Published On: Tue, Mar 11th, 2014

What Do You Think About SGX Moving To T+2 Settlement?

Sam Ahmed, Head of Collateral Services Sales APAC, Citibank

Sam Ahmed, Head of Collateral Services Sales APAC, Citibank

“Singapore’s adoption of a T+2 settlement can potentially act as a catalyst for the rest of the region to undertake measures in moving towards a similar settlement cycle.

Furthermore, as CCPs around the region are being developed for the OTC market, SGX’s move towards a T+2 settlement can be seen as a broader move to strengthen best practices across their OTC and securities infrastructure in order to attract potential investors and new members.”

Alexandre Kech , Director, Securities Market Infrastructures, APAC, SWIFT

Alexandre Kech , Director, Securities Market Infrastructures, APAC, SWIFT

“This move is part of a global trend. Five Euroclear markets will be on T+2 in October 2014 in preparation for Target 2 for Securities (also on T+2). The US and Australia are currently consulting on the subject. Other markets like Germany and Hong Kong have already adopted it. No doubt that this trend will continue to spread globally. A shorter settlement cycle does reduce operational and counterparty risks significantly, it enables a more efficient use of assets. But only if it comes with effective pre-matching and fully standardised automation from trade order to settlement. Standardised post-trade matching on T+0 between the buy-side and the sell-side is a prerequisite to accomplish an operationally risk free T+2. Securities Market Infrastructures also need a robust, reliable and automated infrastructure speaking ISO with its participants. SWIFT is working on both fronts with its community and with Exchanges such as SGX, ASX and others in Asia to provide matching solutions, standardisation and automation.”
Geoff Harries, Global Head of Asset Servicing, DST Global Solutions

Geoff Harries, Global Head of Asset Servicing, DST Global Solutions

“The move to a T+2 settlement cycle in Singapore, and consultations being held across other Asian and European countries, is having a huge knock on effect to operations and many investment managers and banks are simply not ready yet. They will have to either resource up to handle the tighter settlement deadline or think about how they can automate the settlement process if they want to transition to the new rules painlessly. The impact will be felt across the entire trade lifecycle and will drive moves to same day affirmation for trade confirmations. Simply growing headcount could pose huge operational risk, let alone cost, especially in times of high volume and volatility where man-powered operations cannot scale and are prone to human error. Technology is key to achieving operational efficiency since it will automate the confirmation and settlement cycle, maximise straight through processing and focus operations on exceptions driven oversight, giving the ability to easily scale. Singapore will not only have to think about their own shortening of the settlement period, but also be able to adapt to trading other geographies who are also implementing this change.”
Bruno Campenon, Head of Hong Kong, BNP Paribas Securities Services

Bruno Campenon, Head of Hong Kong, BNP Paribas Securities Services

• The move to a T+2 settlement cycle becomes an international trend. While not yet widely spread, we see a growing interest particularly from the regulators to promote the reduction from T+3 cycle to T+2. This is particularly true in Europe, in the frame of the move to Target 2 Securities. The European regulation on CSDs promotes a move to T+2 by early 2015. T+2 cycle is already in place in Taiwan, Germany or HK today.
• The interest of such a move is mainly 2 fold. It reduces the systemic risk on a given market, and it follows worldwide trend, and hence promotes harmonization.
•This may have a positive induced effect on volumes and liquidity, as the market efficiency will increase, the capital impact may decrease and the overall risk (market, counterparty exposure) does decrease proportionally.
• The drawbacks remain limited in effect. It mathematically reduces the ellapsed time to communicate with counterparties (particularly when crossboarder). The securities recall in the frame of Securities Lending activity is put under tighten deadlines.
• The shift to T+2 settlement may lead to some system challenges and expenses at some broker firms who may prefer to rely on established Custodian, who have already invested in such set-up and optimizations.

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