Trade Date

The trade date establishes the legally binding contract — from the trade date forward both parties are obligated to perform — while the settlement date is when that performance actually occurs through the exchange of securities and cash administered by the Depository Trust and Clearing Corporation and its subsidiaries.

The Trade Date — When the Contract Is Formed

The trade date is the moment a transaction is executed — the instant a market order is filled against a counterparty's order in the continuous auction market, or the moment a limit order finds a matching counterparty willing to trade at the specified price. 

For exchange-listed equities and ETFs trading on national securities exchanges, the trade date is typically the day the investor places and the market fills the order during regular trading hours — nine-thirty AM to four PM Eastern Time on business days — or during extended hours sessions if the broker-dealer offers after-hours trading capabilities.

From the trade date forward, the transaction is legally binding. The buyer is obligated to deliver the purchase price by the settlement date and the seller is obligated to deliver the securities by the settlement date — neither party can unilaterally cancel or renegotiate the transaction after the trade date without the consent of the counterparty. 

The trade date establishes all of the economically significant terms of the transaction — the security, the quantity, the price, and the identity of the counterparty — that determine the financial outcome for both parties.

The trade date also fixes the holding period for tax purposes — for securities traded on an established securities market the holding period begins on the day after the purchase trade date and ends on the sale trade date, and its length determines whether a sale produces short-term or long-term capital gain or loss treatment. 

An investor who purchases stock on June 1 and sells it on June 2 of the following year has held it for more than twelve months measured from trade date to trade date — qualifying for long-term capital gains tax treatment. The settlement dates of those transactions are irrelevant to the holding period calculation for tax purposes.

The Trade Date and the Tax Year

Because the trade date rather than the settlement date marks the sale, it also decides the tax year in which a gain or loss on a listed security is reported. The Internal Revenue Service illustrates the point in Publication 550 with a cash method, calendar year taxpayer who sells stock on December 31, where under the rules of the exchange the sale is closed by delivery of the stock and payment of the price in January of the following year — the taxpayer reports the gain or loss on the return for the year of the December trade, even though the cash arrived in the new year, and the holding period ended on December 31.

The same anchoring explains why a seller of listed securities cannot spread a gain across later years. Publication 550 states that the installment method cannot be used to report a gain from the sale of stock or securities traded on an established securities market — the entire gain must be reported in the year of sale, which the Internal Revenue Service identifies as the year in which the trade date occurs. An investor who sells at a large gain in the last days of December therefore cannot move that gain into the next tax year by arranging for the cash to be received after settlement, and the same holds for a loss — an investor who wants a loss in the current year needs the sale itself, not merely its settlement, to occur by the last trading day of December.

Broker reporting follows the same rule. In the instructions for Form 1099-B, on which a broker-dealer reports a customer's sales to the Internal Revenue Service and to the customer, box 1c — Date Sold or Disposed — is to show, for broker transactions, the trade date of the sale or exchange. A customer reconciling a Form 1099-B against brokerage statements will therefore find the sale listed under its trade date, and a sale executed on the last trading day of the year appears on that year's form even though it settled in January.

The Settlement Date — When Performance Occurs

The settlement date is the date on which the contractual obligations created on the trade date are actually performed — when the buyer's cash is delivered to the seller and the seller's securities are delivered to the buyer through the clearing and settlement infrastructure of the DTCC and its subsidiaries including the National Securities Clearing Corporation and the Depository Trust Company.

Settlement occurs through a netting and delivery process administered by the DTCC — the buyer's broker-dealer credits the purchased securities to the buyer's account and debits the purchase price, while the seller's broker-dealer debits the sold securities from the seller's account and credits the sale proceeds. In most modern transactions these book entries occur electronically — physical certificates are rarely delivered in the era of dematerialised book-entry ownership.

The settlement date is the date on which the investor's account reflects the finalised ownership position — the purchased securities are officially in the buyer's account and the sale proceeds are officially in the seller's account. Before the settlement date both sides of the transaction are in a pending or unsettled state — the buyer has a contractual right to receive the securities but does not yet legally own them in the finalised sense, and the seller's proceeds are owed to them but not yet in their account.

The T Plus One Settlement Cycle — The Current Regulatory Standard

The standard settlement cycle for most securities transactions executed by broker-dealers in the United States is T plus one — meaning settlement occurs one business day after the trade date. This T plus one standard has applied since May 28, 2024, the compliance date the SEC set when it adopted amendments to Exchange Act Rule 15c6-1 on February 15, 2023 shortening the prior T plus two standard.

Rule 15c6-1 under the Securities Exchange Act of 1934 — as amended, with compliance required from May 28, 2024 — prohibits broker-dealers from entering into contracts for the purchase or sale of securities that provide for payment and delivery later than one business day after the trade date, unless the parties expressly agree to a different settlement timeframe at the time of the transaction. The one-day default settlement standard applies to equities, corporate bonds, ETFs, and most other securities traded through broker-dealers on national exchanges and in the over-the-counter markets.

The evolution of the settlement cycle reflects decades of progressive shortening driven by advances in clearing technology, the transition to dematerialised electronic book-entry ownership, and regulatory concern about systemic risk from the volume of unsettled transactions outstanding at any moment. The prevailing practice was settlement within five business days of the trade date, T plus five, until the SEC acted in 1993 to establish a T plus three standard in Rule 15c6-1, and the SEC shortened the standard to T plus two in 2017. The SEC said the move to T plus one was informed in part by episodes of increased market volatility in 2020 and 2021, among them the meme stock events of January 2021, when heightened interest in certain stocks raised the settlement risk that broker-dealers had to manage with the clearing agency and several broker-dealers restricted their customers' trading in those stocks.

Why a Shorter Cycle Reduces Clearing Agency Risk

The National Securities Clearing Corporation, the DTCC subsidiary that operates the central counterparty for United States equity transactions, collects clearing fund contributions from its members to help ensure that it has sufficient financial resources if one of them defaults on its obligations. In the SEC's analysis the length of the settlement cycle is one determinant of the size of the clearing agency's exposure to its members — every trade that has not yet settled is an obligation the clearing agency stands behind, so a cycle that leaves fewer days of unsettled trades outstanding exposes it to less price movement before settlement and supports smaller clearing fund contributions.

A second effect concerns stress. In periods of market stress the liquidity demands a central counterparty imposes on its participants, such as intraday margin calls, can produce procyclical effects that reduce overall market liquidity at the moment it is most needed. The SEC explained that reducing the central counterparty's liquidity exposure by shortening the settlement cycle helps limit that potential for procyclicality and enhances the ability of the central counterparty to serve as a source of stability in the national clearance and settlement system.

The third effect reaches the customer. Broker-dealers incur costs in managing settlement risk with the central counterparty and can set their fees to recover the average cost of that risk from their customers, but when a particular trade carries above-average settlement risk — as when prices are unusually volatile — they may not be able to adjust their fees to reflect the higher marginal cost, and in extreme cases they may prevent a customer from trading. The SEC noted that this occurred in January 2021 following heightened interest in certain meme stocks, and that shortening the settlement cycle reduces the cost of managing settlement risk.

Choosing T Plus One Over Same-Day Settlement

Several commenters on the SEC's 2022 proposal urged it to move to same-day settlement, T plus zero, either at once or as soon as possible. The SEC accepted that shortening the cycle further than T plus one could ultimately produce considerable additional benefits for investors, but concluded that T plus zero would first require the industry to solve problems it had not yet solved — among them maintaining multilateral netting, institutional trade processing, securities lending practices, money settlement systems, mutual fund and ETF processing, transaction funding requirements and corporate action processing — so that a move to T plus zero would take longer to design and implement and would cost more. Because the benefits of T plus one could be obtained much sooner, the SEC treated T plus one as the more prudent and practical step at that time.

The timing of the change was also deliberate. The proposal had set a compliance date of March 31, 2024. The SEC moved it to Tuesday, May 28, 2024, a date that follows a Federal holiday on which both the securities markets and the banks are closed, so that market participants would have a three-day weekend in which to carry out the transition from the two-day to the one-day cycle.

Some commenters asked for the same-day affirmation rule, Rule 15c6-2, and the related investment adviser recordkeeping amendments to take effect later than the shortened cycle itself, so that firms could concentrate first on the move to T plus one. The SEC disagreed and gave all of them the same May 28, 2024 compliance date, reasoning that for institutional transactions allocations, confirmations and affirmations are integral to the settlement process, so the systems work needed for same-day affirmation should be done in tandem with the work needed for the shorter cycle rather than after it.

Exceptions to the Standard T Plus One Cycle

Several categories of securities transactions are exempt from the standard T plus one settlement cycle and operate under different settlement timeframes.

United States government securities — Treasury bills, notes, bonds, and Treasury Inflation-Protected Securities — typically settle on T plus one or same-day basis independent of the Rule 15c6-1 framework, because they are explicitly exempted from the rule's coverage. The government securities market operates under conventions administered by the Government Securities Division of the Fixed Income Clearing Corporation, a DTCC subsidiary, rather than the equity settlement framework.

Municipal securities are excluded from Rule 15c6-1 but settle on the same T plus one cycle under MSRB Rule G-15, which sets regular-way settlement on the first business day after the trade date.

Options contracts on national securities exchanges settle on the next business day — T plus one — after the exercise or assignment of an option, consistent with the standard cycle. The premium payment on an options transaction — the purchase of the option itself — settles on the business day following the trade date under the standard cycle.

New issue securities offered through firm commitment underwritten offerings that are priced after 4:30 PM Eastern Time on the pricing day operate under a T plus two settlement cycle under the amended Rule 15c6-1(c) — unless the parties expressly agree otherwise at the time of the transaction.

Certain mutual fund transactions have unique settlement timing — direct purchases and redemptions of open-end mutual fund shares typically settle within one to three business days depending on the fund's prospectus terms, with the transaction price determined by the next calculated net asset value following the order — the forward pricing requirement of Rule 22c-1 under the Investment Company Act of 1940.

What Rule 15c6-1 Does Not Reach

Beyond the classes of securities that paragraph (a) of Rule 15c6-1 leaves out of its one-day standard altogether, paragraph (b) removes further categories of contract from the rule. The first is contracts for the purchase or sale of limited partnership interests that are not listed on an exchange or for which quotations are not disseminated through an automated quotation system of a registered securities association. The exclusion turns on how the interest trades rather than on its legal form — limited partnership interests that are listed on an exchange remain subject to the one-day standard like any other listed security.

The second category, added in 2023, is security-based swaps. The SEC explained that Rule 15c6-1 was designed from the outset to supply a default contract term, because most broker-dealers do not specify every term of a trade before execution and rely instead on industry custom and self-regulatory rules. Security-based swap contracts, by contrast, generally specify the timing of the parties' contractual obligations themselves, often with a final net payment due at a future date the parties have agreed, so there is no need for a rule-based default term — and the SEC excluded them in the text of the rule rather than by a new exemptive order because it did not expect that Rule 15c6-1(a) would ever need to apply to them.

The third route is an exemptive order. Paragraph (b) allows the SEC, taking into account then existing market practices, to exempt contracts for the purchase or sale of securities from paragraph (a) by order, either unconditionally or on specified terms and conditions, where it determines that the exemption is consistent with the public interest and the protection of investors. This is the power under which the SEC has granted the standing exemptions described in the next section.

Foreign Securities, ADRs and Insurance Products

In 1995 the SEC used its exemptive power under Rule 15c6-1(b) to exempt securities that do not have facilities for transfer or delivery in the United States, which in practice covers securities traded outside the United States. When it moved to T plus one, commenters pointed out that trades in many non-United States markets still settle on T plus two and asked the SEC to widen that exemption; the SEC left the existing order in effect without modification, declined to expand its scope, and said it would continue to monitor how the shorter United States cycle affects market participants.

American depositary receipts were not brought within that exemption. A commenter argued that an ADR settling on T plus one while the underlying foreign shares settle on T plus two would make some trades in newly created ADRs harder to complete and could widen bid-ask spreads. The SEC concluded that ADRs should continue to be subject to Rule 15c6-1(a), reasoning that a large percentage of ADR trading involves purchases and sales of existing ADRs in the United States markets, so that the concern related to only a small percentage of ADR trading activity.

A separate 1995 order exempts certain insurance products from the rule, and the SEC had left it in place when the cycle moved to T plus two in 2017. The commenters who addressed it in 2022 agreed that the administrative processes and the regulatory requirements under state and Federal law that originally warranted the exemption applied as much as before, if not with greater force, because insurance products had only grown more complex, and the SEC kept that order unchanged as well. Both standing orders therefore survived the move to T plus one exactly as written.

Firm Commitment Offerings and Rule 15c6-1(c)

Paragraph (c) of Rule 15c6-1 has its own history. The SEC added it in 1995 in response to comments that new issue securities could not settle on T plus three because prospectuses could not be printed before the trade date, which for a new issue is the date on which the securities are priced. Until the 2023 amendments it allowed firm commitment offerings priced after 4:30 PM Eastern Time to settle on T plus four. Paragraph (c) reaches sales of the offered securities by the issuer to the underwriter in a firm commitment underwritten offering registered under the Securities Act of 1933, and sales to an initial purchaser by a broker-dealer participating in the offering.

The 2022 proposal would have deleted paragraph (c) altogether, on the view that the access equals delivery standard for prospectus delivery had removed the delays that once made prospectus delivery difficult within the standard cycle. The SEC still held that view when it adopted the final rule, but it was persuaded that one business day is not long enough to prevent late-priced firm commitment offerings from failing to settle on time, because unanticipated issues — relating to transfer agents, legend removal, local law matters including local court approval, medallion guarantees or non-United States parties — are not unusual in such offerings. It therefore retained paragraph (c) and shortened its period from T plus four to T plus two.

The express agreement route could not solve that problem on its own. Paragraph (d) provides that in a firm commitment offering the parties to a contract are deemed to have expressly agreed to an alternate settlement date if the managing underwriter and the issuer have agreed to that date for all securities sold in the offering and the parties have not expressly agreed to another date. But both paragraph (a) and paragraph (d) require the agreement to exist at the time of the transaction, so neither can accommodate circumstances that were unforeseen when the transaction was priced.

Municipal Securities Confirmations and New Issues

Municipal securities sit outside the SEC's confirmation rule as well as its settlement rule: Rule 10b-10 applies to transactions in any security other than United States savings bonds or municipal securities, and confirmations of municipal transactions are governed instead by MSRB Rule G-15. Under Rule G-15 a customer confirmation must show the trade date and must show the time of execution, with one relief — for a transaction for an institutional account, or a transaction in municipal fund securities, a statement that the time of execution will be furnished upon the customer's written request may be shown instead. A retail customer buying a municipal bond therefore receives a confirmation stating the time of execution itself, not merely an offer to supply it.

Rule G-15 also defines the settlement dates for customer transactions, in terms that mirror the inter-dealer rule, Rule G-12: the trade date for a cash transaction, the first business day following the trade date for a regular-way transaction, and for all other transactions a date agreed upon by both parties, provided that a dealer may not enter into a transaction providing for payment and delivery later than the first business day after the trade date unless the parties expressly agree at the time of the transaction.

That one-day limit expressly excludes when, as and if issued transactions, the trades in a new municipal issue that take place before the securities have been issued. Their settlement date cannot be fixed by counting forward one business day from the trade date, because there may be no securities yet to deliver on that day; under Rule G-12, for when, as and if issued transactions between dealers that must be compared through an automated comparison system, the agreed settlement date may not be earlier than two business days after the managing underwriter has notified the registered clearing agency of the issue's initial settlement date.

Rule 15c6-2 — The Same-Day Affirmation Requirement

Alongside the shortening of the settlement cycle to T plus one, the SEC adopted new Rule 15c6-2 under the Securities Exchange Act — requiring a broker-dealer that engages in the allocation, confirmation, or affirmation process with another party to achieve settlement of a transaction subject to Rule 15c6-1(a) either to enter into written agreements with the relevant parties, or to establish, maintain, and enforce written policies and procedures reasonably designed, to ensure that the process is completed as soon as technologically practicable and no later than the end of the day on trade date.

The allocation, confirmation, and affirmation process is the institutional post-trade workflow through which the details of a transaction — which accounts receive which portions of a block trade, what price was achieved, what the total commission was — are communicated from the executing broker-dealer to the investment manager's and custodian's systems and confirmed by the parties before the trade is submitted for settlement. Under the prior T plus two settlement cycle this process could be completed on trade date plus one — the day following execution — before the T plus two settlement deadline. Under the T plus one cycle, with only one business day between trade and settlement, same-day affirmation on the trade date itself became necessary to allow adequate time for settlement processing.

The adoption of Rule 15c6-2 represents the SEC's recognition that accelerating to T plus one settlement creates operational dependencies — the shortened cycle only works if the post-trade processing workflow is also accelerated to match, and requiring same-day affirmation ensures the entire process is aligned to the accelerated timeline.

How Rule 15c6-2 Is Met in Practice

Rule 15c6-2 reaches a broker-dealer that engages in the allocation, confirmation or affirmation process with another party to achieve settlement of a transaction subject to Rule 15c6-1(a), so a transaction outside Rule 15c6-1(a) is outside Rule 15c6-2 as well. In adopting it the SEC replaced the proposal's references to the customer with references to the relevant parties, so that the written agreement can be made with whoever actually takes part in the process — the customer's investment adviser, its custodian or another agent — and a broker-dealer need not enter into a new agreement with its customer solely for the purpose of same-day affirmation when a third party handles the process on the customer's behalf.

A broker-dealer that relies on written policies and procedures instead must make them do specific work. They must identify and describe the technology systems, operations and processes the firm uses to coordinate with other relevant parties, including investment advisers and custodians; set target time frames on trade date for completing the allocation, confirmation and affirmation; describe the procedures for prompt communication of trade information and for investigating and adjusting discrepancies; describe how the firm will identify and address delays when an adviser or custodian is not completing its part promptly; and measure, monitor and document the rates at which allocations, confirmations and affirmations are completed by the end of trade date.

The SEC declined to go further and require that settlement instructions be sent only once the affirmation is complete. It explained that completing the affirmation on trade date indicates that a trade is ready for settlement but does not necessarily mean that it can or will settle on time — the parties may still need to take further steps after the affirmation, such as ensuring that the securities and funds are available in the relevant accounts — so linking the two in every case would not necessarily accommodate the steps needed for timely settlement.

Rule 17Ad-27 — Straight-Through Processing at Central Matching Services

Alongside the broker-dealer rules the SEC adopted Rule 17Ad-27 for clearing agencies that provide a central matching service, the utilities through which institutional allocations, confirmations and affirmations are matched. The SEC uses straight-through processing to mean processes that allow the entire trade process, from trade execution through settlement, to be automated without manual intervention. Rule 17Ad-27(a) requires such a clearing agency to establish, implement, maintain and enforce written policies and procedures reasonably designed to facilitate straight-through processing of securities transactions at the clearing agency. The SEC considered instead requiring particular outcomes, such as enabling users to complete matching by the end of trade date, but chose a policies and procedures approach because it would remain effective over time as these clearing agencies adopt new technologies and operations.

The rule adds an annual reporting obligation. Every twelve months the clearing agency must submit to the SEC a report covering a twelve-month period that begins on January 1 of the calendar year, file it within 60 days after the end of that period, and file it electronically on EDGAR, tagged as an Interactive Data File under Rule 405 of Regulation S-T, so the information is in structured, machine-readable form.

The report's content is prescribed. It must summarise the clearing agency's straight-through processing policies and procedures, describe qualitatively its progress during the year and the actions it intends to take in the following year, and present data that include the total numbers of trades, allocations and confirmations submitted to it, the percentage of confirmations that are affirmed on trade date, the percentage of allocations and confirmations matched and automatically confirmed through its services, and metrics on the use of manual and automated processes by its users. The data must be organised month by month, separated by asset class and by type of user, and presented on an anonymised and aggregated basis.

Paying and Delivering on Time Under T Plus One

For an individual investor the shorter cycle changes the deadlines on both sides of a trade. FINRA's investor guidance explains that when an investor buys a security such as a stock or bond, the brokerage firm must receive payment no later than one business day after the trade is executed, and many brokerage firms require investors to have the needed funds in a cash account before making a purchase at all. An investor who intends to pay by an Automated Clearing House transfer needs to initiate it on the trade date so that the payment has posted by the settlement date, because simply initiating the transfer does not meet the payment requirement — the funds must actually be deposited in the brokerage firm's bank account.

The seller's obligation runs the same way. A seller must deliver the security to the brokerage firm no later than one business day after the sale, so that a sale executed on a Tuesday settles on the Wednesday. Where the securities are held electronically with the brokerage firm, the firm delivers them on the investor's behalf; but an investor who still holds a physical, paper certificate — increasingly rare in an era of book-entry ownership — must make sure that the certificate reaches the broker-dealer in time to meet the one-day cycle for the sale.

FINRA ties these deadlines to the reason the cycle could be shortened at all: with most trading and banking activity now occurring online, the extra days that were once needed to deliver securities or funds physically are no longer needed. The trade date, on which the price and the other terms are fixed, does not move under the shorter cycle; what moves is the day by which the cash or the securities must actually be in the brokerage firm's hands, which now falls on the next business day after it.

Trade Date Versus Settlement Date — Cash Account Violations

The distinction between trade date and settlement date has direct practical implications for investors trading in cash accounts — accounts where transactions must be funded with existing settled cash rather than borrowed margin funds — and creates the potential for specific cash account violations that are directly tested on the Series 7 examination.

In a cash account, the investor must have sufficient settled cash available to pay for purchases by the settlement date. The T plus one cycle means that cash from a sale executed today will settle tomorrow — it is unsettled today, but because payment for a purchase made today is also due tomorrow, those proceeds can pay for that purchase; what the investor may not do is sell the newly purchased security before it has been paid for.

A good faith violation occurs when an investor in a cash account buys a security using proceeds from another sale that has not yet settled, and then sells the newly purchased security before the original sale settles — completing a round trip on unsettled funds. The investor has used money that was not yet in their account to finance a purchase and then liquidated the position before the funds arrived to settle the financing. Three good faith violations in a twelve-month period result in the account being restricted to trading only with fully settled funds for ninety days.

A freeriding violation — the most serious cash account violation — occurs when an investor buys a security and sells it before paying for it, typically intending to use the sale proceeds to fund the original purchase. Freeriding is not permitted under Federal Reserve Regulation T, and Section 220.8(c) withdraws the privilege of delaying payment beyond the trade date for ninety calendar days following the sale.

A liquidation violation — sometimes called a cash liquidation violation — occurs when an investor sells a security to meet the settlement obligation of a prior purchase before the funds from that sale are available — using the proceeds of a sale to pay for a purchase whose settlement is due on the same day as the sale settles.

The Trade Date in Portfolio Accounting

In portfolio accounting and performance measurement, the trade date versus settlement date distinction creates a choice of accounting convention that affects how transactions are reflected in the portfolio's recorded holdings and valuations.

Trade date accounting records the transaction in the portfolio on the trade date — reflecting the economic reality that the obligation is created and the investment decision is made on the trade date. Under trade date accounting, a purchase executed today is reflected in the portfolio today even though the securities will not be delivered until tomorrow. Trade date accounting is the standard used by most institutional investment managers and is required by the Global Investment Performance Standards — the GIPS standards maintained by the CFA Institute — for performance measurement purposes.

Settlement date accounting records the transaction on the settlement date — reflecting the legal completion of the transfer rather than the economic commitment. Settlement date accounting is used in some contexts particularly for cash management purposes, where the manager wants to track actual cash balances rather than committed cash positions.

The choice of accounting convention does not affect the ultimate economic result of any transaction — both methods produce identical holdings and valuations once all transactions have settled. The difference only arises during the settlement window — the period between trade date and settlement date when the two accounting methods produce different intermediate portfolio snapshots.

Trade Date Recognition in Fund Pricing and Performance Records

Registered investment companies have their own trade date rule for pricing. Rule 2a-4 under the Investment Company Act of 1940 defines the current net asset value used in computing the price at which redeemable fund shares are distributed, redeemed and repurchased, and it provides that changes in the fund's holdings of portfolio securities shall be reflected no later than in the first calculation on the first business day following the trade date. A fund that buys or sells portfolio securities therefore need not reflect the trade in the net asset value it calculates on the trade date itself, but it must reflect it no later than the first calculation on the next business day.

The same rule treats the fund's own shares in a parallel way: changes in the number of outstanding shares of the fund resulting from distributions, redemptions and repurchases must be reflected no later than in the first calculation on the first business day following the change. Rule 2a-4 also requires expenses, including investment advisory fees, and interest and other income to be included to the date of the calculation, and dividends receivable to be included at ex-dividend dates or record dates, as appropriate.

Performance measurement draws its own line. The Global Investment Performance Standards define trade date accounting as recognising the asset or liability on the date of the purchase or sale and not on the settlement date, but they do not insist on recognition on the trade date itself: recognising the asset or liability within three business days of the date on which the transaction is entered into — on the trade date, T plus one, T plus two or T plus three — satisfies the trade date accounting requirement for purposes of the GIPS standards. A manager that books trades a business day late has therefore not departed from trade date accounting as the standards use the term.

Examination Relevance and Key Takeaways

The trade date is tested on the Series 7 examination in the context of the settlement cycle, SEC Rule 15c6-1, the distinction between trade date and settlement date, and the cash account violations that arise from trading on unsettled funds.

The key points to retain are these.

The trade date is the date a securities transaction is executed — when the order is filled and the legally binding contract is formed. The settlement date is the later date when the actual transfer of securities and cash is completed. The trade date establishes the holding period for tax purposes — the number of months or years from purchase trade date to sale trade date determines short-term versus long-term capital gain or loss treatment. The current standard settlement cycle for most securities transactions — equities, corporate bonds, ETFs — is T plus one — one business day after the trade date — under the amended SEC Rule 15c6-1 with a compliance date of May 28, 2024, municipal bonds settling on the same cycle under MSRB Rule G-15, shortened from the prior T plus two standard. The shortening to T plus one was adopted by the SEC on February 15, 2023 in part driven by the systemic risk concerns exposed by the GameStop meme stock events of January 2021. Rule 15c6-2 adopted alongside the T plus one rule requires broker-dealers to have written agreements, or written policies and procedures, designed to ensure that the institutional allocation, confirmation, and affirmation process is completed by the end of trade date — same-day affirmation — to support timely T plus one settlement. United States government securities are exempt from Rule 15c6-1 and operate under their own settlement conventions. Firm commitment offerings priced after 4:30 PM Eastern Time settle on T plus two under Rule 15c6-1(c). Cash account violations arising from the trade date and settlement date distinction include the good faith violation — buying on unsettled proceeds and selling before those proceeds settle — resulting in a ninety-day restriction after three violations in twelve months — and freeriding — buying a security and selling it before paying for it — resulting in an immediate ninety-day account restriction under Regulation T.