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.<\/span> 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.<\/span><\/p>"
}
}
,
{
"@type": "Question",
"name": "Are there any exceptions to the new "T+1" settlement cycle?",
"acceptedAnswer": {
"@type": "Answer",
"text": " 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.<\/p>"
}
}
,
{
"@type": "Question",
"name": "What Is Settlement Risk?",
"acceptedAnswer": {
"@type": "Answer",
"text": " Settlement risk<\/a> 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<\/a> associated with default<\/a> risk, as well as with timing differences between parties. Settlement risk is also called delivery risk<\/a> 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.<\/p>"
}
}
]
} ] }
]