About Settling Trades In Three Days: Introducing T+3

Investors must settle their security transactions in three business days. This settlement cycle is known as "T+3" — shorthand for "trade date plus three days."

This rule means that when you buy securities, the brokerage firm must receive your payment no later than three business days after the trade is executed. When you sell a security, you must deliver to your brokerage firm your securities certificate no later than three business days after the sale. How you hold your securities (either in physical certificates or in electronic accounts) can affect how quickly you are able to deliver them to your broker.  For more information, please read Holding Your Securities — Get the Facts. 

History of T+3

Unsettled trades pose risks to our financial markets, especially when market prices plunge and trading volumes soar. The longer the period from trade execution to settlement, the greater the risk that securities firms and investors hit by sizable losses would be unable to pay for their transactions.

For many years, our markets operated on a "T+5" settlement cycle. But, nearly a decade ago, the SEC reduced the settlement cycle from five business days to three business days, which in turn lessened the amount of money that needs to be collected at any one time and strengthened our financial markets for times of stress.  

Here are the answers to some of the questions we've been asked about settling trades:

 "What security transactions are covered?"

Most security transactions, including stocks, bonds, municipal securities, mutual funds traded through a broker, and limited partnerships that trade on an exchange, must settle in three days. Government securities and stock options settle on the next business day following the trade.

"How do I calculate when the three-day settlement cycle begins and ends?"

The first day of the three-day settlement cycle starts on the business day following the day you purchased or sold a security. For example, let's say you bought a stock on Friday at anytime during the day. Saturday and Sunday are not considered business days, so the three-day clock doesn't start running until Monday. Your payment or check must arrive at your broker's office by the close of business on Wednesday.

Generally, those days when the stock exchanges are open are considered business days. Always check with your broker to make sure that you understand when your payment or securities are due.

"Will there be a penalty if my payment does not arrive at the brokerage firm within three days?"

Some brokerage firms may charge investors fees or interest if their payments or checks do not arrive by the third day. Since firms are responsible for settling transactions if their investors do not pay, firms may decide to sell a security, charging the investor for any losses caused by a drop in the market value of the security and additional fees.

Ask your broker or brokerage firm what they plan to do if your check or payment does not arrive within three days, and what fees or charges will apply.

"When I sell or buy a security, will I receive funds or my security certificate from my brokerage firm within three days?"

While brokerage firms are required to send funds or certificates "promptly" to customers following the settlement of a trade, there are no deadlines imposed by federal law or regulations.  Brokerage firms will credit your account with sale proceeds as soon as your trade settles. Some brokerage firms may immediately "sweep" your money into an account that earns interest. You should ask your broker about how you can assure that all funds and securities are delivered to you promptly.

If you purchase a security and would like to receive paper certificates, you should review your account agreement, as it may contain additional requirements and fees associated with ordering paper certificates.

Do You Have Other Questions or Concerns?

If you have additional questions about your investments or how the securities markets work, please visit Fast Answers.  You'll also find interactive tools and investor publications in the Investor Information section of our website.  To file a complaint, please use our online Complaint Center.