Meaning of term Funds settlement

Funds settlement Means

 

The details about Funds settlement are explained here. 

Settlement of funds

Funds settlement refers to the transfer of funds from buyer to seller and the transfer of an asset's title from seller to buyer.

Working of Settlement of funds:

When an investor sends an order to his or her broker, that trade information is sent to a clearinghouse (for example, the National Securities Clearing Corporation). The clearinghouse processes and records the trade, and then issues a report to the broker/dealers involved that includes their net securities positions and the money to be settled among the parties.

The NSCC forwards settlement instructions to the Depository Trust & Clearing Corporation (DTCC), asking it to electronically transfers the ownership of the securities from the selling broker's account to the buying broker's account. The DTCC also transfers funds from the buying broker's bank account to the selling broker's bank account.

The brokerages then adjust their clients' accounts accordingly. The process is similar for institutional investors. For most stock trades, this takes three business days to occur. For option trades, fund settlement usually takes one business day.

Funds settlement also occurs for dividend payments. Foreign markets may have different settlement procedures or times to completion.

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