If you’re new to investing in the securities market, you may feel excited yet apprehensive at the same time. It pays to understand as much about how the process works, beginning with the basics of a trade.
Execution is the agreement of a buyer or seller to purchase or deliver a certain security for a specified price. The client’s agency presents the order to the appropriate stock exchange, which then seeks a party to assume the opposite position. When a buyer and seller are matched, the exchange records the trade on its ticker tape.
Clearing is a large-scale, bookkeeping process that expeditiously takes place between the execution and settlement of a security. Once a trade is executed on the market, the exchange sends details of it to the National Securities Clearing Corporation, and they match all buys and sells for accuracy. Next, the organization notifies member firms of the transactions and arranges the transfer of funds and securities.
Settlement is the final step in the purchase or transfer of securities. On the settlement day, the buyer completes payment for the securities and the seller delivers or transfers them to the buyer. Typically, settlement for stocks and bonds occurs three days after execution; U.S. Treasuries and other government securities, options and mutual funds settle the day after the execution date; and certificates of deposit, or CDs, settle the same day the trade is executed.
Jani No Heart began writing in 1990 and has held positions for Monica Scott Clothing and Carmichael-Lynch Advertising in Minneapolis. Most recently she was the creative writer for the website of Swanson Health Products. In 2008 she became certified as a holistic health coach at New York's Institute of Integrative Nutrition.