Quick Answer
Regular way generally settles T+1; cash settles 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 simultaneously. A fail keeps the trade binding.
Settlement timing, dividend entitlement, good delivery, and reporting in one sheet.
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.
- First-coupon interest accrues from the dated date, not the trade date, up to but excluding settlement. Only the final dollar amount waits for the settlement date to be 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 Collect 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 corporate bond delivery | $1,000 multiples or $100 multiples totaling $1,000; no certificate above $100,000 |
| 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) | Firm buys in immediately once 10 business days pass without delivery (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": buy limit and sell stop orders are reduced on the ex-date; buy stop and sell limit are not. "Do Not Reduce" (DNR) orders skip the cash-dividend adjustment. Reverse splits cancel all open orders.
Which Gotchas Trip Students Up?
- DVP/RVP is for institutional accounts with custodian banks, not retail accounts.
- The Trade Reporting and Compliance Engine (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; a National Market System (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.