What is the transaction date?

The trade date is the month, day and year when an order is executed on the market. It lists when an order to buy, sell or other transaction in a Security is carried out and is determined for all types of transactions in investment securities in the market.

Key points to remember

  • A trade date refers to the month, day and year when an order is executed on the market.
  • If a trade is consumed after normal trading hours, it may be recorded with a trade date of the next business day.
  • The settlement date marks the date and time of the legal transfer of securities between buyer and seller.
  • The lag between trade date and settlement date differs from security to security.

Understanding the Transaction Date

Most trades take place during normal market trading hours and are recorded with today’s trade date. Non-standard transactions market hours may have other business relationships. Transactions executed after the exchange close are usually recorded with a transaction date of the next day.

A trade date can apply to the purchase, sale or transfer of any type of security, including bonds, stocks, exchange instruments, goods and futures contracts. The exact time of the trade influences the trade date of a transaction.

Transaction dates are followed by a settlement date, which occurs after a certain lag. The settlement date is the date on which the securities legally change hands. To set the time lag between trade and settlement dates, common practice is to designate T + lag days (e.g. D+1, D+2, D+3), where “T” refers to the trade date.

Beneficial legal ownership is transferred on the settlement date, not the trade date.

Transaction date vs. Settlement date

The transaction date is one of the two important dates for transactions. The transaction date records and initiates the transaction. After that, the trade must be settled. The settlement date, the date on which the transfer between two parties is executed, usually differs from the trade date.

The amount of time that elapses between the trade date and the settlement date differs depending on the trading instrument and is known as settlement period. The settlement period is noted as T+ the number of days until settlement.

Certain financial instruments, such as certificates of deposit (CD), have settlement dates identical to the trade date. Mutual fund can be settled one day after the transaction date.

In 2017, the Security and Exchange Commission (SEC) has adopted T+2 settlement for most securities. The T+2 regulation applies to stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds, and limited partnerships that trade on exchanges.

Although rare, there are two ways colonies can fail. The first is called a long fail, when the buyer does not have sufficient funds to pay for the shares purchased on the transaction date. The second is called a short fail, which occurs when the seller does not have the necessary securities by the settlement date.

Transaction date example

To better understand the trading process and trading date, consider the following example. An investor buys 10 shares on their brokerage platform on Tuesday, August 2, 2022, during normal market trading hours. The investor’s purchase initiates the transaction and is recorded with a trade date of August 2, 2022.

The processing time for settlement of most listed shares has been shortened by the United States Securities and Exchange Commission to one day from two days in February 2022, so that the buyer would officially receive the shares in their account. trading in T+1, which equates to a settlement date of Wednesday August 3, 2022.

Read More:   Student Loan Debt by Race

Related Posts