Trade settlements move quickly in today’s digital world. Exchanges in the US (including the NYSE and Nasdaq), Canada, Mexico and India already operate on a T+1 settlement cycle, while the European Union and UK have both committed to moving to T+1 by October 2027.

‘The global settlement landscape is evolving rapidly,’ says Vuyo Mashiqa, the JSE’s Head of Equities and Equity Derivatives. ‘At the JSE, we’re very aware of this trajectory.’

The JSE currently settles on a T+3 cycle for the cash equities market, where security transactions must be settled within three business days of the trade date. ‘Those final settlements are conducted through Strate, our licensed central securities depository, and they exchange the securities for cash in a process that is unconditional and final,’ explains Mashiqa.

Unconditional, final… and fast. But in some cases, not quite fast enough. ‘In the crypto market, which has blockchain as its backbone, you get instant settlements. And we know that to assist in growing retail participation in our markets, that aspect is quite important. Many retail clients – especially laypeople – don’t understand why settlements take as long as they do. If they sell their equities now, they expect to see the cash reflecting in their account right away,’ says Mashiqa. ‘The conversations around us moving to a shorter settlement cycle have been initiated internally, as well as with our external stakeholders. The scale of the project is very well understood.’

The JSE moved from a T+5 settlement cycle to T+3 in 2016 in a significant multi-year project that involved multiple stakeholders, including National Treasury and the Financial Services Board – now the Financial Sector Conduct Authority. That shortened settlement cycle required significant changes in behaviour, including getting the market to commit to 95% of trades by end of day T+1.

Mashiqa says that discussions at this stage are around implementation, possible timelines, and the question of whether to adopt a T+1 or T+2 cycle.

‘This goes far beyond just the JSE,’ he says. ‘It touches on the way the entire market functions, from front office to back office, and it’s vital that we fully understand the impact and implications for everyone in the community. Given those ripple effects, it’s very important that we co-ordinate as a collective with the market.’

A shorter T+1 or T+2 settlement cycle would have several benefits, including lower counterparty and settlement risk, faster access to cash and securities and alignment with global exchanges. However, these benefits must be weighed up against challenges, including operational compression in back-office processes and foreign exchange (FX) funding mismatches. The latter was a sticking point in the US transition, as the global market convention for FX is still T+2. If equities were to settle T+1, the timing gap could cause complications for foreign investors buying JSE-listed shares, who would need rands to settle.

The JSE has not been mandated by the regulator to shorten the cycle. ‘However, we are closely tracking developments in the global settlement landscape, because of the strong presence in our market of international participants who have already been exposed to T+1,’ says Mashiqa. ‘They experience some inefficiencies from time to time, given the significant number of dual-listed stocks in our market.’

At this stage, the project remains in the discussion and early planning stages.

‘We have already reached out to some of the participants in our trading community to get a sense of everyone’s views on the current settlement cycle and the prioritisation of T+1 or T+2,’ says Mashiqa.

‘It’s an involved process, but plans are afoot – and we’ll continue to track the global developments closely, as we have significant exposure to our listed stock. As those discussions progress, we will continue to communicate with the market.’

By Mark van Dijk
Image: iStock