SIE 13 - Settlement and Corporate Actions

• Order entry: order ticket details regarding how to execute
• Execution: occurrence of a trade in a market center
• Clearing: executing firms agree to details, unrecognized trades result in DK
• Settlement: the day when the customer's name is put on/off the books
• Custody: safeguarding of client and firm assets

T+2

T+1

Same day

The settlement is negotiated, but not earlier than T+2. This is useful for restricted sales.

Trade the security when it's issued (determined by the national uniform practice committee.

• The reg T payment date must be obtained for purchases that are made in either cash or margin accounts within 2 business days of settlement (S+2)
• Before settlement, a customer can request that the broker-dealer transfer a trade from a cash account to a margin account
• If no payment is made by T+4 (S+2), the position is closed out on S+3. Then, the account is frozen for 90 days (all payments must be paid in advance)

When an investor buys a stock and sells it but fails to meet the Reg T requirement of 50%.

• Forward (e.g. 2:1 or 3:2) more shares, lower price [2:1 = even, 3:4 = odd]
• Reverse (e.g. 1:5) fewer shares, higher price
• Dividends are adjusted proportionally

Additional shares received are usually not taxed as income since your total basis is unchanged.

• It is a public announcement that indicates the intent to buy shares from the owner at a fixed price.
• The offer is made by the issuer or a 3rd party
• The offer is usually made to acquire a company or a controlling position
• These are often used for buybacks

• Seller must be long shares or equivalent
• Convertible security (don't have to ex)
• Right or warrant (don't have to ex)
• Call option (must ex)