TAKING THE SIE EXAM? CONFUSED BY THE DIFFERENCE BETWEEN REGULATION T AND REGULAR WAY SETTLEMENT?

For anyone taking thee Securities Industry Essentials (SIE) exam, one of the confusing topics is Regulation T and the difference between it and regular-way delivery, or settlement of trades.

Regulation T is a regulation of the Federal Reserve Board. It requires that a broker/dealer or brokerage firm receive money from retail customers no later than four business days from the trade date. So if Granma Wilkins places an order to purchase 100 shares of XYZ Corp. on Monday, June 1, then Regulation T requires that the broker/dealer receive the monies for the purchase from Grandma Wilkins no later than Friday, June 5. We can abbreviate this rule by saying that Regulation T requires full payment from a retail customer no later than T+4.

Regular-way settlement is a different rule. It specifies that the "regular way" of  settling purchases and sales in the brokerage business is T+2, or two business days following trade.

Two points to notice. First, both Reg T and regular-way settlement speak of business days, not calendar days. 

Second, a brokerage firm will expect that purchasing customers pay for their purchases within two business days of trade date, or by settlement date. However, Reg T gives the customer four business days to pay in full, or else!

Or else? Yes, Reg T will impose penalties on a customer if the customer attempts to delay payment past four business days, such as requiring the brokerage firm to freeze the customer's account for 90 days, during which the brokerage firm may not allow any further purchases by that customer unless the customer pays in cash.

Bob Eder J.D.'s book Study for the Securities Industry Essentials (SIE) Exam covers the important rules and regulations of the Fed, especially time periods for settling purchases of retail customers, as indicated in FINRA's Content Outline. See especially 3.1.3 of FINRA's Content Outline that addresses trade settlement and time periods.

Here is the link to FINRA's Content Outline for the SIE exam.

Study for the SIE Exam is available from Amazon in both paperback and Kindle e-book versions. 

Here is the link to Bob Eder's book on Amazon.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law in 2001.

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