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Cash settlement |
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Cash SettlementThe process by which the terms of an option contract are fulifilled through the payment or receipt in dollars of the amount by which the option is in-the-money as opposed to delivering or receiving the underlying stock.Cash settlementDeals on an exchange where investors are obliged to settle immediately rather than on account.An expression used in futures and options trading which applies when physical delivery is impractical and contracts are settled by attaching a monetary value.Similar MatchesRegular way settlementRegular way settlementIn the money and bond markets, the standard basis on which some security trades are settled is that the delivery of the securities purchased is made against payment in Fed funds on the day following the transaction. Dispute settlementDispute settlementIn the GATT, the adjudication of disputes among parties. In the WTO this is done by the dispute settlement mechanism. Skip day settlementSkip day settlementSettling a trade one business day beyond what is normal. Settlement daySettlement dayThe day on which purchased securities are due for delivery to the buyer and payment is due to be made to the seller. For nominee accounts, the standard settlement day is three days after the dealing day - known as T+3. For certificated accounts (where shareholders hold share certificates) settlement times are longer. SettlementSettlementSettlement is what happens after your broker has bought or sold shares on your behalf. There are three aspects to it:Transfer of ownershipIf you have a nominee account with your broker, the shares you buy or sell are registered in the broker's name, and responsibility for sorting out changes of ownership rests with the broker and the registrar.If you have a certificated account, and you have sold shares, you have to send the share certificate(s) to the broker so that settlement can be effected. If you have bought shares, you will receive a share certificate from the company's registrar either direct or vis your broker.Payment when you buy sharesShare purchases have to be paid for. If your broker works on a 'cleared funds' basis, you will have to have enough money in your broker account to pay for the shares and transaction costs before you buy them. If you haven't got the money available, the broker's system will spot the deficit, and will not process the order.For offline trading, your ability to buy 'on credit' will depend on the kind of relationship you have with your broker. If you have £300 in your account and want to buy £12,000 of shares, eyebrows will be raised and you may be asked to deposit money with the broker before the order is processed.Once a broker has bought shares on your behalf, you have an obligation to supply him with funds prior to the settlement date. Most brokers will accept cheques, direct bank transfers, and debit cards. It is important to check how your broker accepts payment beforehand.Receipt of proceeds when you sell sharesWhen you sell shares, the broker will credit funds to your client account after deducting commission. It is then up to you to decide what to do with that money. You can ask your broker to send the money to your normal bank account, or you can reinvest it in the market, or you can leave it in the client account where it will earn interest.The timing of payment will depend on the settlement time of your transaction. The industry standard used to be T+5 but this changed to T+3 in February 2001. The '5' and '3' simply indicate the number of working days after the transaction date by which settlement must be complete. Further SuggestionsCash settlement contractsCash sale or settlement rolling settlement Real Estate Settlement Procedures Act (RESPA) Settlement date Structured settlement Regular settlement Bank for International Settlements (BIS) Dispute Settlement Body Uniform Settlement Statement Settlement price Exercise settlement amount Next day settlement Immediate settlement Settlement Short settlement Bank for International Settlements Settlement rate Settlement options Good delivery and settlement procedures Settlement risk Dispute settlement mechanism settlement options Continuous net settlement (CNS) Exchange Delivery Settlement Price |
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