Settlement, Clearing, and Corporate Actions
Key rules on T+1 settlement, Regulation T, good delivery, and dividend dates for the SIE.
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Questions Covered in This Set
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Clearing vs. settlement
Clearing = matching/confirming trade details and netting obligations; settlement = the actual exchange of securities for cash.
Regular way settlement for stocks, corporate/muni bonds, ETFs, and listed options
T+1 — one business day after trade date (since May 2024).
What is 'cash' (same-day) settlement?
Settlement on trade date; requires the seller's agreement.
Regulation T initial margin requirement
50% of the purchase price of marginable equity securities; set by the Federal Reserve Board.
Reg T payment deadline
Two business days after settlement (S+2), which is effectively T+3 under T+1 settlement.
Consequence of failing to pay under Reg T
The firm sells out the position and freezes the account for 90 days (customer must pay in advance during the freeze); amounts under $1,000 may be disregarded.
Freeriding
Buying in a cash account and selling before paying, using sale proceeds to cover the purchase — a Reg T violation causing a 90-day freeze.
Which organizations clear which products?
NSCC clears equities/corporate bonds, DTC holds securities in book-entry form (both under DTCC), OCC clears and guarantees listed options, FICC clears government securities.
Requirements for good delivery of stock certificates
Units of 100 shares (or denominations adding to 100), properly endorsed or with a stock power, signatures matching registration; all owners must sign for joint accounts.
FINRA margin minimums (vs. Reg T)
25% minimum maintenance of long market value and $2,000 minimum equity to open — SRO rules, not Fed rules.
