Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What does "regular way settlement" refer to in securities transactions?

1. Settling on the same day the trade was made

2. Settling three business days after the trade date

3. Settling one business day after the trade date for all securities

4. Settling one month after the trade date

The correct answer is: Settling three business days after the trade date

"Regular way settlement" refers to the standard time frame in which transactions in securities are settled after the trade is executed. For most securities, including stocks, this is typically established as three business days after the trade date. This standard allows for enough time for both parties to process the transaction, complete necessary paperwork, and ensure that funds and securities are exchanged properly. When a trade is executed, the buyer and seller agree on the trade details, and regular way settlement ensures that these details are finalized, including the transfer of ownership and the exchange of payment. This three-day period is essential for the overall functioning of the securities market, allowing for appropriate checks and balances in the transaction process. In contrast, settling on the same day or settling one business day later applies to different types of transactions (like certain government securities or money market instruments), while a one-month delay is not regarded as a typical settlement timeframe and would generally be considered a special settlement condition.