Australian bonds to adopt T+2 next year

Australia will move to T+2 settlement for fixed income products at the same time as equities.

Australia will move to T+2 settlement for fixed income products at the same time as equities.

Fixed income products will move to a T+2 settlement cycle on 7 March, 2016, The Australian Financial Markets Association (AFMA) has announced. This will be the same day as T+2 for equities is slated to begin, according to the ASX. Timing for the change was decided by the industry-driven T+2 Steering Committee.

“It sees us harmonising with important offshore markets, as well as complementing the ASX’s move to T+2 settlement for cash equities and New Zealand’s move to T+2 for cash equities and fixed income,” says Michael Go, head of markets at AFMA. “Our consultation showed that the implementation would be reasonably straightforward as conventions, systems and processes currently cater for negotiated settlement cycles for the relevant market participants. We’re very confident that the timeframe we have set together as an industry is a sensible one.”

Only secondary market products are included in this change, and origination settlement cycles and conventions remain the same, Go says. Secondary market products include commonwealth treasury bonds and semi government bonds which are not near maturing, supernational, corporate bonds and commonwealth inflation bonds.

Institutions that deal in Australian dollar-denominated bonds will need to work with counterparties to ensure that systems and processes are ready for T+2, Go says. 

“Given much of the rest of the world is already on this cycle, or moving to it, it places the Australian market in a strong position,” Go says.

When Europe moved to T+2 last year, the ASX started consulting with the financial services industry and proceeded from there. Since Europe went to a T+2 settlement cycle, and Australia announced its intention to move to the same cycle in 2016, Singapore, New Zealand and the US also announced similar intentions, although on varying timelines.

The main focus of industry work in the lead up to the start is understanding and harmonising matching processes and STP fail rates, ASX has previously told Global Custodian.