A customer just sent me an email that represents a concept many Series 7 students struggle with. She wrote:
Why is this answer 5 business days? I thought it was T+3 . . .?
An investor who buys 500 shares of common stock at $25 per share in a regular way transaction is required to deposit the money by
A. Trade Date
B. Settlement date
C. Trade Date plus 3 business days
D. Trade Date plus 5 business days
RESPONSE: broker-dealers must settle at T + 3. If they want to pay for their customer's trade and let the customer slide, they can only let him slide for 2 more business days; after that, they'd have to request an extension. So remember for a test question that firms settle at T + 3, but customers have 2 more business days to pay . . . if the firm wants to be that nice. We could say that customers must pay "5 business days after the trade," or "2 business days after regular-way settlement." It's imperative that we have at least two ways to say everything in this business in order to keep the customer totally confused.