Settlement Date

Loading the player...

What is a 'Settlement Date'

The settlement date is the date on which a trade must be settled and the buyer must make payment. It is also the payment date of benefits from a life insurance policy. The settlement date for stocks and bonds is usually three business days after the trade was executed; for government securities and options, it's the next business day; and in spot foreign exchange it is two business days after the transaction date.

BREAKING DOWN 'Settlement Date'

The financial markets specify the number of business days after the transaction date that the security or financial instrument will be delivered and must be paid for. The lag between transaction and settlement dates reflects the fact that settlement, which now takes place electronically, was previously done by physical delivery.

Most stocks and bonds are settled three business days after the transaction takes place, which is referred to as T+3. Government bills, bonds and options are settled the next business day. Spot foreign exchange transactions usually settle two business days after execution; the main exception is the U.S. dollar vs. the Canadian dollar, which settles the next business day.

Weekends and holidays can cause the time between transaction and settlement dates to increase substantially, especially during the Christmas and Easter seasons. Foreign exchange market practice requires that the settlement date be a valid business day in both countries.

Forward foreign exchange transactions settle on any business day that is past the spot value date. There is no absolute limit in the market to restrict how far in the future a forward can settle, but credit lines are often limited to one year.

Risk

Both parties to a transaction take on credit risk because of the time that expires between the execution of a transaction and its settlement. This is especially important in forward foreign exchange transactions, given the length of time that can pass and the volatility in the market. There is also settlement risk because the currencies are not paid and received simultaneously, and time zone differences increase that risk.

Life Insurance

Life insurance is paid following the death of the insured, unless the policy has been surrendered before that. If there is a single beneficiary, payment is usually within two weeks from when the death certificate is provided. It can take longer if there are multiple beneficiaries who must be contacted, but most states require the payment of significant interest if there is a delay.

RELATED TERMS
  1. Rolling Settlement

    The process of settling security trades on successive dates so ...
  2. Settlement Period

    The period of time between the settlement date and the transaction ...
  3. T+1 (T+2,T+3)

    Abbreviations that refer to the settlement date of security transactions. ...
  4. Spot Date

    The day when a spot transaction is typically settled, meaning ...
  5. Trade Date

    The month, day and year that an order is executed in the market. ...
  6. Transaction Date

    The date upon which a security or other financial instrument ...
Related Articles
  1. Trading

    Forex Tutorial: What is Forex Trading?

    What Is Forex?The foreign exchange market is the "place" where currencies are traded. Currencies are important to most people around the world, whether they realize it or not, because currencies ...
  2. Investing

    Debt Settlement Arrangements And Your Credit Score

    The debt settlement process is not for everyone and can further damage your credit score. However, it can prevent the debt from being sold to a collection agency, who may only accept payment ...
  3. Personal Finance

    An Introduction To Life Settlements

    A life settlement is the trading of a life insurance policy under specific circumstances. Learn what it's all about.
  4. Trading

    Understanding Non-Deliverable Forward (NDF)

    A foreign exchange hedging strategy where the parties agree to settle the profit or loss in a foreign currency futures contract before the expiration date.
  5. Investing

    Inside National Payment Systems

    Investopedia explains: The global interconnection of U.S. payment systems makes commerical and financial transfers possible.
  6. Personal Finance

    A Guide To Debt Settlement

    Find out how you can negotiate your way to a lower debt load by paying up front.
  7. Trading

    Making A Living On Death Bonds

    Find out if these macabre bonds are just the new blood your portfolio needs.
  8. Markets

    What's a Maturity Date?

    Maturity date is the final date when any remaining principal and any unpaid interest are due on a debt.
  9. Managing Wealth

    The Top Alternative Investments for 2016

    What are some of the best outside-the-box investment ideas for 2016? The answers may surprise you.
  10. Investing

    The Truth About IRS Tax Settlement Firms

    These companies claim that they can reduce or even eliminate what you owe to the IRS. Find out the facts behind this alluring fiction.
RELATED FAQS
  1. 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 Answer >>
  2. Do you get a dividend if you have the stock on the ex-dividend date, but sell before ...

    Suppose the ex-dividend date is a Monday and the record date is a Wednesday. If you own the stock before & on the ex-dividend ... Read Answer >>
  3. How do mutual fund trades clear and settle?

    Learn how mutual fund trades are cleared and settled, and when the money owed must be available or the proceeds due must ... Read Answer >>
  4. How long will it take for me to receive the money that I profited from the stock ...

    What I'm trying to say is that if I place in an order into the market, and either profit or lose the money, how long will ... Read Answer >>
  5. Will a debt settlement program affect my credit score?

    Understand the impact of negotiating debt settlements on your credit score, and learn what factors determine the size of ... Read Answer >>
  6. A customer sells a 6% corporate bond on Tuesday October 4th for regular settlement ...

    Free info on financial certification exams including study guides, exam questions, and much more! Read Answer >>
Hot Definitions
  1. Poison Pill

    A strategy used by corporations to discourage hostile takeovers. With a poison pill, the target company attempts to make ...
  2. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  3. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  4. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  5. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  6. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
Trading Center