What Do T+1, T+2, and T+3 Mean?

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Peter Gratton, M.A.P.P., Ph.D., is a New Orleans-based editor and professor with over 20 years of experience in investing, risk management, and public policy. Peter began covering markets at Multex (Reuters) and has expanded his coverage to include investments, ethics, public policy, and the health and travel industries.
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Updated June 06, 2024
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Whenever you buy or sell a stock, bond, exchange traded fund, or mutual fund, there are two important dates to understand: the transaction date and the settlement date. 'T' is the transaction date. The abbreviations T+1, T+2, and T+3 refer to the settlement dates of security transactions that occur on a transaction date plus one day, plus two days, and plus three days, respectively.

As its name implies, the transaction date represents the date on which the actual trade occurs. For instance, if you buy 100 shares of a stock today, then today is the transaction date. This date doesn't change whatsoever, as it will always be the date on which you made the transaction.

However, the settlement date is a little trickier because it represents the time at which ownership is transferred. It's important to understand that this doesn't always occur on the transaction date and varies depending on the type of security. Treasury bills, for example, can be transacted and settled on the following day.

Key Takeaways

  • In order to clear the transfer of a security from a seller to a buyer, it must go through a settlement process, which creates a delay between the time a trade is made ('T') and when it settles.
  • On May 28, 2024, the settlement cycle became a T+1, according to a rule from the SEC.
  • Historically, a stock trade could take as many as five business days (T+5) to settle a trade.
  • Today, with the advances in technology and electronic trading, most stock trades settle in just one business day (T+1).

Why Delay Actual Settlement?

In the past, security transactions were done manually rather than electronically. Investors would wait for the delivery of a particular security, which was in actual certificate form, and payment happened upon receiving the certificate. Since delivery times could vary and prices always fluctuate, market regulators set a period of time in which securities and cash must be delivered.

Some years ago, the settlement date for stocks was T+5 or five business days after the transaction date. In 2017, the settlement date became T+2, or two business days after the transaction date. On May 28, 2024, the settlement cycle became T+1, per a new rule by the U.S. Securities and Exchange Commission (SEC). That means transactions now settle one business day after the transaction date.

In other countries, trades can take longer or less time to settle.

T+1 Settlement Cycle

The SEC's decision, effective May 28, 2024, to halve the time it takes to settle transactions is generally good news for most investors as it means gaining or offloading ownership rights sooner. Reverting back to T+1 after a century makes markets more efficient and reduces risk.

With this move, the SEC helped reduce agreed-upon prices being drastically different to the price when the trade eventually settles, a concern that has been on its radar since the GameStop stock bounce of 2021. In a statement, the SEC said the new rules "make our market plumbing more resilient, timely, and orderly" and "improve the processing of institutional trades by establishing new processing and recordkeeping requirements for broker-dealers and registered investment advisors."

However, pundits have also raised concerns of potential teething problems. Worries include global funds moving at different speeds to their assets, having less time to fix errors, and international investors struggling to keep up with the pace and source dollars on time. Under the new settlement cycle, investors may need to pay for their securities one business day earlier.

When Do You Actually Own the Stock or Get the Money?

  1. If you buy (or sell) a security with a T+1 settlement on Monday, and we assume there are no holidays during the week, the settlement date will be Tuesday. The 'T' or transaction date is counted as a separate day.
  2. Not every security will have the same settlement periods. All stocks are T+1, and mutual funds differ but are T+1 and T+2, depending on the fund. However, bonds and some money market funds will vary between T+1, T+2, and T+3.

If you buy shares of Microsoft (MSFT) on Friday, while your broker would debit your account for the total cost of the investment immediately after your order is filled, your status as a shareholder of Microsoft will not be settled in the company's record books until the following Monday. Therefore, the settlement date is the date upon which you become a shareholder of record. Note that weekends and public holidays are not included. In this case, if Monday was a public holiday, the settlement date would be Tuesday.

Weekends and public holidays don't count, so if you bought stock on Friday you'd have to wait until Monday, or Tuesday if the Monday is a public holiday, for the trade to settle.

Knowing the settlement date of a stock is also important for investors or strategic traders who are interested in dividend-paying companies because the settlement date can determine which party receives the dividend. That is, the trade must settle before the record date for the dividend in order for the stock buyer to receive the dividend.

Which Securities Are Affected by T+?

The new T+1 settlement cycle applies to securities in the U.S. that previously traded in the T+2 settlement cycle. They include stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds, and limited partnerships that trade on an exchange.

Could the Settlement Cycle Ever be T+0?

Now that T+1 has been achieved, people have begun to ask whether a T+0 settlement cycle is feasible, particularly as it has already been rolled out in countries such as India. At present, it doesn’t seem very likely that this will happen in the U.S. Moving to T+1 took years to achieve, was already ambitious and, in some cases, made deadlines to settle trades too close for comfort. Taking it a step further might not yet be feasible, at least as things currently stand.

What Does the T Stand For in T+1?

The T is shorthand for the transaction date, which is the day the purchase or sale is registered. +1 means the transaction will clear one business day later.

The Bottom Line

When you place an order to buy or sell a security, the trade doesn’t become final immediately. It takes a while for it to clear and everything to get signed off. T, or the transaction date, is when the transaction takes place, and the settlement date, expressed as + a number, is when the transaction goes through.

Settlement dates depend on the security being traded. In the U.S., stocks and most bonds are T+1, meaning trades for them settle one business day after the transaction is made.

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  2. U.S. Securities and Exchange Commission. “Updated Investor Bulletin: New “T+2” Settlement Cycle – What Investors Need To Know.”

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