CMFAS CM-SIP Trading, Clearing & Settlement question: gap normally exist between the trade date (T) and the settlement date

CMFAS CM-SIPTrading, Clearing & Settlement

Why does a gap normally exist between the trade date (T) and the settlement date?

A Confirming, netting and moving securities and cash between custodians takes time
B Exchanges deliberately delay settlement so they can earn interest on client cash
C Settlement can only take place after the exchange publishes the closing price
D The buyer must first inspect the physical share certificates before paying

Show the answer and explanation

Answer: A. Confirming, netting and moving securities and cash between custodians takes time

The gap exists because confirming, netting and moving assets and money between custodians and banks takes time; clearing infrastructure manages the counterparty and market risk carried during that period.

Common mistake

Assuming the delay is arbitrary or for the exchange's benefit rather than an operational necessity.

Practise more CM-SIP Trading, Clearing & Settlement questions

Exam-style questions with worked answers, then full timed mocks. Free to start.

Start practising →

Study note: Trading, Clearing & Settlement CMFAS CM-SIPpractice questions & mock exams

CMFAS CM-SIP Trading, Clearing & Settlement question: gap normally exist between the trade date (T) and the settlement date

Answer: A. Confirming, netting and moving securities and cash between custodians takes time

Common mistake

Related CMFAS CM-SIP questions

CMFAS CM-SIP Trading, Clearing & Settlement question: gap normally exist between the trade date (T) and the settlement date

Answer: A. Confirming, netting and moving securities and cash between custodians takes time

Common mistake

Related CMFAS CM-SIP questions