Move to T+2 settlement cycle no drama: ASX

Australia is proceeding towards implementation of a T+2 settlement cycle in March 2016, with industry participants focusing on operational readiness in straight through processing, ASX said.

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Australia is proceeding towards implementation of a T+2 settlement cycle in March 2016, with industry participants focusing on operational readiness in straight through processing (STP), ASX said.

"So far it has been a drama-free exercise, because Australia as a market has preconditions to move to a T+2 cycle," said Danielle Henderson, general manager, clearing services, ASX. "There is a high level of stakeholders support for the initiative. Australia has very high levels of STP when it comes to trade affirmation, ... and the industry is very much in favour of this from an efficiency perspective. Although this initiative is led by ASX, it is very much at the behest of all stakeholders."

When Europe moved to T+2 last year, the ASX started consulting with the financial services industry and proceeded from there, Henderson said. 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, noted Rodd Kingham, senior manager, clearing services, ASX.

"Everyone has agreed that readiness is the topic," Kingham said. "The communication about what changes were being made and their own processes has been the main focus."

Henderson agrees and says that automation is the key factor for the industry. She also said that industry-wide discussions are also covering harmonising settlement of OTC derivative trades. While the transition to T+2 in Europe was smooth, there is one lingering loophole in Europe - OTC transactions are not part of the European legislation, and some OTC transactions are still settling on a T+3 cycle, something that is unlikely to change, given that amending European legislation is a painstaking process. 

While not mandatory, ASX hopes that OTC derivative trades will also migrate to a T+2 settlement cycle to minimise the disconnect between markets.

Moving to T+2 is not expected to incur high costs for ASX or the industry, while efficiency gains and reduced need for liquid capital requirements are expected to generate cost savings, Henderson said. She estimated there could be 20-30% reduction in liquid capital requirements as a result of moving to T+2, as well as a 10-20% reduction in daily margins.

ASX is coordinating the stakeholder consultation process in the Australian market, a lesson it said it learned from speaking with European counterparts. ASX is pointing to a dedicated T+2 Settlement web page as a repository for information and a place for participation in open conference calls. ASX has also developed a T+2 checklist document for project managers as a guide.

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