South African bourse launches shorter settlement cycle

The Johannesburg Stock Exchange (JSE) on Monday launched a shorter three-day settlement cycle (T+3) to align the country's financial market with international best practice settlement standards.

This means that equities will be delivered in exchange for payment in four days (T+3 = Trade plus three days) from the previous six-day (or T+5 = Trade plus five days).

The JSE has been working on the project since 2013 with the South African Reserve Bank (SARB), National Treasury, Financial Services Board and numerous other stakeholders.

Under the new system, the sale will settle two days earlier (T+3) which means sellers receive their cash much sooner and the purchasers receive their shares much sooner. The release of funds into the market earlier will ensure that money goes into circulation earlier and bolster the credibility of South Africa as an investment destination.

Dr Leila Fourie, the Executive Director at the JSE, hailed the move as a milestone in staying at the forefront of global best practice.

Fourie said, "This is a major milestone for our country and our Capital Markets. The alignment with global standards will increase interest from global investors who constitute more than a third of our equity market volumes. Coupled with this, the move to a shorter T+3 settlement cycle will significantly reduce the number of unsettled trades at any given point, substantially reducing the potential risks and losses between trading parties and enhancing investor protection."

The launch follows a three-year stringent three-phase process after all test runs were successfully implemented.

The SARB hailed the collaboration in ensuring that the transition is successful.

SARB Deputy Governor Daniel Mminele said, "We are pleased with the industry's collaboration and commitment to align the equity market to international standards. The shorter settlement cycle will reduce systemic risk and release funds earlier into the market, thereby increasing liquidity for local and international investors which will translate to growth in our Capital Markets."

Cuthbert Chanetsa, deputy CEO of the Financial Services Board, said the move will mitigate systematic and settlement risk in the stock markets.

He said this means that the country have complied with the recommendations of the International Organization of Securities Commissions.

The release of funds two days earlier than in the past will increase efficiency, according to Monica Singer, the CEO of Strate, a risk management company.

She said this will also attract foreign investors. Endit