Settlement and market conventions

T+1 settlement in US securities

The standard US settlement cycle is one business day after the trade date. The cycle counts business days in the relevant market calendar, so the number of calendar days between trade and settlement varies from one to four.

Field	Value
Formula	Settlement date = the first business day strictly after the trade date, in the market's own calendar
Worked	Trade 2026-08-26 (Wednesday) settles 2026-08-27, which is the reference bond's settlement date
Across a weekend	Trade 2026-08-28 (Friday) settles 2026-08-31, three calendar days later
Across a holiday	Trade 2026-09-03 (Thursday) settles 2026-09-04; on T+2 the same trade settles 2026-09-08, four calendar days out, because 7 September is a holiday in the illustrative calendar
Effect on accrued	Each additional calendar day of settlement adds 0.012228 of accrued per 100 of par on the reference bond, or 1,222.83 on 10,000,000

• The US moved from T+2 to T+1 by amendment to SEC Rule 15c6-1, with a compliance date of 28 May 2024, covering equities, corporate bonds and municipal securities. Canada and Mexico moved on the same date.
• US Treasuries were already on a next-day cycle by market convention rather than by that rule, and same-day settlement remains routine in the Treasury secondary market. Two Treasury trades done minutes apart can settle on different days by agreement.
• Because the cycle counts business days, the accrued interest on a trade depends on the calendar and not just on the cycle length. A Thursday trade before a Monday holiday carries three more days of accrued than a Monday trade in the same week.
• Cross-border trades face two calendars. A US bond bought by a European account can face a settlement date that is a business day in one market and not the other, which is the ordinary cause of a fail that nobody did anything wrong to create.

Source: SEC Rule 15c6-1 (Settlement Cycle), as amended effective 28 May 2024

Also described at: Wikipedia · Wikidata · SEC press release 2023-29 (shortening the settlement cycle to T+1)

Settlement conventions by instrument, and why the default is not enough

A settlement cycle is a market default. It is overridden routinely, and for new issues it does not apply at all: a new bond settles on its stated closing date regardless of when it was priced.

Field	Value
Formula	Regular way settlement = T + n business days for the instrument's market. Skip-day, cash, and forward settlement are all documented overrides on a per-trade basis
Regular way, US bonds	T+1
Cash settlement	T+0, the same day, priced with one fewer day of accrued
Skip-day	T+2 where T+1 is the default, and correspondingly more accrued
New issue	The closing date in the offering document; the period between pricing and closing can be a week or more
Worked, effect on the invoice	On the reference bond, each day of settlement difference is 1,222.83 of accrued on 10,000,000 par, so a T+1 against T+3 difference is 2,445.65

• Forward settlement changes the economics, not just the paperwork: a trade settling a month out is a financing trade as well as an outright, and the price should reflect the carry over that month. Quoting a forward-settling trade at the spot price gives away the carry.
• When-issued trading happens between the auction announcement and the issue date, and those trades settle on the issue date, so a whole population of trades shares one settlement date and no cycle applies.
• The bond's own coupon date can fall between trade date and settlement date. Where that happens the buyer settles without that coupon and the accrued restarts from it, which is a case that catches a naive accrued calculation.
• Where a market is mid-transition between cycles, both conventions exist simultaneously and the applicable one may be the counterparty's rather than the instrument's. This is worth confirming rather than assuming during any transition window.

Also described at: 31 CFR Part 356 (Uniform Offering Circular)

Following and modified following business day conventions

Rules for what happens when a scheduled date is not a business day. Following moves it forward to the next business day. Modified following does the same unless that crosses into the next calendar month, in which case it moves backward instead.

Field	Value
Formula	Following: advance to the next business day. Modified following: advance to the next business day, but if the month changes, retreat to the last business day of the original month
Worked, weekend	2026-09-05 (Saturday): following gives 2026-09-08, modified following the same, because the month does not change
Worked, month end	2026-10-31 (Saturday): following gives 2026-11-02 in the next month, so modified following retreats to 2026-10-30
Worked, month end again	2026-05-31 (Sunday): following 2026-06-01, modified following 2026-05-29
Worked, February	2026-02-28 (Saturday): following 2026-03-02, modified following 2026-02-27
Worked, holiday	2026-09-07 (Monday, a holiday in the illustrative calendar): following 2026-09-08

• Modified following is the market standard for swaps precisely because it keeps every period inside its own month, which keeps a monthly or quarterly schedule from drifting. Plain following allows a period to spill over and the next one to start late.
• The two rules coincide on the large majority of dates, which means a system implementing the wrong one is correct almost always. The failures cluster on month ends, and month ends are where most schedules land.
• The convention governs payment dates. Whether it also governs the accrual period is a separate documented question: an adjusted accrual period changes the interest amount on an ACT basis and does not change it on a bond paying a fixed half-coupon.
• Preceding and modified preceding are the mirror images and are far less common. Preceding appears where a payment must not be later than a stated date, typically for regulatory or tax reasons.

Source: 2006 ISDA Definitions, Section 4.12 (Business Day Convention)

Also described at: 2006 ISDA Definitions

The end-of-month convention

A schedule rule, separate from the business-day rule: if the first date in a schedule is the last day of a month, every subsequent date is the last day of its month, whatever the day number happens to be.

Field	Value
Formula	With the end-of-month convention: date_k = the last calendar day of the month k periods after the anchor. Without it: date_k = the same day number, capped at the length of the target month
Worked, with the convention	A semiannual schedule anchored on 31 August 2026 gives 28 February 2027, 31 August 2027, 29 February 2028, 31 August 2028
Worked, without it	The same anchor without the convention gives 28 February 2027 by capping, then 31 August 2027, then 28 February 2028 rather than 29 February
Where they diverge	Only where the capped day number is not the month end, which is every leap February and every 30-day month reached from a 31st
Combined with the day count	On 30E/360 (ISDA) both dates roll to 30 and the periods are 180 days each; on 30/360 Bond Basis the February-to-August leg is 180 and the August-to-February leg 178

• The end-of-month convention and the 30/360 month-end adjustments are independent and interact. Getting one right and the other wrong produces a schedule with correct dates and incorrect accrual, or the reverse, and both look plausible in isolation.
• Schedule generation direction interacts with it too. Generating forward from an issue date and generating backward from maturity give different intermediate dates for a 31st anchor, and the market convention for bonds is backward from maturity.
• In practice the convention is often implicit: a bond issued on the last day of a month is assumed to be on an end-of-month schedule without the term appearing anywhere. Confirm against the actual published payment dates for the first two periods.
• The rule applies to unadjusted dates. The business-day convention is then applied on top, which is why modified following exists: it stops a month-end date from being pushed into the next month and breaking the pattern the end-of-month rule established.

Source: 2006 ISDA Definitions, Section 4.13 (End of Month Convention)

Also described at: 2006 ISDA Definitions

Holiday calendars and calendar unions

A business day is defined by a named calendar, and a transaction can reference more than one. Where two calendars apply, a date is a business day only if it is a business day in both, which is a union of the holiday sets rather than an intersection.

Field	Value
Formula	Business days under calendars A and B = business days in A intersected with business days in B. Holidays under A and B = holidays in A united with holidays in B
Single calendar	A USD trade referencing New York alone treats a London holiday as an ordinary business day
Two calendars	A USD/GBP cross-currency swap referencing New York and London has a non-business day whenever either market is closed, so its holiday set is larger than either market's
Worked, illustrative effect	With 7 September 2026 as a holiday, a T+2 trade on 2026-09-03 settles 2026-09-08 rather than 2026-09-07
Direction of the effect	Adding a calendar can only remove business days, never add them, so a union always lengthens settlement and can only move a scheduled date further

• The calendar is a documented term with a name, such as New York or London or TARGET2, and not a matter of geography. A USD trade between two London counterparties may still reference New York.
• Holiday calendars change. Jurisdictions add and move public holidays with a year or two of notice, and a stale calendar produces a settlement date that is wrong in a specific year and correct in every other, which is close to the worst possible failure mode for testing.
• The SOFR calendar is the US Government Securities Business Day calendar, which is not identical to the New York banking calendar. A SOFR compounding calculation run on the wrong one produces a different number of observations and therefore a different rate.
• For a bond, the payment calendar and the settlement calendar can differ, and the accrual calendar can differ from both. These are three separate terms and only one of them is usually stated prominently.

Thirty-seconds, plusses and the finer Treasury fractions

US Treasury notes and bonds are quoted in points and thirty-seconds of a point, with the fraction written after a hyphen. Sub-32nd precision is expressed by a trailing character rather than by more digits, and the notation is positional rather than decimal.

Field	Value
Formula	Price = whole points + (thirty-seconds + fraction)/32, where the trailing character maps: nothing = 0, 1 = one quarter, + = one half, 3 = three quarters. Some venues use eighths of a 32nd, giving increments of 1/256
Worked	98-24 = 98 + 24/32 = 98.7500000, which is the reference bond's quoted price
Worked, a plus	98-24+ = 98 + 24.5/32 = 98.7656250
Worked, quarters	98-241 = 98 + 24.25/32 = 98.7578125 and 98-243 = 98 + 24.75/32 = 98.7734375
Increment values on 10,000,000 par	1/32 = 3,125.00, 1/64 = 1,562.50, 1/128 = 781.25, 1/256 = 390.6250
In yield terms on the reference bond	1/32 is 0.4659 basis points and one basis point is 2.1464 thirty-seconds

• The trailing 1 and 3 are quarters, not tenths, and the plus is a half. Parsing 98-241 as 98 and 241/1000 or as 98 and 24.1/32 both give plausible-looking prices and both are wrong, which is why quote parsing is a place to be paranoid.
• The convention persists because the tick size maps onto the market's actual price resolution rather than onto decimal convenience. A 32nd on a 10-year note is roughly half a basis point, which is a sensible minimum increment.
• Treasury futures use their own variants: the 10-year note contract trades in halves of a 32nd and the 2-year in eighths, so the contract and the underlying cash bond do not share a tick.
• Bills are the exception in the Treasury complex and are quoted on a discount rate rather than a price, which means the Treasury market has two entirely different quoting conventions inside it.

Source: SIFMA standard securities calculation methods; US Treasury market conventions

Also described at: 31 CFR Part 356, Appendix B (formulas and tables)

Decimal quotation and minimum increments outside Treasuries

Corporate, municipal, agency and Eurobond markets quote decimal prices, typically to two or three decimal places, and some quote yield or spread instead of price. The increment is smaller than a Treasury 32nd by more than an order of magnitude.

Field	Value
Formula	Price = the quoted decimal directly. Value of the minimum increment on notional N = N * increment / 100
Corporate bonds	Three decimals, so an increment of 0.001 of a point, worth 100.00 on 10,000,000 par
Against a Treasury 32nd	3,125.00, coarser by a factor of 31.2
Eurobonds	Two or three decimals, so 0.01 or 0.001, worth 1,000.00 or 100.00 on 10,000,000
Municipals	Frequently quoted in yield rather than price, so the increment is a basis point and the price increment depends on the bond's duration
Worked, yield-quoted increment on the reference bond	One basis point is 0.067076 of price per 100 of par, or 6,707.63 on 10,000,000

• A market that quotes yield rather than price has a price increment that varies by instrument, because a basis point is worth more on a long bond than a short one. That is a feature for the trader and an inconvenience for anyone reconciling prices.
• Municipal secondary trades are reported to a public tape with a price and a yield, and the two are computed on the bond's stated conventions, including yield to worst rather than yield to maturity for callable issues. Comparing a reported municipal yield with a corporate yield to maturity compares two different measures.
• Rounding a decimal price and then computing accrued from it, rather than the reverse, moves the invoice amount. The documented order of operations matters on a large ticket and is the kind of thing that is only discovered in a break.
• Minimum denomination is a separate constraint from minimum increment: many corporate and municipal issues trade in minimum blocks, and a computed hedge par amount must be rounded to a tradeable size before it is a real hedge.

Source: MSRB Rule G-15 (Confirmation, Clearance, Settlement) for municipal securities

Unadjusted accrual with adjusted payment

The standard bond convention: the payment date moves to a business day, the accrual period does not. The holder receives exactly the stated half-coupon on the adjusted date and no interest for the delay. A floating leg on an actual day count behaves differently.

Field	Value
Formula	Bond: amount = C/f regardless of adjustment; payment date = adjusted coupon date. Floating leg with adjusted periods: amount = notional * rate * (adjusted period days)/360, so adjustment changes the amount
Worked	The reference bond's 2026-11-15 coupon date is a Sunday, so payment is made 2026-11-16
Amount paid	2.250000 per 100 of par, unchanged
Accrual measured to	2026-11-15, the unadjusted date, so the next period's accrued starts from there
Next coupon date	2027-05-15 is a Saturday, paid 2027-05-17, again for 2.250000
A floating leg by contrast	An ACT/360 leg over an unadjusted 15 November to 15 May period counts 181 days; with both ends adjusted following it counts 182, and the interest changes accordingly

• The convention costs the bondholder the time value of the delay, which for a weekend is a day or two of interest on one coupon. It is small and it is systematic, and it is the reason a bond's stated yield is very slightly above the yield actually realised.
• Whether accrual periods are adjusted is a separate documented term from whether payment dates are adjusted. The four combinations all exist and produce four different interest amounts on the same schedule.
• For swaps the ISDA default adjusts both the payment date and the calculation period, so a swap and a bond with identical nominal schedules pay on the same dates and accrue over different periods.
• A bond whose coupon dates habitually fall on weekends, such as a 15th-of-the-month schedule, has a predictable pattern of delayed payments. It is worth checking whether a cash-flow forecasting system knows about it.

Record date, payment date and who receives the coupon

The coupon is paid to whoever is the registered holder on the record date, which is not the same as whoever bought the bond most recently. Where the record date sits relative to the settlement cycle determines whether a buyer receives the next coupon.

Field	Value
Formula	The buyer receives the coupon if settlement occurs on or before the record date. Otherwise the seller receives it and, in markets with an ex-dividend convention, the price is adjusted by negative accrued
US Treasuries and corporates	No ex-dividend period; the coupon follows the position, and accrued is always positive
Gilts	Ex-dividend seven business days before the coupon date, with the record date the close of business on the preceding day
Worked, gilt-style	On the reference bond's schedule with a coupon date of 2026-11-15, a settlement of 2026-11-10 falls inside a seven-business-day window, giving accrued of -0.061141 per 100 of par
Effect on the invoice	The full price falls to 98.688859 against a quoted 98.750

• In a T+1 market with no ex-dividend period, a trade done on the business day before the coupon date settles on the coupon date and the buyer receives the coupon. That is correct and it means a bond can change hands on its own payment date.
• Where a coupon date falls between trade date and settlement date, the seller receives the coupon and the accrued calculation restarts from that date. A calculation that measures accrued from the previous coupon date in that case produces almost a full extra coupon of accrued.
• Special ex and special cum trading lets counterparties override the default entitlement, so the ex-dividend status of a specific trade is a trade term.
• The record date is a registrar concept and the settlement date a clearing concept. Where a bond is held through a depository the depository is the registered holder and passes the coupon on according to its own records, which introduces a further set of internal deadlines.

Also described at: Wikipedia · Wikidata

From a quote to a settled amount

The chain from a screen price to a cash amount has four steps and a rounding convention at each. Every step is a place where two counterparties can produce different numbers from the same trade.

Field	Value
Formula	quoted fraction -> decimal price -> principal = par * price/100 -> accrued = par * AI/100 -> invoice = principal + accrued, with a documented rounding at each stage
Worked, step one - parse the quote	98-24 = 98 + 24/32 = 98.7500000
Step two, principal	10,000,000 * 98.7500000/100 = 9,875,000.00
Step three, accrued	10,000,000 * 1.271739/100 = 127,173.91, from 2.250 * 104/184
Step four, invoice	9,875,000.00 + 127,173.91 = 10,002,173.91
Unrounded accrued	127173.913043, so the rounding to the cent moves the invoice by 0.003043

• The rounding convention is a documented term and it differs by market. Rounding accrued per 1,000 of par and then scaling, against computing on the full par amount and rounding once, give different answers on a large ticket, and the difference is a settlement break rather than a valuation dispute.
• The order of rounding matters more than the precision of any single step. Two systems each rounding correctly at different points in the chain will disagree persistently by small amounts.
• Accrued is conventionally the number that gets reconciled, not the price, because it is pure arithmetic with no market opinion in it. A break in accrued is a convention error and a break in principal is usually a price error, and knowing which tells you which desk to call.
• For a bond quoted in yield rather than price, there is a further step: converting yield to price, which involves the full pricing convention and therefore the day count, the schedule, and the treatment of the final period. That is the step most likely to differ between counterparties.

When-issued trading and its settlement

Trading in a security between its announcement and its issue date. Trades are struck on a yield or price basis and all settle on the issue date, so no settlement cycle applies and the accrued interest is zero or set from the dated date.

Field	Value
Formula	Settlement date = the issue date, for every when-issued trade regardless of trade date. Accrued at issue = (C/f) * (days from the dated date to the issue date)/E, which is zero when they coincide
Mechanics	Trades are done on the announced terms before the coupon is known, so pricing is on a yield basis and the price follows once the coupon is set
Settlement	One shared settlement date for all trades, so the usual T+n arithmetic does not apply
Worked, accrued at issue	Zero where the dated date equals the issue date; otherwise a short first accrual from the dated date
Effect on a reopening	A reopened issue carries the original coupon and dated date, so its first settlement after the reopening does carry accrued

• When-issued prices are the market's live view of where the auction will clear, and a when-issued yield is directly comparable with the outstanding curve. It is a price discovery mechanism rather than a settlement quirk.
• Because everything settles on one date, a large when-issued book creates a single concentrated settlement, which is a operational risk rather than a market one.
• A reopening of an existing issue is not when-issued in the same sense: the security already exists, has a coupon and a dated date, and accrues from it. The distinction matters for the accrued on the first settlement.
• Failing to deliver on a when-issued settlement has the same consequences as any other fail, and the concentration means fails cluster on issue dates.

Also described at: 31 CFR Part 356 (Uniform Offering Circular)

Failure to deliver and its cost

A settlement fail occurs when the seller does not deliver on the settlement date. The trade stays open, the buyer keeps its cash, and in the US Treasury market a market-wide fails charge reduces the amount the buyer eventually pays.

Field	Value
Formula	The Treasury Market Practices Group recommended fails charge accrues at max(0, 3 percent - the target federal funds rate) on the contract value, on an ACT/360 basis, for each day of the fail
Structure	A charge on the failing seller, netted against the settlement amount, rather than a separate payment
Effect when short rates are high	The charge is zero whenever the policy rate is at or above 3 percent, so the mechanism is dormant in a high-rate environment
Effect when short rates are near zero	The charge approaches 3 percent per annum on the contract value, which is what makes failing expensive
Worked, illustrative	A ten-day fail on 10,000,000 of the reference bond at a contract value of 10,002,173.91 would carry a charge of 8,335.14 if the policy rate were zero, and nothing if it were above 3 percent

• The economic point of the charge is that failing is otherwise free when short rates are near zero: the seller keeps the security and pays no interest on the cash it did not receive. The charge restores a cost to failing and was introduced after prolonged fails episodes.
• Because the charge is a function of the policy rate, its bite varies through the cycle. Fails behaviour observed in a low-rate period is not a guide to a high-rate one.
• Fails are usually operational rather than strategic, and the largest single cause is a chain: one fail upstream causes a fail downstream on the same security. That is why fails cluster by issue rather than by counterparty.
• This is a Treasury-market recommended practice rather than a rule, and other markets have their own mechanisms, including mandatory buy-in and cash penalty regimes with quite different economics.

Source: Treasury Market Practices Group fails charge trading practice

Also described at: Wikipedia · Wikidata · SEC: Key Points About Regulation SHO