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T+1 Settlement

What Investors Need to Know

On February 15, 2023, the Securities and Exchange Commission implemented rule adjustments aimed to reduce the typical settlement cycle for the majority of broker-dealer transactions from trade date plus 2 days (T+2) to trade date plus one day (T+1), subject to certain exceptions. This is an industry effort initiated under Securities and Exchange Commission (SEC) amended Rule 15c6-1. The compliance date for adhering to these rule modifications is May 28, 2024, by which time the standard settlement cycle will transition to T+1. This shift, driven by advancements in technology and evolving investor preferences, aims to enhance efficiency and reduce liquidity risks in the market.

What Does This Mean?

In every trade, investors need to be aware of two important dates:

  • The Trade Date
    The transaction date denotes the day a trade is successfully executed.
  • The Settlement Date
    Conversely, the settlement date is when the trade is officially recognized. On this day, payments for purchases are expected, securities sold must be delivered, and the transfer agent verifies the new shareholder while removing the previous one.

Here’s What Investors Need to Know before the Deadline Approaches

Impacted Products
Effective May 28, various securities traded on U.S. exchanges will transition from T+2 to T+1 settlement, including:

  • Stocks
  • Bonds
  • Exchange-traded funds (ETFs)
  • Select mutual funds
  • Municipal securities
  • Real Estate Investment Trusts (REITs)
  • Master limited partnerships (MLPs)

Impact on Investors
While most brokerage firms mandate sufficient cash or margin before executing securities orders for settlement, some investors may notice subtle effects on their trading, portfolio management, and tax strategies due to the increased efficiency in settlement processes.

Tax Considerations
 With T+1 settlement, investors must promptly adjust their cost basis decisions post-trade. Once settlement is finalized, the cost basis — encompassing the initial investment, associated fees, and decisions regarding dividends and distributions — becomes crucial for accurate tax reporting.

The move to T+1 requires careful consideration of its implications on investment strategies, tax planning, and trading practices. For personalized insights into how this shift may impact your portfolio, reach out to an Oppenheimer Financial Professional today.

Additional Resources

Final Rule: Shortening the Securities Transaction Settlement Cycle | SEC.gov
Trade Reporting and T+1 Settlement | FINRA.org