T+2 (Ofer Abarbanel online library)

In financial markets T+2 is a shorthand for trade date plus two days indicating when securities transactions must be settled. The rules or customs in financial markets are for securities transactions to be settled within a commonly understood ‘settlement period’. The most common current settlement period for securities transactions is two business days after the day of a transaction – which is widely abbreviated to T+2. Continue reading “T+2 (Ofer Abarbanel online library)”

Settlement date (Ofer Abarbanel online library)

Settlement Date is a securities industry term describing the date on which a trade (bonds, equities, foreign exchange, commodities, etc.) settles. That is, the actual day on which transfer of cash or assets is completed and is usually a few days after the trade was done. The number of days between trade date and settlement date depends on the security and the convention in the market it was traded. For example when settling a share transaction on the London Stock Exchange this is set at trade date + 2 business days.[1] Continue reading “Settlement date (Ofer Abarbanel online library)”

OTC clearing (Ofer Abarbanel online library)

OTC clearing refers to a process under which standardized derivative contracts which relate to over the counter transactions will be cleared through an agency established by a stock or commodities exchange. The idea is to avoid having the effect of financial shocks from being amplified through means not supervised by the agencies, to encourage transparency of the pricing of these standardized financial products, and to mitigate credit and default risks associated with over-the-counter trading.[1] Continue reading “OTC clearing (Ofer Abarbanel online library)”

Foreign exchange date conventions (Ofer Abarbanel online library)

The Foreign exchange Options date convention is the timeframe between a currency options trade on the foreign exchange market and when the two parties will exchange the currencies to settle the option. The number of days will depend on the option agreement, the currency pair and the banking hours of the underlying currencies. The convention helps the counterparties to understand when payments will be made for each trade. Continue reading “Foreign exchange date conventions (Ofer Abarbanel online library)”

Delivery versus payment (Ofer Abarbanel online library)

Delivery versus payment or DvP is a common form of settlement for securities. The process involves the simultaneous delivery of all documents necessary to give effect to a transfer of securities in exchange for the receipt of the stipulated payment amount. Alternatively, it may involve transfers of two securities in such a way as to ensure that delivery of one security occurs if and only if the corresponding delivery of the other security occurs.[1] Continue reading “Delivery versus payment (Ofer Abarbanel online library)”

Day count convention (Ofer Abarbanel online library)

In finance, a day count convention determines how interest accrues over time for a variety of investments, including bonds, notes, loans, mortgages, medium-term notes, swaps, and forward rate agreements (FRAs). This determines the number of days between two coupon payments, thus calculating the amount transferred on payment dates and also the accrued interest for dates between payments.[1] Continue reading “Day count convention (Ofer Abarbanel online library)”