SGX aims for T+2 next year; public views sought on several measures

Singapore

THE Singapore Exchange is renewing its bid to shorten the trade settlement period to just two days (T+2) - a move aimed at cutting systemic risks and bringing Singapore in line with updated practices elsewhere.

The bourse operator on Wednesday opened a public consultation on this and other post-trade measures which it aims to implement by the later part of next year.

In addition to the key change from the current T+3 to T+2, the SGX also hopes to offer a new service that would let brokers view certain of their clients' holdings in their SGX Central Depository (CDP) accounts. Such an option, SGX said, would let brokers offer more personalised services, such as portfolio management services.

A shorter securities settlement cycle - previously floated by the SGX and the Monetary Authority of Singapore (MAS) in 2014 - was supposed to have started last year, but the SGX pointed to a lack of market readiness as the main obstacle. A two-day settlement period is already par for the course in the European Union, as well as in Sydney, Hong Kong and New York.

In addition to cutting the time taken for traders to get their hands on the securities, the SGX also wants to scrap the time lapse between securities and money changing hands, and instead make the settlement process simultaneous.

It has proposed carrying out Singapore-dollar CDP cash transactions through the MAS electronic inter-bank payment and fund transfer system, rather than through commercial banks.

The bourse operator will also axe the securities overdraft that it now creates in the rare event of a failed securities delivery.

SGX chief executive Loh Boon Chye said in a statement: "The changes proposed today are aimed at reducing systemic risks and aligning the clearing and settlement processes of the Singapore market with global practices.

"They will also strengthen Singapore's position as an international financial centre."

Industry players BT spoke to appear to be supportive of the measures, although some fear an even shorter settlement period could spell the death knell for contra-traders. (Contra trading involves buying and selling the same shares within the settlement period, and earning or paying the difference from the trades).

Securities Investors Association (Singapore) president David Gerald shares the view that a shorter settlement mitigates risks. "The investors can have the shares credited to their account faster, thereby reducing risk, allowing investors to react in time to any market changes."

He added: "These initiatives by SGX can result in better liquidity if the brokers are able to help investors to better monitor their investments and provide necessary advice."

But UOB Kay Hian remisier Jimmy Ho, who is also president of the Society of Remisiers (Singapore), told The Business Times that shorter settlement cycles for securities transactions "will further dampen liquidity in the market".

"If it's reduced by one day, it will affect people's interest in the market, because many already feel that three days is not long enough to have any contra play.

"So, the speculative aspect will be missing, or less interesting."

But he believes the suggested broker-linked balance system is an improvement. "Previously, we couldn't see the balances, and when clients called, especially the older folks, they weren't always sure of how much they had," he said. "Or people who had not been in the market for a while might have oversold."

Giving some background to the proposed changes, Nico Torchetti, SGX senior-vice president and head of market services, told a media briefing that the industry is shifting off a central operating system, provided by the SGX, to individual back-office platforms operated by bourse members.

"The overall changes in our framework are basically related to our post-trade modernisation project. Now we have done the first phase. This is part of the second phase.

"So all our framework changes are basically part of that programme. This programme, especially Phase 1, took longer than expected in terms of market readiness. So now that we can implement it, we will."

As for the broker-linked balance option for investors, Mr Torchetti said this planned service "is really anchored in the fact that we, as a CSD (central securities depository), do hold direct accounts for retail investors".

The current system does not give brokers visibility over direct accounts, which are mostly used by retail investors. The optional broker-linked balance service would let an investor tag a specific broker to certain holdings, giving the broker full transparency over and joint control of the assets.