Lessons › Markets of the world › Who holds your asset: settlement and custody
World 6 · Markets of the world · lesson 12 · level 3
Who holds your asset: settlement and custody
After you buy, it takes a little time for the asset to become officially yours, and someone has to keep it safe.
In one line
After you buy, it takes a little time for the asset to become officially yours, and someone has to keep it safe.
Explained simply
Imagine buying a bike online: you pay today, but the bike arrives tomorrow. Settlement is that delivery day for trades, when the money and the shares actually swap owners. Custody is who looks after the bike once it arrives, you or a trusted garage.
The lesson
Settlement is when the cash and the asset actually change hands; most share trades settle one business day after the trade (T+1) in the US and India, and two business days after (T+2) in Japan. Shares are held electronically through a central depository, such as in a demat account in India, and brokers must keep clients' assets separate from their own. Crypto kept on a platform depends on that platform's safety, while self-custody in your own wallet puts all the responsibility on you. Never share a wallet recovery phrase or password with anyone, including people who claim to be support staff.
A worked example
Illustrative example: you buy shares on Thursday the 10th. At T+1 the trade settles on Friday the 11th (10 plus 1). At T+2, as in Japan, it settles on Monday the 14th, because the weekend of the 12th and 13th does not count (10 plus 2 business days plus 2 weekend days). Until settlement, the shares are on their way to your account.
The same idea at four levels
- Beginner. Settlement is the moment the money and the asset actually change owners.
- Foundation. Share trades settle one business day later (T+1) in the US and India, and two business days later (T+2) in Japan.
- Intermediate. Shares sit electronically at a central depository, such as in a demat account in India, and brokers must keep clients' assets separate from their own.
- Advanced. Crypto on a platform depends on that platform, as the November 2022 withdrawal freeze showed, while self-custody moves all the responsibility to you.
- Expert. Experts weigh convenience against control, never share recovery phrases, and count custody risk as part of every position's risk.
Mistakes to avoid
- Assuming coins on a trading platform are protected like shares at a depository.
- Sharing a wallet recovery phrase or password with anyone, including people claiming to be support staff.
- Forgetting that weekends and holidays do not count as business days when working out settlement.
Check yourself
What is settlement?
When the cash and the asset actually change hands. It is the delivery day of the trade.
When do most US and Indian share trades settle?
One business day later (T+1). Both use T+1.
When do most Japanese share trades settle?
Two business days later (T+2). Japan has used T+2 since 16 July 2019.
Should you ever share your wallet recovery phrase?
No, never, not even with 'support staff'. Anyone with the phrase can take the coins.
Where are Indian shares held?
Electronically in a demat account through a depository. India's depositories are NSDL and CDSL.
Goal of this lesson: Understand settlement cycles and who holds your assets in each market.