[ M A R K E T
of improvements that it hopes to under-
take at the same time. Importantly, the
exchange wants to take the settlement
process from delivery versus payment
(DVP) where securities and cash move
at different times, to DVP where they
move simultaneously and in a conditional
manner. Because of this, the rules will be
amended so that the Central Depository
(CDP) will not take delivery of securities
unless payment can be met, and it will no
longer require a bank guarantee to pro-
tect itself in case of payment or delivery
failure, ultimately removing risk from the
process.
A number of other edits have also been
proposed. SGX is calling for the use of
the Monetary Authority of Singapore’s
MEPS+ rather than commercial banks for
Singapore dollar payments from the de-
pository to settlement participants. This
is viewed as reducing market exposure
to the banking system. The consultation
paper also outlines an end to securities
overdrafts in cases where a delivery
failure has occurred in a sell trade. A sys-
tem has been proposed to minimise the
impact of failed trades without resorting
to overdrafts.
“T+2 has been in the works for some
time. It is all part of our post-trade mod-
ernisation programme, basically aligning
ourselves with industry best practices,”
says Nico Torchetti, senior vice president,
head of market services, SGX.
In some respects, these changes may
be as important as T+2, keeping the
exchange at best-practices, IOSCO
standards and eliminating some of the
lingering potential weaknesses. Doing it
all together and getting it right has taken
time, and this in part explains why Sin-
gapore is behind Thailand in upgrading
settlement. The SGX has taken a method-
ical, comprehensive approach, polling the
market, considering the input and making
adjustments across the board. So while
Thailand will go into T+2 with a slight
gap in DVP, Singapore will go with the
gap eliminated; it will be behind in the
headlines but possibly ahead overall.
Similarly, the TSE has been taking a
step-by-step approach. The exchange,
along with the Japan Securities Clear-
ing Corporation (JSCC), established a
working group in 2015 to study T+2 and
make implementation recommendations.
A series of reports have been published
examining the many operational changes
that will come with the transition and
o utlining the way forward. Early 2019 has
been set as the target for T+2 in Japan.
“For a lot of exchanges, it is not just
about the settlement cycle,” says O’Brien.
“For a lot of exchanges, it is
not just about the settlement
cycle. For Singapore, it is part
of a larger change. Bits and
pieces in addition to T+2.”
GARY O’BRIEN, HEAD OF CUSTODY PRODUCT,
APAC, BNP PARIBAS SECURITIES SERVICES
“For Singapore, it is part of a larger
change. Bits and pieces in addition to
T+2.”
It appears as though Singapore will
complete the process of T+2 and the
various other improvements by the end of
2018. Feedback to the consultation paper
has been positive. Some concerns have
been raised by contra traders, inves-
tors who get in and out of stocks before
payment is due, although speculators of
this sort are already adequately covered
by credit arrangements with brokers, ar-
rangements that can enable the same sort
of short-term opportunities available in a
T+3 environment.
Shifting dynamics
It is important to recognise that Thai-
land’s early move may be a sign of shifts in
regional dynamics, as much an indicator
of Thailand’s strengths as a simple matter
of timing. Over the past few years, the
SET has gone from just another regional
exchange, largely eclipsed by the likes
of Singapore and Hong Kong, to a leader
in its own right. It has been focusing on
upgrading its systems and capturing Me-
kong area business to become a preferred
hub for equity. T+2 is part of the makeo-
ver and the project has been approached
with the foresight and professionalism of
R E V I E W
|
T + 2 ]
a major market.
“We have been planning for more than a
year, testing with the market and working
with the custodian banks. So far, we are
OK. No major problems,” Pataravasee said
a month ahead of the move.
In terms of the actual transition in
Asia, observers are confident it will go
well. On the market side, they see good
preparation. On the customer and client
side, they see experience, having gone
through the process already in Europe,
the US and Australia. Very few links in the
value chain will have to be upgraded, for
the most part just processes and systems
tested and adjusted. The checkerboard in
Asia, with some exchanges T+2 and oth-
ers still at T+3, is also seen as little more
than another variation for participants to
monitor.
“It is a non-event for them. It is an align-
ment they have seen coming,” says Tor-
chetti. “The processes have already been
established in other markets regionally.
They are basically best practices globally.”
“I don’t think it increases risk. It takes
risk out,” he adds.
The one possible concern is the actual
changeover itself. Given the overlap of the
new cycle and the old, exposures could
be greatly increased for a short period of
“The T+2 project has been on
our minds, and we have been
working on it for 18 months.
We think it is time.”
PATARAVASEE SUVARNSORN,
EXECUTIVE VICE PRESIDENT OF THE
STOCK EXCHANGE OF THAILAND
time, and participants need to be pre-
pared for that. But following that tense
day, it should be business as usual.
“The shorter settlement cycle puts more
pressure to get funding into place. One of
the key risks as the market moves is the
first settlement date. There needs to be a
lot of focus,” says O’Brien. “Operational
and treasury departments must be fo-
cused on that day. But it quickly gets back
to business as usual after that point.”
Spring 2018
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