Settlement Date
The date on which a securities transaction is formally completed and ownership is transferred.
What is Settlement Date?
The settlement date is the day on which a securities transaction is finalized: the buyer's account is debited for cash, the seller's account is credited, and legal ownership of the security is transferred. In U.S. equity markets, settlement occurs on a T+1 basis (one business day after the trade date) as of May 2024, shortened from T+2. Government bonds typically settle T+1, while corporate bonds settle T+2. Options settle T+1. Clearing houses such as the DTCC in the U.S. guarantee settlement and reduce counterparty risk — if one party fails to deliver, the clearinghouse steps in. Settlement risk is the risk that a counterparty will fail to deliver cash or securities on the settlement date.
Example
An investor buys 100 shares of Amazon on Monday, October 6 (trade date, T). Under T+1 settlement, the trade settles on Tuesday, October 7. On that date, $18,500 is debited from the investor's account and 100 Amazon shares are credited. Until settlement is complete on October 7, the investor cannot sell those shares or use the cash proceeds from a sale for other purposes.
Source: SEC — Trade Settlement