U.S. Stock Market T+1 Settlement in 2025: What Investors Need to Know

Adam Hayes, Ph.D., CFA, brings over 15 years of Wall Street experience as a derivatives trader and financial writer. He holds advanced degrees in economics and sociology and currently researches economic sociology and finance at Hebrew University in Jerusalem.

What Does T+1 (T+2, T+3) Mean in Securities Settlement?

The terms T+1, T+2, and T+3 represent the number of business days between a securities transaction and its settlement date. Here, "T" stands for the trade date—the day the transaction occurs—while the number indicates how many business days later the transaction is finalized by transferring cash and ownership.

• T+1: Settlement one business day after the trade date.
• T+2: Settlement two business days after the trade date.
• T+3: Settlement three business days after the trade date.

Key Insights:

• Stocks now settle on a T+1 basis as of 2024.
• Bonds, mutual funds, and money market funds may still settle on T+1, T+2, or T+3 cycles.
• Settlement excludes weekends and public holidays; only market open days count.

Why Does Settlement Timing Matter?

Settlement dates are crucial for investors, especially for dividend eligibility. To receive dividends, the trade must settle before the dividend record date. Additionally, knowing settlement timing helps investors plan cash flow and manage risks related to trade finalization.

Historically, settlement times were longer due to manual processing and physical certificate delivery. The cycle shortened from T+5 to T+3 in 1993, then to T+2 in 2017, and most recently to T+1 in 2024, reflecting advancements in electronic trading and clearing systems.

The 2024 Shift to T+1 Settlement Cycle

Effective May 2024, the U.S. stock market moved to a T+1 settlement cycle, meaning trades settle one business day after execution. This update, approved by the SEC in 2023, enhances market efficiency and reduces settlement risk. The transition aligns the U.S. with other markets like Canada and Mexico, which have already adopted faster settlement periods.

Under T+1, if you sell stock on Monday, the trade settles Tuesday. This means shares transfer to the buyer's account, and the seller receives payment the next business day. However, brokers and investors should prepare for potential adjustments, such as earlier delivery of securities or changes in margin agreements.

Example of T+1 Settlement

Imagine Sarah sells 100 shares of XYZ Corp at $50 on Monday, June 3, 2024. Under T+1 rules, the settlement occurs on Tuesday, June 4, when the shares move to the buyer's account and Sarah receives $5,000. Previously, under T+2, settlement would have been Wednesday, June 5.

Exceptions and Special Cases

Not all securities follow the T+1 rule. For example, some IPOs and certain fixed-income securities like U.S. Treasuries may have different settlement timelines, occasionally even same-day (T+0) settlement. It's important to check specific securities or transaction types for applicable rules.

Understanding Settlement Risk

Settlement risk, also known as delivery risk or Herstatt risk, is the chance that one party fails to fulfill their side of the transaction on time. Shortening the settlement cycle helps reduce this risk by limiting the time between trade execution and final settlement.

Summary

The move to a T+1 settlement cycle in 2024 marks a significant modernization of the U.S. securities market, enabling faster trade finalization and reducing risks. While stocks primarily follow T+1, other securities may have varying settlement periods. Investors should stay informed about settlement timelines to optimize trading strategies and dividend eligibility.

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