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: when each security settles, who gets the dividend, what counts as good delivery, and the failure and reporting rules the exam loves.
Settlement Cycles: The Core
- 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: the only standard cycle longer than T+1.
- "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.
When-, As- and If-Issued Securities
- Trade before the security is actually issued (new muni issues, stock splits, 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.
The One-Liners That 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.
- A firm cannot act as both agent and principal in the same transaction.
- The registrar prevents over-issuance; the transfer agent handles actual ownership changes.
Numbers to Lock In
| 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 $5,000 only, all unpaid coupons attached |
| Trade reporting deadline (TRACE and RTRS) | No later than 15 minutes from execution |
| 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 |
| Close-out deadline | Not later than 10 business days after delivery was due |
| 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 |
Good Delivery Quick Hits
- Stock certificates: multiples of 100 shares, exact divisors of 100 (1, 2, 4, 5, 10, 20, 25, 50, 100), or combinations totaling 100. A 150-share certificate is NOT good delivery.
- All registered owners must sign; a certificate registered to a deceased person is not good delivery without proper 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 first.
Memory Aid: 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)
Memory Aid: 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.
Top Gotchas
- When-issued trades have NO settlement date; the answer is not T+1, it is "when the securities are actually issued."
- DVP/RVP is for institutional accounts with separate custodian banks, not retail accounts.
- TRACE does not cover municipal bonds or Treasury securities; munis go through RTRS/EMMA.
- The failing seller pays the difference if the buy-in price is higher; the buyer does not absorb it.
- The 90-day freeze does not stop trading; the customer can still buy but must deposit cash in advance.
- Assignment is random through the Options Clearing Corporation (OCC); OCC auto-exercises options in the money by $0.01 or more.
- A stock transaction from an exercise settles T+1 from the exercise date, not from the original option trade.
- Alternative Trading Systems (ATSs) register as broker-dealers, not exchanges, and file Form ATS; ECNs display orders, dark pools do not.
- 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 T+1, cash is same-day, and a late offering priced after the close is T+2. Under T+1 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 DVP and RVP 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? This is a condensed summary. If it is not enough, read the full Settlement and Delivery unit for the complete lesson.