A trade is a promise until it settles, and since May 28, 2024, most come due one business day after the trade. As a principal, you make sure each one is booked correctly, confirmed, delivered in good form and, if broken, closed out on time.
Booking a trade records its account, security, side, quantity, price, capacity (agent for the customer, or principal from inventory), trade date and settlement date. To confirm proper booking and settlement of trades, you verify that the books match the execution and that cash and securities changed hands on time.
Errors compound. A wrong account sends the confirmation to the wrong customer, and a wrong capacity code puts the wrong disclosures on it. A wrong settlement date creates a fail, which can end in a buy-in: the buyer purchases the securities elsewhere and charges your firm any loss. Written procedures should name who reconciles tickets to the blotter, resolves unmatched comparisons and escalates aging fails.
National clearance and settlement must be prompt and accurate, so one regulator sets the ground rules for how every trade settles.
Common mistakes
- Counting from trade date. Buy-in days run from the date delivery was due, so on a Monday regular-way trade the earliest buy-in is Friday, not Thursday.
- Assuming T+1 shortened buy-ins. The 2024 conversion shortened the UPC deadlines above but not Rule 11810's third-business-day wait or two-business-day notice.
- Giving sell-outs a notice period. Only buy-ins carry advance notice, as the remedy table shows.
Bottom line
- Regular-way settlement is T+1 under Rule 15c6-1 since May 28, 2024, unless the parties expressly agree otherwise at the time of the trade; late-priced firm-commitment offerings may settle T+2.
- Rule 15c6-2 requires a written agreement or enforced written policies to complete allocation, confirmation and affirmation by the end of trade date.
- Rule 11860 COD orders also need agent details, COD or POD marking and a confirmation by end of trade date.
- ADF and TRF trades (Rules 6274, 6350A, 6350B) and member corporate debt trades (Rule 11900) clear through a registered clearing agency; ex-clearing requires both parties' agreement.
Exam shortcut
Open every close-out question by asking who failed and when delivery was due. A failed seller means a buy-in with notice, a failed buyer means a sell-out without notice, and a price move with no fail means marking to the market. Count business days from the due date, skipping weekends and holidays. Eliminate answers that say a fail cancels the trade.
The full lesson (about 5,125 words, 34 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- D14
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