Trade Vs. Settlement Date

When you buy stocks, you don’t own them for three more days.

Wall Street, New York image by Jolanta Zastocki from

Whether you’re buying or selling securities, two important dates are part of every transaction: the trade date and the settlement date. These two dates are important whether you’re trading stocks, municipal bonds, mutual funds or exchange-traded funds. For commercial paper and certificates of deposit, trade date and settlement date are the same.

Trade Date Versus Settlement Date

The day securities are bought is the trade date. The day the securities are transferred from seller to buyer is the settlement date. In e-commerce parlance, the trade date is the day you place an order with Amazon. The settlement date is the day you receive what you’ve purchased.

However, unlike Amazon, which offers choices of how quickly you can receive your item, settlement dates are strictly set and governed by the Securities Exchange Commission. As far as trade date vs. settlement date price goes, they’re the same. The price is set the moment you make the trade. It won’t change between then and settlement date.

The SEC’s T + 2

Up until 2017, settlement dates were the trade date plus three business days, or T + 3. In March 2017, the SEC amended one of their longstanding rules to shorten the trade settlement cycle to T + 2. So now, if you purchase a security on a Monday, the settlement date is Wednesday.

Weekends and holidays are excepted. So, if you purchase a security on a Friday, your settlement date will be the following Monday. And if one of the two days in T +2 lands on a holiday, that day doesn’t count.

More on Settlement Date

When you initiate the purchase of securities (the trade date), you have a legal obligation to pay for them. On the other side of the deal, also as of trade date, the seller has a legal obligation to provide the securities that you purchased. But you don’t legally own the securities you’ve bought until settlement date.

Settlement Date vs Closing Date

Although the term “closing date” is more traditionally used in real estate to denote the date property ownership is transferred from seller to buyer, it’s sometimes used in the securities industry too. It’s the same as settlement date, no difference.

What if Something Goes Wrong?

A securities transaction can fail in one of two ways: if the buyer doesn’t have enough money to fulfill their obligation or the seller doesn’t have the security when the settlement date arrives. Back to the Amazon metaphor – the buyer’s credit card is declined or the seller is out of the item you ordered.

Most of the time when a trade fails, it’s for legitimate reasons and the matter is quickly resolved. However, when unethical brokerage practices lead to repeated and egregious failed trades, the SEC may impose fines.

Why Aren’t Settlements Instantaneous Already?

You may wonder why, with all technology that exists today, the trade cycle isn’t instantaneous. The answer is just three letters long: SEC. To put things into perspective, the SEC was established in 1934. T + 3 was changed to T + 2 in 2017.

Longer trading cycles made sense when trades were handled in person, on the stock exchange floor with paper and pencils. As technology advanced it became clear that a shorter buy/sell cycle made sense for all concerned. But the SEC is not known for moving quickly. Any process that changes a long-established rule is careful, methodical and very, very slow.

E-trading, Settlements and Buying Power

When using an online trading platform, settlement dates can affect the availability of usable funds in your cash account and, hence, your buying power. Generally, funds from settled transactions are always available and funds from unsettled transactions are not. But there’s one scenario in which funds from an unsettled transaction may be available to you depending on what trading platform you’re using.

If you buy stock on a Monday, it will settle on Wednesday. If you sell that same stock for a profit on Thursday, the entire amount of trade date cash for that sale may be available to use even though the second transaction hasn’t settled yet. Check with your online broker for their policies.