What is T+1 settlement in the US stock market?

T+1 settlement means that when a US equity trade is executed, the exchange of cash and securities between buyer and seller must be completed within one business day of the trade date. The US moved from a T+2 cycle to T+1 on 28 May 2024, implementing a rule finalised by the SEC to reduce systemic risk in financial markets.

Settlement is processed through the Depository Trust & Clearing Corporation (DTCC) and its subsidiaries: the Depository Trust Company (DTC) holds custody of securities electronically, and the National Securities Clearing Corporation (NSCC) nets and clears trades between broker-dealers before instructing the DTC to move securities.

The practical consequences of T+1 vary by investor type. For retail investors using a brokerage account, the experience is largely seamless: proceeds from a sale are available to reinvest the following business day, and purchases are debited the same day. One visible change is in ex-dividend dates: with T+1, a company's ex-dividend date is now one business day before the record date (instead of two days under T+2), so investors buying on or after the ex-date will not receive the declared dividend.

For institutional investors, fund managers, and foreign investors who must convert currencies to fund US stock purchases, T+1 compresses the window for foreign exchange conversion and increases the operational complexity of same-day settlement. This was one of the main areas of concern during the rule's implementation.

The reduction in settlement time reduces the period during which counterparty risk exists — the risk that one party defaults before the trade settles. It also reduces the amount of collateral that clearing houses require broker-dealers to post, which can free up capital at the broker level.