T+2 Settlement – Public Finance International

In finance, T+2 means the trade date plus two days on which securities trades must be settled..

T+2 means the date of a certain operation plus two days and indicates the settlement of a securities transaction. T+2 is the most used settlement date in the market. In accordance with market rules and conventions, securities transactions are required to be settled within an agreed settlement period. If the security is bought or sold with a T+2 settlement and an investor buys it on Sunday, the settlement date will be Thursday instead of Wednesday.

There are two crucial dates that investors need to understand when buying and selling stocks, bonds, mutual funds, ETFs, or other financial instruments, which are the settlement date and the transaction date. In the financial marketsthe the date of the transaction is known as “T”. The settlement dates are called “T+1”, “T+2” or “T+3”that take place on the dates of the transactions plus 1, 2 or 3 days.

The transaction date is the date on which the transactions are made. Today, for example, would be the trade date if an investor purchased 50 shares today. This date will always be the date the transaction is completed, therefore the date never changes after a certain transaction is completed.

The settlement date, on the other hand, is the date of the transfer of ownership. Please note that depending on the type of security, this may not necessarily occur on the transaction date.

Important: There will be variations in the settlement times of each security. As for mutual funds, they vary, but the settlement can be T+1 or T+2.

History of T+2

Instead of being done electronically, investors had to trade securities manually and wait until the securities were delivered, arriving in the form of physical certificates. Payment was made after receiving the certificates. Regulators have determined the time frame within which cash and securities are delivered due to variable delivery times and continual price fluctuations.

The London Stock Exchange and the Amsterdam Stock Exchange had strong ties in the 18th century and frequently listed each other’s shares. Cash or physical share certificates were moved from the Netherlands to the UK and back for transactions to be settled. Consequently, the standard settlement time was fourteen days and most exchanges followed the same path.

The settlement processes in the national stock exchanges were different. Different states employed one of two main settlement periods. The first is the fixed settlement date, which is a date on which each transaction is settled. The second is the fixed settlement delay, a specific number of days after transactions. Liquidation occurred on specific dates only once a month in Italy, France, Belgium, Switzerland and other states.

During the 1970s and 1980s settlement periods were shortened, and settlement dates were shortened to 7 days. They shortened to 5 days after that and finally to 3 days. The 2-day period (T+2) received a lot of attention in 2017 and many exchanges adopted it. Both of them UK and US implemented T+2 settlement date in 2017.

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