Settlement Period

AAA

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.

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).

RELATED TERMS
  1. Fictitious Trade

    1) A trade that is booked with an execution date far in the future, ...
  2. Contract Month

    The month in which a futures contract expires. The contract can ...
  3. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, ...
  4. Settlement Date

    1. The date by which an executed security trade must be settled. ...
  5. Delivery Date

    1. The final date by which the underlying commodity for a futures ...
  6. T+1 (T+2,T+3)

    Abbreviations that refer to the settlement date of security transactions. ...
RELATED FAQS
  1. What do T+1, T+2 and T+3 mean?

    Whenever you buy or sell a stock, bond or mutual fund, there are two important dates of which you should always be aware: ... Read Full Answer >>
  2. Do I own a stock as of the trade date or the settlement date?

    When it comes to buying shares, there are two key dates involved in the transaction. The first date is the trade date, which ... Read Full Answer >>
  3. How can a company reduce the unsystematic risk of its own security issues?

    Companies can reduce the unsystematic risk of their own security issues simply by doing the most effective job possible of ... Read Full Answer >>
  4. How do a corporation's shareholders influence its Board of Directors?

    The 21st century has seen a rapid increase in shareholder activism, such as the general awareness, involvement and influence ... Read Full Answer >>
  5. What is a 'busted' convertible bond?

    In finance, a convertible bond represents a hybrid security that offers debt and equity features and risks. While a convertible ... Read Full Answer >>
  6. What is a private secondary market?

    Two kinds of private secondary markets exist. The first is a form of buying and selling of pre-existing financial commitments ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    Playing It Safe In Foreign Stock Markets

    Find out some of the lower-risk ways to invest in foreign markets.
  2. Investing

    The Number One Reason Why Most Traders Fail

    We show you the simple tools, availble to everyone, to succeed as an active trader: education, experience, charts, vision, and risk management systems.
  3. Investing

    Is There Still Opportunity in Japanese Stocks?

    Japanese stocks’ strong performance has prompted market watchers to question whether there’s still a case for adding exposure to the Land of the Rising Sun
  4. Credit & Loans

    Why Securities-Based Lending Became A Big Business

    Securities-based lending—using one's investments as collateral to secure a loan—has become big business for brokers and banks. Should we be concerned about its increasing popularity?
  5. Economics

    Do Transport Stocks Signal a U.S. Selloff?

    The Dow Jones Transportation Average index has underperformed the broader DJ Industrials Average, leading some market watchers to speculate a selloff.
  6. Investing Basics

    Explaining Counterparty Risk

    Counterparty risk is the risk that the other party in an agreement will default, or fail to live up to its contractual obligation.
  7. Investing

    What Can A Conference Call Tell About Trends?

    Messages in a company conference call can be easily misconstrued. But there is a way to cut through the talking points to get to the real substance.
  8. Investing

    Successful Investors Don’t Just Set It & Forget It

    The most highly effective investors consistently take steps to adapt their investment plan in the face of changing markets and changing lives.
  9. Investing

    Looking for Alternatives to Invest in Real Estate?

    There are several ways to invest in “real estate” via the stock market, buying stocks and hold them for years. We give you 5 ways to invest in real estate.
  10. Economics

    Will the Selloff in China Hurt the Global Economy?

    Though China is the world’s second largest economy, its volatility in the stock market is unlikely to have an impact on the global or Chinese economy.

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!