5.8.7.1.1. Different Types of Settlement Dates
As just stated, the most typical kind of settlement occurs on the second business day following the trade date. 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 p.m. ET.
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 check, bank draft, or cash.
If the seller cannot deliver the securities by the regular way settlement date, the seller can ask for a seller’s option. If the buyer consents, a seller’s option will allow the seller to deliver the securities on a later date. If the seller wants to make a delivery prior to the option date, it must wait until at least three business days after the trade date. In other words, the seller may not deliver the securities earlier than the T + 3 date because this would force the buyer to come up with the money earlier than expected. If the seller would like to deliver the securities earlier than the option date, the seller must provide the buyer with a written notice of intent to deliver at least one day prior to delivering the securities. Thus, the earliest that notice could be given would be T + 2, and the earliest that a seller’s option could occur is T + 3.
The buyer can also ask for a buyer’s option. If the seller agrees, delivery must occur at the purchaser’s office on the new agreed-upon option date. Under a buyer’s option, the buyer is not obligated to accept delivery prior to the option date and the seller is not required to prov