A big shift in the rules for stock transactions quietly began earlier this month. With effect from September 5, 2017, the settlement period for securities trades was shortened from three to two business days after the date of the transaction. This interval is expressed in the notation T+2, in alignment with the notation used to indicate the previous three-day settlement period (T+3).
T+2 is an important concept for any stock plan transactions that involve open-market sales, such as same-day sales and sell-to-covers. For example, in a cashless exercise of stock options or in a stock sale at restricted stock/RSU vesting or after ESPP purchase, the cash will now show up in your brokerage account sooner, within two days after the execution date. Additionally, to settle by T+2, the broker must, sooner than previously, receive the shares and know the funds to send the company to cover the exercise cost and/or the tax withholding. Companies may also now need to give withheld taxes to the IRS sooner after NQSO exercise and restricted stock vesting.
Details of the change to the T+2 settlement cycle are available at a website operated by US financial-services industry. The main reason for the move to a shorter period was to reduce risk in the securities-settlement process. A blog commentary from the NASPP provides background on the change, details about it, and what T+2 means for companies, stock plan brokers, and employees.