China to reform securities settlement system

CHINA’S securities regulator said on Friday (Dec 16) it will launch a reform this month to bring the country’s securities settlement system more in line with international practices, to attract foreign money inflows.

The China Securities Regulatory Commission (CSRC) in January published draft securities settlement rules that embody the principle of Delivery Versus Payment (DVP), a global practice under which the settlement of stocks and cash occurs simultaneously.

Currently in China’s equity market, stocks are settled on the day they are traded, but cash settles the next day.

The CSRC said on Friday that it will launch the DVP reform on Dec 26.

The reform will keep existing practices unchanged, but use labelling to correlate securities delivery and payment, and make clear how to deal with breaches of contract, the CSRC said.

It will not have any impact on investment and trading, but will make the settlement system more secure, and “further attract foreign capital into China’s market,” the watchdog said.

Global investors have long hoped that China would reform its settlement system. The differences create additional costs and risks for overseas investors and their brokers, ASIFMA, the financial industry body, has said. REUTERS