DEFINITION of Transaction Date
A transaction date in the date upon which a trade takes place for a security or other financial instrument. The transaction date represents the time at which ownership officially transfers.
In banking, the date a transaction appears in the account is also referred to as the transaction date, although it is not necessarily the date on which the bank clears the transaction and deposits or withdraws funds.
BREAKING DOWN Transaction Date
Examples of forms of banking transactions, which incorporate a transaction date, include: deposits or withdrawals from a personal account (via automated teller machine or ATM), debit card, or in-person at a physical branch location); the withdrawal of funds via a paper check; recording a purchase on a credit card; recording a point-of-sale (POS); depositing, withdrawing, or transferring funds among accounts in online banking; and others.
Examples of transactions, which incorporate a transaction date in investing, include: buying (purchasing shares of a security), buy-to-open (similar to a traditional buy and can encompass options contracts, along with opening a more common long position), buy-to-close (the act of closing a short position via a withdrawal of cash to buy back security shares and/or options contracts); receiving cash dividend payments and/or reinvesting the distributions; depositing cash received as a return in a capital distribution; depositing cash received as a capital gain (often from the sale of long-term or short-term shares of a security via a hedge fund, partnership, or in a mutual fund account); depositing interest income from preferred shares or a debt instrument, such as a bond; moving shares among accounts; gifting stocks; selling shares; sell-to-close (exiting from a long position); recording a stock split, and more.
Transaction Date v. Settlement Date
The transaction date is not necessarily the same as the settlement date, which can happen several days after the transaction occurs. The seller is paid upon settlement, because all of the details about the transaction have been finalized, and because the buyer is certain that what has been promised has actually been delivered.
Regular way transactions settle on the second business day after the trade date, which is referred to as T+2. Most securities, including stocks and corporate bonds, settle this way. However, U.S. government securities have a regular way settlement of T+1. With some transactions, it is possible to specify a desire to settle on the same day as the trade. These are referred to as cash trades.