t 1 t 2 t 3 are abbreviations that refer to the settlement period for security transactions the t stands for transaction date which is the day the transaction takes place the numbers 1 2 or 3 denote how many days after the transaction date the settlement or the transfer of money and security ownership takes place 
understanding t 1 t 2 t 3 for determining the t 1 t 2 t 3 settlement period the only days counted are those on which the stock market is open t 1 means that if a transaction occurs on a monday settlement must occur by tuesday likewise t 3 means that a transaction occurring on a monday must be settled by thursday assuming no holidays occur between these days but if you sell a security with a t 3 settlement date on a friday ownership and money transfer do not have to take place until the following wednesday 1knowing the settlement date of a stock is also important for investors or strategic traders who are interested in dividend paying companies because the settlement date can determine which party receives the dividend that is the trade must settle before the record date for the dividend in order for the stock buyer to receive the dividend in the past security transactions were done manually rather than electronically investors would have to wait for the delivery of a particular security which was an actual certificate and they would not pay until receipt since delivery times could vary and prices could fluctuate market regulators set a period of time in which securities and cash must be delivered for many years the settlement date for stocks was traditionally t 5 or five business days after the transaction date 1 until recently the settlement was moved to t 3 and then it became t 2 in 2017 2 in 2024 stock settlement was shortened to t 1 3settlement dates vary according to the type of security all stocks are currently t 1 however bonds mutual funds and some money market funds will vary between t 1 t 2 and t 3 4the settlement date is the date on which the investor becomes a shareholder of record weekends and public holidays are not included in the day count investors should be aware of the settlement date as it determines when they officially become shareholders of record and this can impact their eligibility for dividends the t 1 settlement cycle for stocksin may of 2024 the u s stock market officially transitioned to a t 1 settlement cycle where securities transactions will settle one business day after the trade date this change which was initially adopted by the securities and exchange commission sec in february 2023 shortens the settlement cycle from the previous t 2 standard which had been in place since 2017 3 the last time the u s stock market had a one day settlement cycle was approximately 100 years ago 5the new t 1 settlement cycle applies to transactions for listed stocks bonds municipal securities exchange traded funds certain mutual funds and limited partnerships that trade on an exchange under the new rule if an investor sells shares of a stock on monday the transaction will settle on tuesday meaning the official transfer of securities to the buyer s account and cash to the seller s account will occur one business day after the trade the sec has noted that there may be a potential for a short term uptick in failed deals as a result of the shortened settlement cycle as dealers adjust 5 in rare cases investors may need to deliver securities certificates to their broker dealers earlier or through different means and those buying securities may need to pay for their transactions one business day earlier the change may also impact certain provisions of margin agreements so investors should consult with their broker dealers regarding any changes that may specifically affect their accounts the transition to the t 1 settlement cycle has also occurred in other jurisdictions including canada and mexico on the same day 5 this change is expected to bring the u s stock market in line with the faster settlement times that are in line with today s modern information and communication technologies note that the period between transaction and settlement is not flex time in which an investor can back out of a deal the deal is done on the transaction day it s only the transfer that does not take place until later example of t 1 settlementsay that on monday june 3 an investor named sarah decides to sell 100 shares of xyz corporation stock at 50 per share she places the order through her broker and the trade is executed the same day under a t 1 settlement cycle the settlement date for this transaction would be tuesday june 4 assuming no holidays this means that if the trade was executed under a t 2 settlement cycle the settlement date would have been wednesday june 5 instead meaning the transfer of securities and cash would have occurred two business days after the trade date and not one 