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Settlement Changes to T+2

Filed in: Exam Content

Rule Change Updates

Effective September 5, 2017, the standard settlement cycle for most U.S. securities transactions will be shortened by one business day to T+2 (trade date plus 2 business days). According to the SEC, this will improve operational efficiency, reduce counterparty risk, and increase liquidity in U.S. securities markets. The change also harmonizes the U.S. settlement cycle with that of other major markets in Europe and Asia that already operate under a shortened cycle.

Effect on Licensing Exams

Once the new settlement cycle launches it is testable on all regulatory exams. However, questions on new rules and regulations are often slowly introduced during the weeks following a new rule’s effective date. If you are taking an exam on or after September 5th, be prepared to answer questions using T+2 settlement, but look for “T+3” answers if T+2 is not an available answer choice.

Under the T+2 settlement cycle, securities transactions will settle on the second business day after the trade date. This means that no later than two business days after the transaction buyers must deliver payment and sellers must deliver the shares. For example, a transaction executed on Monday will now require payment and delivery on Wednesday (T+2), whereas under the T+3 cycle settlement was on Thursday.

The T+2 settlement will apply to the same securities transactions currently covered by the T+3 settlement cycle. These include transactions for stocks, corporate bonds, municipal securities, exchange-traded funds, certain mutual funds, and limited partnerships that trade on an exchange. The amended rule does not change T + 1 settlement that applies to U.S. Government securities and option contracts.

T+2 settlement will affect many rules that rely on settlement as a timing metric. This includes:

  • Ex-dividend dates
  • Accrued interest
  • Trade completion and reporting
  • Closing of fails

For example, under the T+2 settlement cycle, the ex-dividend date will change to one business day before the record date. A customer must purchase the stock before the ex-dividend date to become owner of the stock on the record date and receive the dividend. The buyer will purchase “ex” or without the dividend one business day prior to the record date.

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Written by Marcia Larson

Marcia Larson is Vice President, Faculty, at Knopman Marks Financial Training, New York, NY. She has extensive experience in financial licensing and regulatory training, having authored, developed and presented courseware for numerous securities and insurance exam preparation and continuing education and compliance programs. Before joining Knopman Marks, Marcia was Director of Annuity Products and Business Development at CUNA Mutual Group, where she developed and marketed industry-leading annuity products and retirement solutions and implemented distribution relationships. She was previously VP, Securities Products for Kaplan Financial, managing securities training products and subsequently, international training and businesses development. Marcia has trained thousands of financial industry exam candidates throughout their careers, and also college students as an adjunct professor. Marcia was a summa cum laude graduate of Wartburg College with degrees in Business Administration and Piano Performance. Marcia also holds the designations of Chartered Financial Consultant® (ChFC®), Chartered Life Underwriter (CLU®), Certified Employee Benefit Specialist (CEBS), and Fellow Life Management Institute™ (FLMI®). She currently teaches the SIE, Series 6, 7, 24, 50, 52, 63, 65, and 66 exams.

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