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T+2 Goes Into Effect on September 5, 2017
By Russell Bean - July 24, 2017
In March, the SEC approved a rule change reducing the settlement cycle from T+3 to T+2. Whereas your Monday trade settles on Thursday right now, it will settle on Wednesday when the rule goes into effect on September 5, 2017. The change is being made to improve capital efficiencies and reduce the risk of counterparty default. The change applies to stocks, bonds, exchange traded funds, certain mutual funds, and limited partnerships that trade on exchanges.
While this change is not as drastic as when the cycle was reduced to 3 days from 5, it will mean that brokers and investors will want to make sure funds or securities are available for settlement before the trade is entered. Investors will actually own the security that they are purchasing one day earlier than under T+3 for dividend and interest purposes.
The industry is already discussing the concept of T+1, and we might see that sooner rather than later if T+2 goes well.