Gilt settlement and the dealing day

A gilt trade has two dates — the dealing day it is agreed and the later settlement date the cash and the gilt actually change hands — and the gap between them decides the accrued interest and whether the next coupon is yours.

Two dates, not one

When you buy a gilt, the day the deal is struck is not the day it settles. The trade date, or dealing day, is when buyer and seller agree the price and the amount. The settlement date is the later day on which the cash is paid and the gilt is transferred. Nearly every figure on a contract note is fixed with the settlement date in mind, so keeping the two apart is the first step to reading a gilt trade correctly.

The clean price is agreed on the dealing day, but the accrued interest and the cash are worked to the settlement date, and the coupon entitlements turn on dates in between. A reader who treats the trade date as the whole story will misread both the cash and the income.

The settlement delay

Gilts settle a short, fixed number of business days after the trade. The site models that delay as a setting — T+1 or T+2 — and resolves each booked trade to a settlement date by counting business days from the trade date, stepping over weekends and UK bank holidays. So a trade booked on a Friday with a one-day delay settles on the following Monday, unless that Monday is a holiday, in which case it rolls to the next business day.

Because the delay is counted in business days, the calendar between trade and settlement is not always the same length. A trade either side of a bank holiday can settle several calendar days later than one booked mid-week, which is why the site derives the date rather than letting a reader add a fixed number of days.

The two conventions are not interchangeable in effect. A one-day delay settles sooner and carries slightly less accrued interest; a two-day delay settles later and carries a little more. Whichever is set on the profile, the figure that settles is the one measured to that settlement date, so the setting matters to the cash rather than only to the paperwork.

The ex-dividend date

A gilt pays its coupon to whoever holds it on the coupon date, but the market needs time to move the gilt onto the buyer's record before then. Under the gilt market's convention a gilt goes ex-dividend seven business days before a coupon date. A trade that settles on or after that date does not carry the next coupon to the buyer — the seller keeps it — and the price is adjusted for that.

GiltIQ places each booked trade's settlement date against the gilt's ex-dividend date, so the question of whether the next coupon is yours has a dated answer rather than a guess. Two trades of the same gilt a few days apart can settle either side of the ex-dividend date and so carry very different income.

A settlement timeline

The table shows how a booked trade resolves to a settlement date and where the ex-dividend line falls relative to it. Each row is a general rule, not a dated event.

Why the settlement date changes the cash

The settlement date is also the day accrued interest is measured to. Because accrued interest grows a little every day between coupons, a settlement a few days later means a few more days of accrued interest and a slightly higher dirty price. The trades ledger records the settlement date each booking resolves to, and the record-a-trade form starts from the settlement delay on your profile, so the date is derived rather than typed.

Reading the dealing day and the settlement date together, then, tells a buyer both what the trade costs in cash and whether it comes with the next coupon — two facts that the trade date alone cannot supply.

Two trades of the same nominal in the same gilt, booked a day apart, can settle on different dates and so carry different cash. The difference is small — a day or two of accrued interest — but it is real, and it is why a contract note's cash figure is compared against the row's accrued interest at the settlement date, not at the trade date. Reading the two dates together closes that gap.

What a contract note shows

A contract note ties the two dates together. It records the trade date, the settlement date, the nominal, the clean price, the accrued interest and the resulting dirty price, and it is the settlement date that governs the accrued figure. Reading the note in that order — dates, then nominal, then the three prices — is what lets a buyer check each line against the gilt's row rather than accept the total.

The ex-dividend line is the one a reader most often overlooks. A note that shows a settlement date just inside the ex-dividend window is not an error; it is a trade that will not carry the next coupon, and the price reflects that. Checking the settlement date against the coupon date is how the income entitlement is confirmed.

Background, not advice

This article explains how a gilt trade moves from its dealing day to settlement; it is general background, not investment, tax or legal advice for any reader's circumstances. The settlement convention and the ex-dividend window follow the gilt market's practice, and the primary sources for a particular trade are the contract note and the DMO's reference data.