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About Settling Trades In Three Days: Introducing T+3 
(Source: U.S. Securities and Exchange Commission)

Beginning on June 7, 1995, investors must settle their security transactions in three business days rather than five. This shortened settlement cycle is known as "T+3" - shorthand for "trade date plus three days."

This new rule means that when you buy securities, your payment must be received by your brokerage firm no later than three business days after the trade is executed. And if you sell securities, your brokerage firm must receive your securities certificate no later than three business days after you authorized the sale.

The U.S. Securities and Exchange Commission developed this brochure to address frequently asked questions about why the settlement cycle was shortened and to highlight issues you should consider in preparing for three-day settlement.

"Why the change?"
Unsettled trades pose risks to our financial markets, especially when market prices plunge and trading volumes soar. This happened when the stock market fell by over 500 points on October 19, 1987. In the hours and days following this drop, our financial markets were threatened by doubts about whether securities firms and investors hit by sizable losses would be able to pay for their transactions. By reducing the settlement cycle from five to three business days, the SEC has lessened the amount of money that needs to be collected at any one time, and strengthened our financial markets for times of stress.

"What security transactions are covered?"
Most security transactions, including stocks, bonds, municipal securities, mutual funds traded through a broker, and limited partnerships that trade on an exchange, must settle in three days. Government securities and options will continue to settle as they have in the past - one day following a purchase or sale.

Getting Your Money In On Time

"When I buy a security, how do I make sure my payment reaches my broker in three days?"
You should talk with your broker or banker about options for paying your broker on time. Here are a few commonly available options:

  • Prompt Mailing of Payments
    If you live close to your brokerage firm or know from experience that mail is usually delivered to your broker within three business days, you may want to rely on the U.S. Postal Service. There are a number of delivery services that promise delivery within one or two days.

  • Wire and Electronic Transfer of Payments
    You can arrange for your bank or savings institution to wire or electronically transfer money from your account to a brokerage firm. Wire transfers are available for a fee from most banks and savings institutions.

    Another type of transfer is available at most banks or savings institutions through the Automated Clearing House system. Generally, these electronic transfers are considerably less expensive than wire transfers.

    Also, this system allows an investor up to sixty days to reverse a transaction and receive payment back if the trade was not authorized by the investor and the investor signs a sworn statement or affidavit.

  • Maintain An "Asset Management" Account With Your Broker
    Most brokerage firms offer accounts from which they can deduct payments automatically on the settlement date. Although not insured by the FDIC, these accounts often offer interest on cash balances, as well as check writing privileges and credit or debit cards.

"What are my options for paying you?"
"When is my payment due?"

"How do I calculate when the three-day settlement cycle begins and ends?"
The first day of the three-day settlement cycle starts on the business day following the day you purchased or sold a security. For example, let's say you bought a stock on Friday at anytime during the day. Saturday and Sunday are not considered business days, so the three-day clock doesn't start running until Monday. Your payment or check must arrive at your broker's office by the close of business on Wednesday.

Generally, those days when the stock exchanges are open are considered business days. Always check with your broker to make sure that you understand when your payment or securities are due.

"Will there be a penalty if my payment does not arrive at the brokerage firm within three days?"
Some brokerage firms may charge investors fees or interest if their payments or checks do not arrive by the third day. Since firms are responsible for settling transactions if their investors do not pay, firms may decide to sell a security, charging the investor for any losses caused by a drop in the market value of the security and additional fees.

Ask your broker or brokerage firm what they plan to do if your check or payment does not arrive within three days, and what fees or charges will apply.

"What happens if you don't receive payment on time?"
"When will I get my sale proceeds?

"When I sell or buy a security, will I receive funds or my security certificate from my brokerage firm within three days?"
While brokerage firms are required to send funds or certificates "promptly" to customers following the settlement of a trade, there are no deadlines imposed by federal law or regulations. Brokerage firms will credit your account with sale proceeds as soon as your trade settles. Some brokerage firms may immediately "sweep" your money into an account that earns interest. You should ask your broker about how you can assure that all funds and securities are delivered to you promptly.

Confirming Your Trade

"Will I be able to review a confirmation slip before I pay for my purchase?"
Although confirmation slips were never intended to serve as a bill, as a precaution some investors examine confirmation slips before they send payments to make sure that their orders have been executed correctly.

If this has been your practice in the past, you should talk with your broker about how you can receive the assurances you need in time to meet the new three day deadline for settlement.


Broker: "Okay. You'll buy 100 shares of ABC Corp at 25 1/2"
Investor: "Let me write that down. You said ABC Corp. is large and well-established, but its stock is underpriced given its earning potential. The downside - stock is risky because ABC Corp.'s earnings could drop. I should consider this a long-term investment. I'll buy 100 shares at 25 1/2 per share. What will my total be? When is my payment due?"

"What should I do if my confirmation slip or account statement reflects purchases or sales that I did not authorize or at a price I did not agree to?"
To be safe, you should always review confirmations or account statements when they arrive. If these records contain surprises or mistakes _ securities have been bought or sold without your approval or on terms that you have not authorized _ you should immediately alert your broker and the firm's branch manager in writing. Investors have important legal rights and remedies if their brokers have engaged in "unauthorized trading," or misrepresented the risks, character or price of a security.

You should routinely write down what your broker tells you about why you should make a purchase and the terms of a purchase or sale. These notes can help establish what was said if a dispute arises.

If your problem is not resolved by alerting the broker or firm, you should contact the Office of Consumer Affairs at the SEC in Washington, D.C., or your state's securities office to obtain information on how you can resolve your problem. (Addresses are available at the end of this publication.) It's important that you let your securities regulator know if you are experiencing difficulties with the three day settlement cycle so that your concerns may be addressed.


"I never agreed to buy this! I'll have to call the firm tomorrow to straighten this out!"

Who Should "Hold" Your Securities? You?
Your Brokerage Firm? Or the Company in Which
You've Invested?

You have choices when it comes to buying securities and whether you "hold" your securities in your name or the name of your brokerage firm. How you decide to buy and hold your securities is up to you.

Your choices have not been limited by the switch to three-day settlement.

"When I buy, I'm in for the long-term. I like to keep my certificates close at hand."
For instance, when you buy stock in a company you can ask for the actual stock certificate to be sent to you. You can literally hold your stock certificates in your own hands, before you place your certificates in a secure location. The company you've invested in knows that you are the shareholder and how to reach you directly.

"I want to save as much money as possible when I buy or sell."
If you buy stock directly from the company you've invested in through "direct registration" or dividend reinvestment programs, you can either have the company record your purchase on their books, called "book entry," or ask the company to mail certificates directly to you.

"I don't want the hassle of worrying about losing or having my stock certificates stolen."
If you buy through a broker, your brokerage firm may arrange for your securities to be kept safely in a vault at a "depository."

When you allow your brokerage firm to take responsibility for your certificates, your certificates are said to be held in "street name." The company registers your brokerage firm or its agent as the shareholder. Your brokerage firm will keep records showing you as the real or "beneficial owner."

There are advantages and disadvantages to these different ways of buying and holding your securities. Which method is best for you depends on your unique needs and how you invest. The following information summarizes the advantages and disadvantages of the choices you face.


  • You can be sure that you will meet the new three day deadline because your securities are already on hand at your broker's office.

  • Your brokerage firm is responsible for safeguarding your securities certificates so you don't have to worry about your securities certificates being lost or stolen.

  • Brokerage firms may keep you informed of important developments such as tender offers or when bonds are called.

  • It is easier to use margin accounts and place limit orders that direct your broker to sell a security at a specific price.


  • Some brokerage firms may charge you an "inactivity" fee for holding your securities if you do not trade regularly.

  • Some brokerage firms only pass along dividend and interest payments to investors on a weekly, bi-weekly or monthly basis.

  • Since your name is not on the books of the company, important corporate communications may not be mailed directly to you from the company, which could result in delays.

  • If you want to sell your securities through another brokerage firm, it generally takes two weeks to arrange for your securities to be transferred to the new firm and fees may be charged for the transfer.

Buying Securities Directly From The Company:
Direct Registration and Dividend Reinvestment Plans
Have Advantages and Disadvantages


  • Investors do not typically pay brokerage commissions on transactions, account maintenance fees or inactivity fees. However, some companies may charge service fees for buying or selling shares or reinvesting dividends.

  • Investors are "registered" on the books of the company as the shareholder and receive communications and dividend payments directly from the company.

  • If you want to receive certificates you will generally not be charged a fee and you can then sell when you want through a broker of your choice.


  • You do not control many of the key elements of your transaction: price, timing and the amount you may buy or sell at any one time.

  • Generally, the price at which you buy or sell is an average market price determined by past price movements over a day, several days or ten days, depending on the individual company.

  • If you invest in more than one program, you forego the convenience of having your investments appear on one statement.

If you are interested in learning more about direct registration, you should contact companies directly and ask whether they have a direct registration program and how the program works.

"What if the brokerage firm holding my cash or securities goes bankrupt or loses its records?"
The vast majority of brokerage firms are members of the Securities Investors Protection Corporation (SIPC). If your brokerage firm goes bankrupt, and it is a member of SIPC, then your securities and money are protected up to $500,000, including a $100,000 limit for cash. However, SIPC does not protect you against losses caused by a decline in the market value of your securities. Your monthly account statements and confirmations will be sufficient to establish your claim for money or securities. You should keep those records in a safe place in the event that you need to file a claim with SIPC. If you want to know whether your brokerage firm is a member of SIPC, you should ask your broker, or call SIPC at (202) 371-8300.

Recommended further reading:
What are investment advisers?
Internet Fraud:  How to avoid Internet investment scams
Tips for online investing: What you need to know about trading in fast-moving markets
Trade Execution: What every investor should know