Settlement

Settlement

Settlement

Futures contracts have two types:

(i) the Mark-to-Market (MTM) which happens on a continuous basis at the end of each day, and

(ii) the final settlement which happens on the last trading day of the futures contract.

On the exchanges like the NCDEX, daily MTM and final MTM for futures contracts are cash-settled by debiting/crediting the clearing accounts of CMs with the respective clearing bank.

In the securities industry,  the period refers to the time between the date—month, day, and year that an order is executed in the market—and the date—when a trade is considered final. On the last day of the period, the buyer becomes the holder of record of the security. The specific length of the period has changed over time.

For many years, the trade settlement period was five days. Then in 1993, the SEC changed the period for most securities transactions from five to three business days—which is known as T+3. Under the T+3 regulation, if you sold shares of stock Monday, the transaction would settle Thursday. The three-day, a period made sense when cash, checks, and physical stock certificates still were exchanged through the U.S. postal system. It is an important part of the commodity market. The SEC created rules to govern the trading process, which includes outlines for the settlement date. During the settlement period, the buyer must pay for the shares, and the seller must deliver the shares. On the last day of the settlement period, the buyer becomes the holder of record of the security.

 

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