Since June 1995, the securities industry has been required to settle securities trades (for stocks and bonds) in three business days (reduced from five business days). This settlement cycle is known as "T+3"-shorthand for "trade date plus three days." The SEC is currently working with the industry to shorten the settlement cycle even further-from T+3 to one day (T+1) and to automate each step in the settlement process ("commonly referred to as straight-through processing or STP"). These initiatives should help ensure that the U.S. securities markets are prepared to handle the expected increases in trading volumes and remain the leader in the world's markets. The move to T+1 is currently scheduled for June 2004, but may be extended to June, 2005.
Under a T+1 settlement cycle, investors will probably have to change the way in which they buy and sell securities. For example, investors who hold certificates may have to deliver the certificates to their brokerage firm before their brokerage firm will execute their orders. Investors purchasing securities may need to have funds at their brokerage firm before their brokerage firm will execute their orders. As is the case with T+3, brokerage firms are required to send funds or certificates "promptly" to customers following the settlement of a trade, but there are no deadlines imposed by federal law or regulations. Brokerage firms will credit your account with sale proceeds as soon as your trade settles. Some brokerage firms provide a service whereby they will immediately "sweep" your money into an account that earns interest. You should ask your broker about how you can assure that all funds and securities are delivered to you promptly.
Over the past year, the Securities Industry Association, a trade group for broker-dealers, has formed several T+1 committees and issued a number of white papers and other reports that focus on various aspects of the settlement process. In addition, The Depository Trust & Clearing Corporation also has details about T+1 on its website.