JSE shortens settlement cycle

JSE shortens settlement cycle
Published: 12 July 2016
JOHANNESBURG - THE JSE shortened its settlement cycle from five to three days yesterday, a move that should boost the value and numbers of trades it handles daily. Known as "T+3", the project has been underway since 2013 and has involved collaboration with the South African Reserve Bank, the National Treasury, the Financial Services Board and numerous other stakeholders.Putting funds back into circulation two days sooner will boost liquidity, the JSE said in a statement.

"Based on the average daily figure of trading to the value of R25 billion, this is expected to create a release of R50 billion into circulation," said JSE executive director Leila Fourie.

"Experience from other international exchanges indicated that we could potentially be looking at a 7-10 percent increase in liquidity, depending on current markets and other macroeconomic factors."

She said the alignment with global standards should increase interest from global investors who constitute more than a third of the JSE's trading volumes.

Shortening the settlement cycle by two days will also substantially reduce the potential risks and losses between trading parties, and will enhance investor protection, the JSE said.

"A substantial portion of the risks in the downstream activities within the financial markets value chain is directly related to the length of time it takes for trades to settle," Financial Services Board deputy executive officer of investment institutions Cuthbert Chanetsa said.

"Simply put, in capital markets time equals risk. A shorter settlement cycle, which is to be welcomed, has positive implications for the volume of transactions, market liquidity and the opportunity cost associated with the provision of collateral."

"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," South African Reserve Bank deputy governor Daniel Mminele said in the statement.

"Globally, markets have moved to shorter settlement cycles. It's viewed as a way to reduce risk and create further efficiencies, ultimately contributing to more liquidity in the market, Strate CEO Monica Singer was quoted as saying.

- BDLive
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