Capital requirements for regular-way transactions during the settlement cycle

How shall regular-way transactions be treated during the settlement cycle, in particular where the settlement cycle is shorter than for long settlement transactions? Is the treatment of such pending settlement transactions different for trade date accounting vs. settlement date accounting?

A regular-way transaction is a (spot) purchase or sale of an asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned. Settlement cycle is the time allowed for the buyer to complete payment and for the seller to deliver the financial assets purchased. Article 272(3) CRR requires for classification as long settlement transaction “a settlement or delivery date specified by contract that is later than the market standard for this particular type of transaction or five business days after the date on which the institution enters into the transaction”. Thus, for qualifying as long-settlement transaction, the settlement cycle of a regular-way transaction would need to exceed five business days after the trade date. According to IAS 39.55 trade date accounting refers to (a) the recognition of an asset to be received and the liability to pay for it on the trade date, and (b) de-recognition of an asset that is sold, recognition of any gain or loss on disposal and the recognition of a receivable from the buyer for payment on the trade date. Conversely, according to IAS 39.56 settlement date accounting refers to (a) the recognition of an asset on the day it is received by the entity, and (b) the de-recognition of an asset and recognition of any gain or loss on disposal on the day that it is delivered by the entity. E.g. for a regular-way (spot) sale of a security, this means in case using the trade date: On the trade date, the security sold is derecognised and a receivable (other asset) in the amount of sale price is recognised, which will be settled on the settlement date; on settlement date, the receivable is settled by cash movement. In case using the settlement date: On trade date – no accounting entry occurs; on the settlement date the security sold is derecognised against the settlement cash movement.