# Understanding T+1, T+2, T+3: Securities Settlement Dates Explained

![T+1 (T+2, T+3): The settlement date of security transactions.](https://www.investopedia.com/thmb/xZKgkhfywS3JHQcM3ACx2f8pj00=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Tplus1_final-0774b40915554ff29a5859b1855e914f.png)

*— Investopedia / Michela Buttignol*

> **Definition**
>
> T+1 (T+2, T+3) are abbreviations that refer to the settlement date of security transactions.

T+1, T+2, and T+3 refer to the [settlement periods](https://www.investopedia.com/terms/s/settlement_period.asp) for securities transactions, where "T" signifies the transaction date. These terms dictate when the transfer of securities and corresponding payments occurs, influencing when investors officially become shareholders. Understanding these cycles is crucial for managing investment timelines and dividend eligibility, with recent changes moving U.S. stock market transactions to a T+1 standard.  

### Key Takeaways

*   T+1, T+2, and T+3 refer to the number of business days after a transaction when settlement occurs, with T+1 being the new standard for U.S. stocks as of 2024.  
    
*   The settlement day only counts market open days, meaning weekends and holidays are excluded from the timeline.  
    
*   The T+1 settlement cycle aims to lower settlement risk and aligns with modern technology by facilitating faster transactions.  
    
*   While stocks adhere to the T+1 settlement, other securities like bonds and mutual funds may still vary between T+1 and T+3.  
    
*   Understanding settlement dates is crucial for investors in dividend-paying stocks to determine dividend eligibility.

## A Closer Look at Settlement Periods: T+1, T+2, and T+3

The T+1 (T+2, T+3) settlement period includes only days when the [stock market](https://www.investopedia.com/terms/s/stockmarket.asp) is open. T+1 means that if a transaction occurs on a Monday, settlement must occur by Tuesday. Likewise, T+3 means that a transaction occurring on a Monday must be settled by Thursday, assuming no holidays occur between these days. The T+1 (T+2, T+3) settlement period includes only days when the stock market is open.

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](https://www.investopedia.com/terms/r/recorddate.asp) in order for the stock buyer to receive the dividend.

Previously, securities transactions were done manually instead of electronically. Investors would have to wait for the delivery of a particular security, which was an actual certificate, and they would not pay until receipt. Market regulators set a delivery period because delivery times and prices could change. For many years, the settlement date for stocks was traditionally T+5, or five [business days](https://www.investopedia.com/terms/b/business-day.asp) after the transaction date. The settlement moved to T+3 and then to T+2 in 2017. In 2024, stock settlement was shortened to T+1.

Settlement dates vary according to the type of security. All stocks are currently T+1; however, bonds, mutual funds, and some money market funds will vary between T+1, T+2, and T+3.

> **Tip**
>
> The settlement date is the date on which the investor becomes a shareholder of record. Weekends and public holidays are not included in the day count. Investors should be aware of the settlement date, as it determines when they officially become shareholders of record and this can impact their eligibility for dividends.

## Navigating the T+1 Settlement Cycle: What It Means for Stock Transactions

In May 2024, the U.S. stock market switched to a "T+1" cycle, settling trades the next business day. This change, which was initially adopted by the Securities and Exchange Commission (SEC) in February 2023, shortens the settlement cycle from the previous "T+2" standard, which had been in place since 2017. The last time the U.S. stock market had a one-day settlement cycle was approximately 100 years ago.

The new "T+1" settlement cycle applies to transactions for listed stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds, and limited partnerships that trade on an exchange. Under the new rule, if an investor sells shares of a stock on Monday, the transaction will settle on Tuesday, meaning the official transfer of securities to the buyer's account and cash to the seller's account will occur one business day after the trade.

The SEC has noted that there may be a potential for a "short-term uptick" in failed deals as a result of the shortened settlement cycle as dealers adjust. In rare cases, investors may need to deliver securities certificates to their broker-dealers earlier or through different means, and those buying securities may need to pay for their transactions one business day earlier. The change may also impact certain provisions of margin agreements, so investors should consult with their broker-dealers regarding any changes that may specifically affect their accounts.

The transition to the "T+1" settlement cycle has also occurred in other jurisdictions, including Canada and Mexico, on the same day. This change is expected to bring the U.S. stock market in line with the faster settlement times that are in-line with today's modern information and communication technologies.

> **Important**
>
> Note that the period between transaction and settlement is not flex time in which an investor can back out of a deal. The deal is done on the transaction day—it's only the transfer that does not take place until later.

## Illustrating the T+1 Settlement Process with Real-World Examples

Say that on Monday, June 3, an investor named Sarah decides to sell 100 shares of XYZ Corporation stock at $50 per share. She places the order through her broker and the trade is executed the same day.

Under a "T+1" settlement cycle, the settlement date for this transaction would be Tuesday, June 4, (assuming no holidays). This means that:

1.  Sarah's broker-dealer will deliver the 100 shares of XYZ Corporation stock to the buyer's account on Tuesday, June 4.
2.  The buyer's payment of $5,000 (100 shares × $50 per share) will be delivered to Sarah's account on Tuesday, June 4.

If the trade was executed under a "T+2" settlement cycle, the settlement date would have been Wednesday, June 5 instead, meaning the transfer of securities and cash would have occurred two business days after the trade date, and not one.

## What Has Been the History of U.S. Stock Settlement Cycles?

A century ago, stocks were settled T+1, but by hand. As interest in stock trading and volume of shares increased sharply, so too did the need to streamline the settlement process. The SEC originally established a standard settlement cycle of five business days (or T+5) for most securities transactions in order to provide sufficient time for the physical delivery of stock certificates and the corresponding payments. This was changed to T+3 in 1993, shortening the prevailing practice at the time of settling securities transactions within five business days of trade date. In 2017, the SEC shortened the standard settlement cycle from T+3 to T+2; and in 2024 from T+2 to T+1.

## Are there any exceptions to the new "T+1" settlement cycle?

Yes, certain types of securities and transactions may be exempt from the "T+1" settlement cycle. For example, some primary offerings, such as initial public offerings (IPOs), may have different settlement periods, as determined by the listing exchange. Additionally, certain fixed-income securities, such as U.S. Treasury securities and many money market instruments, already settle on a "T+1" or even a "T+0" (same-day settlement) basis.

## What Is Settlement Risk?

[Settlement risk](https://www.investopedia.com/terms/s/settlementrisk.asp) is the possibility that one or more parties will fail to deliver on the terms of a contract at the agreed-upon time. Settlement risk is a type of [counterparty risk](https://www.investopedia.com/terms/c/counterpartyrisk.asp) associated with [default](https://www.investopedia.com/terms/d/default2.asp) risk, as well as with timing differences between parties. Settlement risk is also called [delivery risk](https://www.investopedia.com/terms/d/delivery-risk.asp) or Herstatt risk. The time period for a transaction to settlement is meant to reduce settlement risk by ensuring that all information and payments are available to all parties involved.

## Key Takeaways on Settlement Cycles: T+1 and Beyond

The U.S. stock market now uses a T+1 settlement cycle, which means securities transactions settle one business day after the trade date. This faster cycle reduces settlement risk and aligns with modern technology.

While stocks follow this cycle, other securities like bonds and mutual funds may vary between T+1, T+2, and T+3. For investors, understanding settlement dates is crucial for determining when they become shareholders of record, affecting dividend eligibility. Although the T+1 cycle is standard in the U.S. as of 2024, some securities and transaction types, such as IPOs and certain fixed-income securities, may still follow different timelines.

> **Article Sources**
>
> 1.  U.S. Securities and Exchange Commission. "[About Settling Trades In Three Days: Introducing T+3](https://www.sec.gov/reportspubs/investor-publications/investorpubstplus3htm.html)."
>     
> 2.  U.S. Securities and Exchange Commission. "[SEC Adopts T+2 Settlement Cycle for Securities Transactions](https://www.sec.gov/news/press-release/2017-68-0)."
>     
> 3.  U.S. Securities and Exchange Commission. "[New 'T+1' Settlement Cycle – What Investors Need To Know: Investor Bulletin.](https://www.sec.gov/oiea/investor-alerts-and-bulletins/new-t1-settlement-cycle-what-investors-need-know-investor)"
>     
> 4.  U.S. Securities and Exchange Commission. "[Settling Securities Transactions, T+2](https://www.investor.gov/introduction-investing/investing-basics/glossary/settling-securities-transactions-t2)."
>     
> 5.  Bloomberg. "[Wall Street Returns to T+1 Stock Trading After a Century](https://www.bloomberg.com/news/articles/2024-05-28/wall-street-returns-to-t-1-stock-trading-after-a-century)."