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Definition of 'Settlement Period'
The period of time between the settlement date and the transaction date that is allotted to the parties of a transaction to satisfy the transaction's obligations. The buyer must make payment within the settlement period, while the seller must deliver the purchased security within this period.
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Investopedia explains 'Settlement Period'
Depending on the type of security traded, the exact length of the settlement period will differ. The settlement period is often quoted as T+1, T+2 or T+3; which means the transaction date plus one, two or three days.
For stocks, the settlement period is three days (T+3) after the transaction. This means that the buyer must transfer cash to the seller, and the seller must transfer ownership of the stock to the buyer within three days after the trade was made.
For certificates of deposit and commercial paper, the transaction must be settled on the same day. For U.S. treasuries, it is the next day (T+1), and forex transactions are settled two days after (T+2).
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