Trade Settlement & Regulations

Settlement Basics

• Regular-way settlement for most corporate and municipal securities is trade date plus one business day (T+1) under the current U.S. standard. Payment and delivery obligations are completed on settlement date, not trade date.
• Government securities and options often settle on different timelines depending on product type and market convention. Always read the fact pattern carefully.
• In cash accounts, customers must promptly pay for purchases by settlement. Selling before paying can create freeriding issues if the firm has not extended credit properly.

Trade Dates, Record Dates, and Ex-Dividend

• The trade date determines when the contract is formed and when pricing is locked in. Record date determines who is officially on the issuer's books for dividend or interest purposes.
• Ex-dividend timing affects whether the buyer or seller receives a distribution. Series 7 questions often test which side gets the dividend around the ex-date.

Regulatory Rules

• Confirmations must disclose key trade details, including price, capacity, and whether the firm acted as agent or principal.
• Good delivery rules, buy-ins, DK notices, and settlement failures can appear in operational questions. Prompt and accurate processing reduces market and counterparty risk.
• Settlement violations in cash accounts include freeriding and liquidation violations. In margin accounts, the firm can extend credit subject to Reg T and maintenance rules.

Series 7 focus

• Memorize T+1, understand when cash must be deposited, and separate operational settlement rules from recommendation or suitability rules. The exam likes practical scenarios involving dividend entitlement, settlement failures, and account restrictions.