Settlement Date: When Financial Transactions Are Finalized
Definition
What is a settlement date?
A settlement date is the date on which a financial transaction, such as the purchase or sale of securities, is finalized. On this date, the buyer pays the seller and the seller delivers cleared assets to the buyer.
Importance
Why is the settlement date important?
The settlement date is a crucial aspect of financial transactions because it marks the point at which ownership of the financial asset is transferred from the seller to the buyer. It also determines when the buyer is obligated to pay the seller and when the seller is responsible for delivering the assets.
Types of Transactions
What types of transactions have settlement dates?
Settlement dates are applicable to various types of financial transactions, including:
- Bonds
- Equities
- Foreign exchange
- Commodities
Process
How does the settlement process work?
The settlement process typically involves the following steps:
- Agreement on trade details
- Trade confirmation
- Payment by the buyer
- Delivery of assets by the seller
- Confirmation of settlement
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