There are a number of market terms that you should know, particularly those that relate to dates that impact securities transactions.
Trade and Settlement Dates
The trade date for the purchase or sale of a security is the date on which the transaction is executed. The settlement date is the date on which the transaction must be completed, or the date on which the buyer pays for the securities and the seller delivers them.
Regular-way settlement for corporate stocks and bonds and municipal securities is three days after the trade date (T+3). For Treasury securities and options, settlement is T+1, or one day after the transaction. Cash transactions settle on the same day as the trade date.
Exam Tips and Tricks
Trade settlement is one of the most fundamental concepts for you to understand as a representative. You should know how much time each type of security requires to be fully settled.
Ex-dividend and date of record (record date) are important dates to know, whether you are a broker or investor. Understanding the dates of the dividend payout process can be tricky, especially if you are a beginner. Clear up any of your confusion by reading the following short article: Declaration, Ex-dividend and Record Date Defined.
- Ex-dividend: When a stock trades without its next dividend payment, it is said to be trading ex-dividend. It is important for you to understand this concept in relation to trading and settlement dates. Because regular-way settlement occurs three business days after the trade date (T+3), the ex-dividend date will always be two days prior to the stock's record date.
- Record Date:When a board of directors announces a dividend payment, it will specify the date by which an investor must own the stock and be registered on the company's records as a shareholder in order to receive the dividend. This date is called the record date.
- Payment Date: The date the dividend is actually paid out to the shareholders.
ETFs & Mutual FundsA settlement date is the day a security trade must be settled.
MarketsThe date established by an issuer of a security for the purpose of determining the holders who are entitled to receive a dividend or distribution.
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MarketsT+1, T+2, and T+3 denote the day settlement occurs on a transaction.
MarketsMaturity date is the final date when any remaining principal and any unpaid interest are due on a debt.
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