DTC holds and immobilizes securities (depository); the National Securities Clearing Corporation (NSCC) nets and clears (central counterparty). Both are subsidiaries of the Depository Trust & Clearing Corporation (DTCC).
- A fail does not cancel the trade; the contract stays binding, and the remedy is a buy-in or sell-out.
- The registrar prevents over-issuance; the transfer agent handles actual ownership changes.
Which Numbers Matter Most?
| Item | Value |
|---|---|
| Regular-way settlement | T+1 (one business day) |
| Cash trade settlement | T+0 (same day) |
| Firm commitment priced after 4:30 PM ET | T+2 |
| Ex-dividend date under T+1 | Same day as record date |
| Order adjustment threshold (cash dividend) | $0.01 or more |
| Registered bond delivery | Multiples of $1,000 par, up to $100,000 max |
| Bearer bond denominations | $1,000, or $100 multiples totaling $1,000; coupons attached |
| Trade reporting deadline (TRACE and RTRS) | No later than 15 minutes from execution; Treasuries get 60 minutes |
| Earliest buy-in execution | 3 business days after delivery was due |
| Buy-in written notice | By 12:00 PM ET, at least 2 business days before execution |
| Customer buy-in (customer protection rule) | Buy in a customer's undelivered long sale within 10 business days (suspended for govt/muni) |
| Cash-account outside payment deadline | T+3 (settlement + 2 business days) |
| Account freeze after liquidation | 90 days |
| Options automatic exercise threshold | In the money by $0.01 or more |
What Counts as Good Delivery?
- Stock certificates: multiples of 100 shares, exact divisors of 100 (1, 2, 4, 5, 10, 20, 25, 50, 100), or combinations totaling 100.
- All registered owners must sign; a certificate registered to a deceased person is not good delivery without legal documents.
- A stock power (or bond power) may stand in for endorsing the certificate; a Medallion signature guarantee is typically required.
- Bearer bonds need all unpaid coupons attached; mutilated certificates must be validated by the transfer agent.
What Is the Memory Aid for the Reporting Systems?
- TRACE = Trading corporate bonds (also agency debt and asset-backed securities), operated by FINRA
- MSRB/EMMA = Municipal bonds (dealers report through RTRS, which feeds the free public EMMA site)
- TRF = sTocks (equities) traded over-the-counter (off-exchange listed stocks)
What Is the Memory Aid for Order Reductions on the Ex-Date?
"Reduce below": only open orders placed BELOW the current market are reduced on the ex-date. Buy limit and sell stop are reduced; buy stop and sell limit are not. "Do Not Reduce" (DNR) orders skip the cash-dividend adjustment. Reverse splits cancel all open orders entirely.
Which Gotchas Trip Students Up?
- DVP/RVP is for institutional accounts with custodian banks, not retail accounts.
- TRACE does not cover municipal bonds or equities; U.S. Treasuries ARE reported to TRACE but not disseminated in real time.
- The failing seller pays the difference if the buy-in price is higher.
- The 90-day freeze does not stop trading; the customer can still buy with cash upfront.
- Assignment is random through the Options Clearing Corporation (OCC).
- A stock transaction from an exercise settles T+1 from the exercise date, not the original option trade.
- Alternative Trading Systems (ATSs) register as broker-dealers, not exchanges; an NMS Stock ATS files Form ATS-N, others file Form ATS.
- Confirmations must be sent by settlement date and disclose whether the firm acted as agent (commission) or principal (markup/markdown).
One-Breath Recap
Regular way is trade date plus one business day, cash is same-day, and a late offering priced after the close is trade date plus two. Under the one-day cycle the ex-date and record date fall on the same day, so buy before the ex-date to collect the dividend. Know good delivery, the delivery-versus-payment and receive-versus-payment simultaneous exchange, which system reports which security, and that a fail keeps the trade binding, and this unit answers itself.
Need more than the recap? Read the full Settlement and Delivery unit.