T+2 Settlement and Settlement Default

Money only debited on the 2nd business day

Taiwan stocks settle T+2: nothing is debited on the trade day; the money is taken from your settlement account on the 2nd business day, and the shares are registered in your name that day. Weekends and holidays aren't business days.

Keep the money in the settlement account

The settlement account is a bank account linked to your securities account. When you order, brokers usually only check your trading limit and may not freeze the money on the spot, so make sure yourself that the money is there before settlement day.

A settlement default has serious consequences

If the debit fails on settlement day it's a settlement default: you'll be pursued for the money and a penalty, get a default record, may lose your trading privileges, and serious cases can be criminal.

Key takeaways

• Nothing is debited on the trade day; the money is taken from your settlement account and the shares registered in your name on the 2nd business day (T+2).
• When you order, brokers usually only check your trading limit and may not freeze the money on the spot, so make sure yourself that the account has enough before settlement day.
• A failed debit on settlement day is a settlement default: you're pursued for the money and a penalty, get a record, may lose your trading privileges, and serious cases can be criminal.
• Money from selling shares also only reaches your settlement account on T+2.

Try it yourself

You can do these exercises in this lesson's interactive simulation:

1. Keep Thursday as the trade day and press ▶: on which day is the money debited? Why is there a weekend in between?
2. Switch “Money in the settlement account” to “Not enough” and play: on which day does it go wrong? When is the deadline to top up?
3. Switch to “Sell”: on which day does the sale money reach your settlement account?
4. Change the trade to Monday: which weekday is settlement?

Quiz and explanations

1. You buy one lot on Thursday. On which day is the money debited for settlement?

Answer: Monday.T+2 counts business days: trade on Thursday, Friday is T+1, and skipping the weekend, Monday is T+2.

2. Between buying and settlement day, your settlement account doesn't have enough money. What happens?

Answer: It's a settlement default: you're pursued for the money, get a default record and may lose trading privileges.Not enough to debit means a settlement default, with consequences including paying the amount and a penalty, a default record, losing trading privileges and, in serious cases, legal liability.

3. Why should you check your settlement account balance before ordering Taiwan stocks?

Answer: Because money isn't necessarily taken when you order; the real debit is on T+2, and if it's short then, you default.Orders only use your trading limit and the money is taken on T+2; if you don't check ahead, it's easy to find out on settlement day that you're short.

Terms in this lesson

• settlement (Settlement): The step after a trade where cash and shares formally change hands; different markets take different numbers of trading days (US stocks T+1, Hong Kong T+2).
• settlement account (Settlement Account): A bank account linked to your securities account. Money for purchases is debited from it on settlement day, and money from sales is deposited into it on settlement day.
• settlement default (Settlement Default): When there isn't enough money in the settlement account to pay for shares on settlement day. It leaves a default record, you're pursued for the amount and a penalty, you may lose your trading privileges, and serious cases can be criminal.