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Difficulty: MediumSettlement Dates, Trade Confirmations, and Corporate Actions

An investor purchases 100 shares of a corporate equity security in a standard cash account on Tuesday, October 13. The broker-dealer executes the order as an agent in the secondary market. Under standard FINRA and SEC rules, what is the regular-way settlement date for this trade, and what disclosure regarding capacity must appear on the trade confirmation?

  1. Settlement occurs on Wednesday, October 14 (T+1), and the confirmation must state the broker-dealer acted as agent and disclose the commission charged.Answer
  2. B
    Settlement occurs on Thursday, October 15 (T+2), and the confirmation must state the broker-dealer acted as agent and disclose the commission charged.
  3. C
    Settlement occurs on Wednesday, October 14 (T+1), and the confirmation must state the broker-dealer acted as principal and disclose the mark-up added to the price.
  4. D
    Settlement occurs on Thursday, October 15 (T+2), and the trade confirmation is generated directly by the National Securities Clearing Corporation (NSCC) showing settlement charges.

Answer

Settlement occurs on Wednesday, October 14 (T+1), and the confirmation must state the broker-dealer acted as agent and disclose the commission charged.
Regular-way settlement for corporate equity securities takes place on T+1 (one business day following the trade date). Since the transaction occurred on Tuesday, October 13, settlement occurs on Wednesday, October 14. Furthermore, when a broker-dealer executes an order as an agent (broker), the trade confirmation must disclose that capacity along with the exact commission charged.

Step-by-Step Solution

1
Determine the regular-way settlement cycle for corporate equities.
Regular-way settlement is T+1 (Trade Date + 1 business day). Buying on Tuesday, October 13 results in settlement on Wednesday, October 14.
SEC Rule 15c6-1 establishes standard regular-way settlement for corporate equities, corporate bonds, and municipal securities as one business day after the trade date.
2
Identify broker-dealer capacity disclosure requirements on trade confirmations.
When a firm acts as an agent (broker), it executes trades on behalf of customers and must state its agency capacity and disclose commission amounts on the confirmation.
FINRA Rule 2232 requires trade confirmations to clearly disclose the capacity in which the broker-dealer acted (agent vs. principal) and associated remuneration (commission for agency, mark-up/mark-down for principal).

Key Concept

Regular-Way Settlement (T+1) and Trade Confirmation Disclosures
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Topics

Settlement Dates, Trade Confirmations, and Corporate Actions