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The SET was ready for the transition in 2005 , with an actual target date set ( June 1 ) and discussions initiated with related institutions , such as the Bank of Thailand . The SGX planned to move to T + 2 in 2014 , but backed off due to resistance from the market as investors were still unprepared and needed more time to adjust .
In part , the mixed pace in Asia has to do with the lack of a strong driver . While it is widely agreed that T + 2 is better than T + 3 from the risk perspective , no one is screaming for the transition . Investors won ’ t often shun a market because it has a long settlement cycle . T + 2 is instead an industry-driven best practice that provides marginal benefits in terms of capital liberated and risk lowered .
“ Investors are not overly clamouring for it ,” says Gary O ’ Brien , head of custody product , APAC at BNP Paribas Securities Services . “ Some pressure does come from the service providers . The length of the settlement cycle is factored into their the risk calculations . If you bought something , you want it now .”
Modernisation requirements To a certain extent , the movement to T + 2 is just one of many upgrades required of a modern exchange . It is a single step in a larger , ongoing process . While T + 2 may grab headlines , it is no more important than the other incremental improvements required . The SGX has been approaching the task in a holistic manner that reflects this thinking , mixing in faster settlement with a number of additional reforms that are part of a longer-term evolution process . Its Post-Trade System ( PTS ) upgrades started in 2012 , with Phase I finishing in 2016 and Phase II now underway .
In its late 2017 consultation on upgrading to T + 2 , the SGX touched on a number of improvements that it hopes to undertake 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 protect 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 depository 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 system has been proposed to minimise the impact of failed trades without resorting to
“ 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 AT BNP PARIBAS SECURITIES SERVICES overdrafts . “ T + 2 has been in the works for some time . It is all part of our posttrade modernisation 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 Singapore is behind Thailand in upgrading settlement . The SGX has taken a methodical , 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
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