| Due to the risk of volatility in the value of securities, the Securities and Exchange Commission requires that a securities transaction must be settled or completed within three business days. "T+3" is the name given to this settlement requirement.
The "T+3" rule revised a "T+5" rule that allowed the passage of five business days between the execution of a trade order and the payment for or delivery of the securities that were traded. Under the "T+3" rule, the payment from an investor who buys a security must be received by the securities brokerage firm no later than three business days after the purchase. Thus, a person who buys a stock on Friday must pay for the stock through funds received by the broker no later than the following Wednesday; a person buying a stock on a Monday would have to be sure the broker receives the purchase funds no later than the next Thursday. When a person sells a security, the security certificate must be in the hands of the selling broker no later than the third business day following the sale.
The "T+3" time requirement for settling securities trades applies to most forms of securities, including stocks, bonds, municipal bonds, mutual funds traded through a broker, and exchange-traded limited partnerships. However, stock options and trades in U.S. Government securities must be settled on the next business day following the trade.
If the "T+3" rule is broken by an investor, the brokerage firm may choose to impose additional fees or interest or execute a trade and impose the loss of any value in the security on the investor. On the other hand, while securities firms must provide funds or securities certificates to investors "promptly" after settlement of a trade, specific three-day or other deadlines are not set by rules of the Securities and Exchange Commission. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |