When you buy or sell a stock in the US, the trade happens in seconds, but the official handover of shares and cash takes a little longer. That handover is called settlement. Since May 28, 2024, most US securities trades settle one business day after the trade. This is known as “T+1.” This explainer covers what that means in plain terms.
Trade date versus settlement date
The trade date (the “T”) is the day your order is executed. The settlement date is the day the trade is final. On that day the buyer’s account officially receives the shares and the seller’s account officially receives the cash. Under T+1, if you sell shares on a Monday, the trade settles on Tuesday. Weekends and market holidays do not count as business days, so a Friday trade settles the following Monday (or Tuesday, if Monday is a holiday).
How we got here
US settlement has been getting shorter as paper certificates gave way to electronic records. It was five business days (T+5) for decades, moved to T+3 in 1995, and moved to T+2 in 2017. On February 15, 2023, the SEC adopted rule changes to shorten the standard cycle to T+1, and the switch took effect on May 28, 2024.
What T+1 covers
According to the SEC and FINRA, T+1 applies to most of the same trades that were T+2. That includes stocks, ETFs, corporate and municipal bonds, certain mutual funds, and limited partnerships that trade on an exchange. Some products have their own rules. For example, many mutual funds already settled faster, and US Treasury securities commonly settle on T+1 already. Your broker’s documents say which settlement cycle applies to what you hold.
What it means for everyday investors
- Sale proceeds settle a day sooner. Cash from a sale becomes settled cash one business day after the trade, instead of two.
- Payment is due a day sooner. When you buy, your broker needs payment by the settlement date. FINRA notes that if you pay by bank transfer (ACH), starting the transfer on the trade date helps make sure the money arrives in time. Many brokers simply require the cash to be in the account before you buy.
- Paper certificates need to move faster. If you still hold a physical stock certificate and want to sell, you may need to get it to your broker earlier than before.
- Margin accounts may be affected. The SEC suggests checking with your broker about any changes to your margin agreement.
Settled cash and cash accounts
In a cash account, there is a difference between cash that has settled and cash that is still on its way from a recent sale. Buying with unsettled money and then selling before paying for that purchase can break the rules on paying for securities. Brokers may restrict an account that does this. FINRA calls this “freeriding.” A shorter settlement cycle means money settles sooner, but the basic rule is the same: know which of your cash is settled. Each broker shows this a little differently, so look for “settled cash” or “cash available to withdraw” in your account.
Why regulators wanted a shorter cycle
Between the trade and settlement, each side is exposed to the risk that the other side fails to deliver. The longer that gap, the more collateral clearing firms set aside to cover it. Shortening the gap reduces that exposure. Regulators said the change would make the market’s plumbing more resilient. It does not change prices, fees, or the risk of the investment itself.
T+1 is about when a trade becomes final. It is not about whether the trade was a good idea.
Sources and further reading
- SEC Investor Bulletin: New “T+1” Settlement Cycle (Investor.gov, opens in a new tab)
- FINRA: Understanding Settlement Cycles (opens in a new tab)
- On Stock Meerkat: How US stock brokerages work and Custody and street-name holding