Quick Answer
Regular-way settlement is T+1 (one business day after trade date) for almost every security type. The two exceptions are cash trades, which settle same day (T+0), and firm-commitment offerings priced after 4:30 PM ET, which settle T+2. Government and municipal securities are technically exempt from the federal rule but settle T+1 anyway.
Every securities transaction has a trade date (when the order executes) and a settlement date (when securities and payment actually change hands). The gap between them is the settlement cycle, and the SEC's settlement-timing rule sets the outer limit for that gap.
What Is the Federal T+1 Regular-Way Settlement Standard?
- The standard settlement cycle shortened from T+2 to T+1 (one business day after the trade date)
- The SEC settlement-timing rule prohibits a broker-dealer from effecting a contract that provides for payment or delivery later than T+1, unless the parties expressly agree otherwise
- The T+1 standard applies to most broker-dealer transactions in securities
Key point: "T" always refers to the trade date, and settlement occurs the next business day. Weekends and market holidays do not count as business days.
How Does Settlement Vary by Security Type?
| Security Type | Settlement | Notes |
|---|---|---|
| Stocks (listed and OTC) | T+1 | Standard regular-way |
| Corporate bonds | T+1 | Standard regular-way |
| Municipal bonds | T+1 | Changed from T+2 |
| ETFs | T+1 | Standard regular-way |
| Options | T+1 | Next business day after trade |
| U.S. government securities | T+1 | T-bills, T-notes, T-bonds |
| Mutual fund shares | T+1 | Redemptions may vary by fund |
| Firm commitment offerings priced after 4:30 PM ET | T+2 | Shortened from T+4 by SEC amendment |
| Cash trades | T+0 | Same day; used when both parties agree to same-day settlement |
Key point: Nearly everything settles T+1. The two key exceptions are cash trades (T+0, same day) and firm commitment offerings priced after 4:30 PM ET (T+2).
Exam Tip: Gotchas
- Cash trades settle same day (T+0), not next day. This is the only settlement cycle shorter than the standard T+1. Do not confuse this with a seller's option trade, which settles on a specified future date beyond regular way, chosen by the seller. That is a longer cycle, not a shorter one.
- Firm commitment offerings priced after 4:30 PM ET settle T+2. This is the only standard settlement cycle longer than T+1. This T+2 exception is narrow: it applies only to qualifying registered cash sales priced after 4:30 PM ET, specifically an issuer selling to an underwriter or a participating broker-dealer selling to an initial purchaser, not to every trade in the offering.
What Is Exempt From the Federal T+1 Requirement?
- Exempted securities (U.S. government securities, municipal securities) are technically exempt from the federal T+1 settlement requirement, but industry practice is T+1
- Security-based swaps are excluded from the T+1 requirement
- Parties may agree to a different settlement date at the time of the transaction (negotiated settlement)
Think of it this way: Government and municipal bonds do not have to follow the T+1 rule, but they choose to anyway. The market settled on T+1 as the standard, so everyone follows it regardless of whether the rule technically requires it.
Exam Tip: Gotchas
- Government and municipal securities are "exempt" from the federal T+1 rule but still settle T+1 by market convention. The rule exempts them, but the practical settlement is the same.
- Firm commitment offerings priced after 4:30 PM ET settle T+2 (not T+1). This is the key exception to standard settlement timing.
What Should You Check on Exam Day?
- Match every security type to its settlement cycle: T+1 is the default, T+0 is cash trades only, and T+2 is limited to firm-commitment offerings priced after 4:30 PM ET.
- Remember that "exempt from the rule" does not mean "settles differently." Government and municipal securities are exempt but still settle T+1 by convention.
- Count business days from the trade date, not the calendar date. Weekends and market holidays never count.