On the road to implementing T+3 settlement cycle



JSEOn 11 July this year the JSE will complete its move to a shorter settlement cycle, when all trades conducted on the exchange will be settled on T+3. This is one of the ways in which the local exchange is staying at the forefront of global best practice, says Dr. Leila Fourie, Executive Director at the JSE.

The project has been rolled-out in three phases and has taken three years to reach implementation stage. “This has been one of the most ambitious initiatives undertaken by the JSE and we are confident that the completion will bolster the credibility of South Africa as an investment destination by bringing the market even closer to international best practice in the settlement space,” says Fourie.

“This project had to be rolled out in a very considered manner, due to the extent of the parties involved. The move to T+3 is going well and our clients are signalling that they will be ready. The JSE’s system is designed with the market through extensive client engagement and consultation. We had to ensure that all the stakeholders in the value chain are fully prepared for all the implications of a shorter settlement cycle,” continues Fourie.

The most important factor underlying the project has been that any move should be in the best interest of our clients. We believe it is absolutely vital for exchanges and their derivative central counterparties to maintain high standards of risk management, as well as capital adequacy. The integrity of our trading process, and the impact this has on our clients, is not negotiable to us,” says Fourie.

According to Fourie, one of the biggest benefits of the shorter settlement cycle is that the number of unsettled trades at any given point, will be nearly halved. “That means that, for example, in the event of a significant default in the market, the number of trades that the JSE would have to settle is reduced. This represents a drastic reduction in systemic risk and the exchange’s exposure.” In addition to lower settlement risk, the shorter cycle will release funds two days earlier and therefore increase the circulation of funds in the market.

Fourie and her team recently undertook an international roadshow to ensure the global stakeholders are prepared for the shorter cycle. “It is imperative that our international partners are ready for these changes so that their ‘trading behaviour’ can change in time for the implementation of the shorter cycle.”

Fourie says the JSE is grateful for the involvement and commitment of regulator the Financial Services Board, banks, brokerage firms, CSDPs, Strate and all market participants. This has been a substantial national effort which builds the credibility of SA Inc.

She adds: “The JSE currently has a strong post-trade base across all markets and aims to provide world-class services. T+3 is just one of the initiatives that the JSE is implementing to achieve this.”

Another complex and massive undertaking that the JSE has embarked on is the implementation of the Integrated Trading and Clearing Project (ITAC). ITAC aims to harmonise the trading and clearing functions across the various JSE markets. It is part of the JSE’s continued focus on innovation, and we believe this faster, more stable and robust technology system would enable the JSE to compete with some of the largest exchanges in the world.

ITAC has been implemented in various phases across the different markets of Equities, Derivatives and Bonds.