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process . A number of other edits have also been proposed . SGX is calling for the use of the Monetary Authority of Singapore ’ s electronic payments system ( MEPS +), as opposed to using commercial banks for Singapore dollar payments . This is viewed as reducing market exposure to the banking system . The consultation paper also outlines an end to securities overdrafts in cases where a delivery failure has occurred in a sell trade . A system has been proposed to minimise the impact of failed trades without resorting to overdrafts . “ T + 2 has been in the works for some time . It is all part of our post-trade modernisation programme , basically aligning ourselves with industry best practices ,” says Nico Torchetti , senior vice president , head of market services , SGX . In some respects , these changes may be as important as T + 2 , keeping the exchange at best-practices , IOSCO standards and eliminating some of the lingering potential weaknesses . Doing it all together and getting it right has taken time , and this in part explains why Singapore is behind Thailand in upgrading settlement . The SGX has taken a methodical , comprehensive approach by polling the market , considering the input and making adjustments across the board . While Thailand will go into T + 2 with a slight gap in DVP , Singapore will go with the gap eliminated . It will be behind in the headlines but possibly ahead overall . Similarly , the TSE has been taking a step-by-step approach . The exchange , along with the Japan Securities Clearing Corporation ( JSCC ), established a working group in 2015 to study T + 2 and make implementation recommendations . A series of reports have been published examining the many operational changes that will come with the transition and outlining the way forward . Early 2019 has been set as the target for T + 2 in Japan . “ For a lot of exchanges , it is not just about the settlement cycle ,” says O ’ Brien . “ For Singapore , it is part of a larger change . Bits and pieces in addition to T + 2 .” It appears as though Singapore will complete the process of T + 2 and the various other improvements by the end of 2018 . Feedback to the consultation paper has been positive . Some concerns have been raised by contra traders , investors who get in and out of stocks before payment is due , although speculators of this sort are already adequately covered by credit arrangements with brokers , arrangements that can enable the same sort of short-term opportunities available in a T + 3 environment .
Shifting dynamics It is important to recognise that Thailand ’ s early move may be a sign of shifts in regional dynamics , as much an indicator of Thailand ’ s strengths as a simple matter of timing . Over the past few years , the SET has gone from just another regional exchange , largely eclipsed by the likes of Singapore and Hong Kong , to a leader in its own right . It has been focusing on upgrading its systems and capturing the Mekong area business to become a preferred hub for equity . T + 2 is part of the makeover and the project has been approached with the foresight and professionalism of a major market . “ We have been planning for more than a year , testing with the market and working with the custodian banks ,” Pataravasee said a month ahead of the move . In terms of the actual transition in Asia , observers are confident it will go well . On the market side , they see good preparation . On the customer and client side , they see experience , having gone through the process already in Europe , the US and Australia . Very few links in the value chain will have to be upgraded , for the most part just processes and systems tested and adjusted . The checkerboard in Asia , with some exchanges T + 2 and others still at T + 3 , is also seen as little more than another variation for participants to monitor . “ It is a non-event for them . It is an alignment they have seen coming ,” says Torchetti . “ The processes have already been
“ For a lot of exchanges , it is not just about the settlement cycle . For Singapore , it is part of a larger change . Bits and pieces in addition to T + 2 .”
GARY O ’ BRIEN , HEAD OF CUSTODY PRODUCT , APAC , BNP PARIBAS SECURITIES
established in other markets regionally . They are basically best practices globally .” “ I don ’ t think it increases risk . It takes risk out ,” he adds . The one possible concern is the actual changeover itself . Given the overlap of the new cycle and the old , exposures could be greatly increased for a short period of time , and participants need to be prepared for that . But following that tense day , it should be business as usual . “ The shorter settlement cycle puts more pressure to get funding into place . One of the key risks as the market moves is the first settlement date . There needs to be a lot of focus ,” says O ’ Brien . “ Operational and treasury departments must be focused on that day . But it quickly gets back to business as usual after that point .”
20 Global Custodian Summer 2018