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Broking industry recommends 2016 start for T+2 cycle

Written by Anton Murray Consulting on . Posted in Investment Banking News, News

Joyce Moullakis

A peak industry representative group on Monday recommended Australia move to a shorter two-day settlement cycle for cash equities trading, rebuffing some calls to make the change next year but advocating a 2016 start date.

The 22-member Australian Securities Exchange Forum, which includes senior executives from Deutsche Bank, Morgan Stanley, UBS, Macquarie Group and Patersons Securities, has agreed to urge the boards of ASX Clear and ASX Settlement to adopt the change in the first quarter of calendar year 2016.

An ASX spokesman said if the timetable is given the green light, targeted discussions with industry would begin about the changes necessary to enable implementation. That would mark a change from the current three days it takes to settle a trade, known as T+3.

But some industry sub­missions, including that of BNP Paribas Securities Services, preferred an earlier implementation date in 2015, to align with a move in the broader European Union to settle trades in two days. ­Germany and Hong Kong are among markets that are already settling trades in two days.

Proponents for the 2016 start date argued the industry needed extra time to prepare systems for change and to educate trading customers. Bell Financial Group’s executive chairman Colin Bell is among those who support the changes, saying despite challenging trading volumes the change was necessary and ­reasonable.

“This is the core of our ­business and we have to respect that,” he said.

But last month, BBY’s executive chairman Glenn Rosewall cautioned that while momentum was gathering for a two-day trading settlement cycle, the change may favour institutional brokers over their retail counterparts if more trades failed.

The ASX is considering whether to waive fees for trades that fail during a transition period, but a formal decision is yet to be made. It has previously said it would set aside any additional failure charges during the first 12 months of implementation for customer and investor education. The forum has agreement that by shortening the time frame by which trades remained unsettled, risks would be reduced as well as the amount of cash margin the broking industry has to put up as security against the potential for failed trades.

The Securities Industry Association in New Zealand has also expressed support. In its submission, it noted the neighbouring exchanges should move to a two-day settlement concurrently, because of the number of dual-listed securities. Local broking firms are having a tough 2014 with year-to-date volumes across the ASX and Chi-X down 8.9 per cent on the same period in 2013.

Australian Financial Review