Determining a Dividend Distribution
When the issuing company announces its decision to offer a dividend, it sets a firm date in the coming days or weeks for its distribution. The declaration date is the date that the board of directors declares the dividend, also called an announcement date. The payment date is the date that the board of directors sets to pay the dividend.
A purchaser of a security secures the deal on one date, and he receives and pays for the security a few days later after the transaction has cleared. The trade date is the date on which a transaction is agreed upon. The settlement date, also called the delivery date, is the date that buyers are expected to pay for the securities they purchased and sellers are expected to deliver the securities they sold. These two terms deserve elaboration.
Trade Date
The trade date is not always as straightforward as you might expect. Suppose a dealer on the West Coast accepts a bid or offer from a dealer on the East Coast, and because of the time zone difference, the contra-party does not receive trade confirmation until the following day. The UPC designates that the trade date is in the time zone where the trade was accepted.
Settlement Date
The most typical kind of settlement occurs on the second business day following the trade date (often noted as T + 2). This is called regular way settlement for OTC securities. Thus, if a trade is executed on Friday, June 1, the regular way settlement date will occur on Tuesday, June 5, and delivery and payment must occur on that date.
In cases where a transaction is settled in cash, delivery and payment are exchanged on the same day of the trade. This is also called (not surprisingly) same-day settlement. A cash settlement transaction must be finalized on or before 2:30 PM Eastern Time.
Payment for all transactions is typically received at the time of delivery. The seller can require the buyer to make payment by certified check, cashier’s che