What happens if you do a cash settlement selling trade on the record date? Does that mean you wouldn’t be entitled to the dividend?
Or is a cash settlement not an option when selling a security, and only when purchasing the security? Cash settlement seems to cost more in general (it is quicker), and it only seems advantageous to do this when purchasing, not selling. Because in theory you are better off doing a regular-way settlement trade on the record date, as you will still be entitled to the dividend.
@Johnathan_Gerlach Correct, if you sell with cash settlement on the record date, you would not be entitled to the dividend. To receive the dividend, you’d need to wait and sell on the day after the record date (the ex-dividend date for cash settlements). That’s the first day you can sell and still receive the dividend.
Cash settlement is available for both buying and selling, though it’s less common on the sell side. While you can sell for cash settlement, it usually is not advantageous. You’d be accelerating settlement (often at a higher cost), forfeiting the dividend if it’s the record date, and on top of that, it would be very difficult to find a buyer willing to accept those terms. For these reasons, investors mainly use cash settlement when buying, particularly if they want to qualify for a dividend in time.
Please let us know if there’s anything else we can clarify.
To add some context: settlement terms are agreed upon for the trade as a whole, not separately by buyer and seller.
In practice, the seller delivers the security and the buyer delivers the cash.
It’s also worth noting that prices typically adjust on the ex-dividend date to reflect the dividend, so timing differences don’t usually affect the trade’s economics. Similarly, while cash settlement may involve higher processing costs for the buyer, it doesn’t affect the security’s market price.
It’s more about your desired timing and whether you wish to receive the dividend or not.