The Australian Securities Exchange (ASX) is consulting the industry and seeking feedback on the introduction of a T+2 settlement cycle for cash market trades in Australia. The move would shorten the current settlement period of T+3 by one business day.
ASX said faster settlement will create capital and margin savings for the industry. It said the move would cut counterparty risk for individual investors, participants and the central clearing counterparty, resulting in lower systemic risk. Less regulatory capital would need to be held by market participants. There would also be improved post-trade operational and process efficiencies, with associated cost savings.
The exchange estimated that had T+2 been in place in Australia from June 2012 to December 2013, daily cash market margins for the total market would generally have been 20-30% lower, producing an estimated reduction of A$30-40 million in total margin payments, with savings in funding costs.
ASX says there is also the potential for a reduction in liquid capital requirements for the industry of A$60-120 million. The reduced counterparty and systemic risk expected from the introduction of T+2 may also enable ASX to reduce its clearing fee for cash equities. That cut would depend on ASX reviewing with the regulator and central bank the paid-in capital that it provides for the management of clearing participant default.