Index Date Settlement For Free

On February 15, 2023, the Securities and Exchange Commission (the "Commission") adopted a rule amendment to shorten the standard settlement cycle for most routine securities trades from two business days after the trade date to one business day after the trade date (or from "T+2" to "T+1" in common parlance).

Index options are always cash-settled and are typically European-style options, meaning they settle only on the date of maturity and have no provision for early exercise.

Cash-settled options include digital options, binary options, cash-or-nothing options, as well as plain-vanilla index options that settle to the cash value of an index. Cash-settled options may be contrasted with physical settlement.

Exercise Settlement Price: The dollar difference between the index settlement value and the strike price of the contract, multiplied by 100. Settlement will result in the delivery of cash on the business day following exercise.

For most stock trades, settlement occurs two business days after the day the order executes, or T+2 (trade date plus two days). For example, if you were to execute an order on Monday, it would typically settle on Wednesday. For some products, such as mutual funds, settlement occurs on a different timeline.

Index options are cash settled when exercised, as opposed to options on single stocks where the underlying stock is transferred when exercised. Index options are classified as European-styled rather than American for their exercise.

While the stock market securities now adhere to T+1 cycle, the same transaction takes one day longer in case of mutual fund units. Earlier it used to take a minimum of three days, but with effect from February 1, the settlement cycle was cut down by one day. This means now it will take T+2 for the transaction to close.