Credit: Shutterstock photoT+2 isn't a sci-fi thriller, but it does look to the future. T+2 refers to a new, and shorter, standard settlement cycle for securities transactions. Currently, most securities transactions are settled in three business days, commonly referred to as T+3.
The Securities and Exchange Commission's new rule amendment reflects improvements in technology, increased trading volumes, and changes in products and the trading landscape that make a shorter settlement cycle both feasible and valuable to market participants.
Broker-dealers are required to comply with the T+2 rule beginning on September 5, 2017. Trades before that date will still operate on a T+3 cycle.
So, what does this change mean for you? Currently, if you buy a security such as a stock or bond, your full-service or online broker age firm must receive payment from you no later than three business days after the trade is executed. When you sell a security, you must deliver your security to the brokerage firm no later than three business days after the sale. For example, if you sell shares of a stock on Tuesday, the transaction would settle on Friday.
Starting September 5, under the new T+2 settlement cycle, most securities transactions will settle in two business days of their transaction date. For example, if you sell shares of a stock on Tuesday, the transaction would settle on Thursday (a day earlier than in the past).
The SEC cautions that if you hold a physical, paper securities certificate , you may need to deliver it to your broker-dealer earlier or through different means than you do today to meet the new shorter settlement cycle. If you hold your securities in an electronic format with your broker-dealer, your broker-dealer will deliver the securities on your behalf one day earlier. Similarly, if you are buying securities, you may need to pay for your securities transactions one business day earlier. You should contact your broker-dealer about any changes that may specifically affect you or your account.
The T+2 rule amendment applies to the same securities transactions currently covered by the T+3 settlement cycle. These include transactions for stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds and limited partnerships that trade on an exchange. The T+2 requirement would not apply to certain other categories of securities, such as exempted securities.
If you have additional questions about the new T+2 settlement cycle, check out the SEC's Investor Bulletin on this topic. In addition, SEC staff has provided the following email contact for specific inquiries on T+2: T2settlement@sec.gov .
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
