What does it mean when you are waiting for a bond to settle?

When a broker tells you they are waiting for a bond to settle in order to invest, what does this mean? Also, what is the timeline to settle?

Investing, Bonds / Fixed Income
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June 2017
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The Settlement Date is an industry term describing the date on which a bond or an equity/stock settles. The actual day on which transfer of cash or assets is completed and is usually a few days after the trade was done. Investors must complete or "settle" their security transactions within three business days. This settlement cycle is known as "T+3," shorthand for "trade date plus three days." 

T+3 means that when you buy a security (bond), your payment must be received by your brokerage firm no later than three business days after the trade is executed. Whereas when you sell a security(bond), you must deliver to your brokerage firm your securities certificate no later than three business days after the sale (only if the bond is not held in your account). Proceeds will be available in your brokerage account on the settlement day as well.

The three-day settlement date applies to most security transactions, including stocks, bonds, municipal securities, mutual funds traded through a brokerage firm. Government securities and stock options settle on the next business day following the trade. 

For many years, markets operated on a "T+5" settlement cycle. In 1995, the U.S. Securities and Exchange Commission reduced the settlement cycle from five business days to three business days, "T+3", which in turn lessened the amount of money that needs to be collected at any one time and strengthened our financial markets for times of stress. On September 5, 2017 the T+3 goes to T+2 shortening the settlement by one day.

 

June 2017