Global Custodian Clearing and Settlement Issue 2018 | Page 19
[ M A R K E T
and needed more time to adjust.
In part, the mixed pace in Asia has to do
with the lack of a strong driver. While it
is widely agreed that T+2 is better than
T+3 from a risk perspective, no one is
screaming for the transition. Investors
won’t often shun a market because it has
a long settlement cycle. T+2 is instead an
industry-driven best practice that pro-
vides marginal benefits in terms of capital
liberated and risk lowered.
“Investors are not overly clamouring
for it,” says Gary O’Brien, head of custody
product, APAC at BNP Paribas Securities
Services. “Some pressure does come from
the service providers. The length of the
settlement cycle is factored into their risk
R E V I E W
calculations. If you bought something,
you want it now.”
Modernisation requirements
To a certain extent, the movement to T+2
is just one of many upgrades required of
a modern exchange. It is a single step in
a larger, ongoing process. While T+2 may
grab headlines, it is no more important
than the other incremental improvements
required. SGX has been approaching the
task in a holistic manner that reflects this
thinking, mixing in faster settlement with
a number of additional reforms that are
part of a longer-term evolution process.
Its Post-Trade System (PTS) upgrades
started in 2012, with Phase I finishing in
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2016 and Phase II now underway.
In its late 2017 consultation on upgrad-
ing to T+2, the SGX touched on a number
of improvements that it hoped to under-
take at the same time. Importantly, the
exchange wanted to take the settlement
process from a delivery versus payment
(DVP) model, where securities and cash
move at different times, to where they
move simultaneously and in a conditional
manner. Because of this, the rules will be
amended so that the Central Depository
(CDP) will not take delivery of securities
unless payment can be met, and it will no
longer require a bank guarantee to pro-
tect itself in case of payment or delivery
failure, ultimately removing risk from the
Summer 2018
globalcustodian.com
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