T+1 settlement

T+1 settlement is the US standard under which most securities trades settle one business day after the trade date: the buyer's cash and the seller's shares formally change hands on the next business day. It replaced the T+2 cycle on May 28, 2024.

How it works

"T" is the trade date. A stock bought on a Monday settles on Tuesday; one bought on a Friday settles the following Monday, assuming no holiday. Settlement for most US equities runs through the Depository Trust & Clearing Corporation (DTCC) and its subsidiaries.

T+1 covers stocks, ETFs, corporate and municipal bonds, and most other broker-dealer transactions. Shortening the cycle reduces the time a trade is exposed to a counterparty defaulting, which lowers the margin brokers and clearing firms must post. The move followed the January 2021 meme-stock volatility, when T+2 collateral demands forced some brokers to restrict trading.

Why it matters for traders

Settlement timing drives several practical rules:

• Dividends. With T+1, the ex-dividend date generally falls on the same day as the record date. You must buy before the ex-date to receive the dividend.
• Cash accounts. Proceeds from a sale settle a day later, and buying with unsettled funds and then selling before settlement can cause a good faith violation.
• Short selling and fails. Sellers must deliver shares by the settlement date. A failure to deliver arises when they do not, and Regulation SHO close-out rules then apply.

Example

A trader sells 100 shares of hypothetical Copperline Energy (ticker CPLE) on Thursday. Under T+1, the cash settles Friday. If Friday is a market holiday, it settles the following Monday instead.

FAQ

When did the US move to T+1?

May 28, 2024. Before that, US stocks settled on T+2, which had been the standard since September 2017.

Does T+1 mean I can't trade until settlement?

No. In a margin account you can trade freely. In a cash account you can trade, but using unsettled funds carelessly can lead to account restrictions.