The Securities and Exchange Commission requires all security transactions to be completed or “settled” within three days. The clock starts ticking on the trade date — the date you actually buy the security, such as a stock or bonds. The settlement date is sometimes called “T+3”; the “T” stands for the trade date and the “+3” means plus three days.
If you use an online discount brokerage, then your trade date is the day you press “buy” on your trading screen and the seller accepts your bid. If you use a financial adviser or stockbroker, your trade date is the day that that professional presses “buy” and the seller accepts your bid. Just calling your broker does not mean you bought a stock. He must execute your order and the seller must accept it.
The seller has three days from the trade date to actually transfer the shares to your account. This allows the seller to make sure he has received your money in payment. Your brokerage account transfers the money to the seller, who then transfers the shares to you, all within three days.
Trade Date Accounting
You can count the trade date as the day you purchased the stock or bond. You are guaranteed the price you agreed on as of that date, so no matter how much the price changes in the ensuing three days, you get the security at the price you accepted. Even if the shares went up in price and the seller regretted selling them, he could not stop the transaction before the settlement date. Conversely, if you buy a stock and it drops in price the next day, you cannot cancel the purchase.
Occasionally a trade does not go through. This happens when either the cash or the shares are not available. If the buyer does not come up with the cash, this is called a “long fail.” If the seller does not come up with the shares, it is known as a “short fail.”
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