Introduction

Welcome to Settlement and Delivery: the mechanics of how securities transactions are completed after a trade is executed.

Exam Weight: Part of Function 4 (11% / ~14 questions)

Video Resources

Live 1-on-1 tutoring with Ken Finnen ↗


Live 1-on-1 tutoring with Dean Tinney ↗

What You'll Learn

In this unit, you'll cover:

  • Settlement Cycles: T+1 regular-way settlement under SEC Rule 15c6-1, security-specific timelines, and exemptions
  • When-Issued Securities: How securities trade before actual issuance and when settlement occurs
  • Ex-Dividend and Ex-Rights Dates: How dividend entitlement works under T+1, due bills, and automatic order adjustments
  • Good Delivery Requirements: What makes a stock or bond certificate acceptable for transfer of ownership
  • Book-Entry Securities and Registration: Depository Trust Company (DTC), National Securities Clearing Corporation (NSCC), street name vs. customer name, and the Direct Registration System
  • DVP/RVP Transactions: Delivery Versus Payment and Receive Versus Payment for institutional trades
  • Regulatory Trade Reporting: Trade Reporting and Compliance Engine (TRACE), Electronic Municipal Market Access (EMMA)/Real-Time Transaction Reporting System (RTRS), and Trade Reporting Facilities
  • Order Tickets and Confirmations: Required documentation for every transaction
  • Market Making Activities: Designated Market Makers (DMMs), quotation types, and principal vs. agency capacity
  • Settlement Failures and Close-Out Procedures: Buy-ins, sell-outs, Don't Know (DK) notices, and 90-day account freezes
  • Options Exercise and Assignment Settlement: How exercised options settle and Options Clearing Corporation (OCC) automatic exercise
  • Automated Execution Systems: Electronic trading and Alternative Trading Systems (ATS)

Why This Matters

Settlement is where every trade becomes final. Securities must be delivered and payment must be received. The exam tests your knowledge of specific timelines, good delivery rules, certificate requirements, failure procedures, and the distinction between reporting systems for different security types.

Let's start with the foundation: settlement cycles and when each security type must settle.