Rolling settlement

 

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Rolling settlement

Settlement is the process by which investors pay for shares they have bought and receive payment for shares they have sold. Before July 1994, this process was done by means of an 'account period', normally ten working days. All the transactions during that period were balanced against each other to produce a single figure, which was either paid to the investor or due from him, depending on whether the value of his purchases was higher or lower than the value of his sales in the period. One of the features of the account period was that transactions taking place at the beginning of it (say, Day 1) didn't have to be settled until about 14 days later, whereas transactions at the end (say Day 10) had to be settled within 4 days.In July 1994, the account period system was replaced by ten day (T+10) rolling settlement, which means that each transaction has to be settled ten days after the transaction date. This was subsequently reduced to five days (T+5) and in February 2001 was reduced to three days (T+3).These significance of rolling settlement and of shortened settlement times is that when investors sell shares, the proceeds get paid into their account quicker, and when they buy shares they have to pay for them quicker. It requires careful money management on the part of the investor.



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