In financial markets T+3 is a shorthand for trade date plus three days indicating when securities transactions must be settled. T+3 means that when a security is purchased, payment and the securities certificate must change hands no later than three business days after the trade is executed.
During the 1700s the Amsterdam stock exchange had close links with the London stock exchange and they would often list each other's stocks. To clear the trades, time was required for the physical stock certificate or cash to move from Amsterdam to London and back. This led to standard settlement period of 14 days which was the time it usually took for a courier to make the journey on horseback and by ship. Most exchanges continued to use the same model over the next few hundred years. With the advent of new technology in the 1970s and 1980s there was a move to reduce settlement times and settlement dates in most exchanges reduced to five days known as T+5 then to three days (known as T+3 or Trade date plus three days).
Efforts are also underway in Europe to shorten the settlement cycle for stocks to two days ("T+2"), driven by the European Commission's Central Securities Depositories Regulation. Discussions have begun in the United States to follow suit, propelled in part by cost-benefit analysis research commissioned by the Depository Trust & Clearing Corporation in 2012. The study, conducted by the Boston Consulting Group, identified 11 key enablers to achieving shortened settlement cycles, including the establishment of a "trade date" environment, or a market where same-day affirmation (SDA) is the norm.
The three-day settlement date applies to most security transactions, including stocks, bonds, municipal securities, mutual funds traded through a brokerage firm, and limited partnerships that trade on an exchange.
In contrast to T+3, government securities, stock options, and options on futures contracts settle on the next business day following the trade. Futures contracts themselves settle the day of the trade.
The first day of the three-day settlement cycle starts on the business day following the day that a security was purchased or sold. For example, if a stock is purchased on Friday at any time during the day, Saturday and Sunday are not considered business days, so the three-day clock doesn't start running until Monday. A payment or check must arrive at the broker's office by the close of business on Wednesday.
There is also a move in a number of different stock exchanges to reduce the settlement time from T+3 to T+2.
In some markets such as US treasury bonds the settlement period is one day after the trade date and so is sometimes referred to as T+1.
- "Central Securities Depositories (CSDs) - European Commission". Ec.europa.eu. Retrieved 2013-08-17.
- Mehta, Nina (22 May 2012). "DTCC Plans Study on Faster Settlement for U.S. Securities." Bloomberg News. Retrieved 22 March 2013.
- Chandrashekhar, Chandy; Antonio Riera, Shubh Saumya, and Roland Kastoun (October 2012). "Cost Benefit Analysis of Shortening the Settlement Cycle." Boston Consulting Group. Retrieved 22 March 2013.
- "About Settling Trades in Three Days". Sec.gov. 2004-05-21. Retrieved 2013-08-17.