The JSE’s move to a T+3 settlement cycle has been a great success since the project’s launch last year


‘We’re very proud of the way it’s worked out. We’ve had an excellent team working on this for the past few years and it’s given us a huge sense of achievement,’ says Brett Kotze, the JSE’s Head of Operations – Clearing and Settlement. Kotze is referring to the exchange’s July 2016 move to a trade day plus three days (T+3) settlement cycle. SA is one of the first countries in the world with high levels of trade to achieve zero failed trades since the implementation of the project.

The shorter T+3 settlement means equities are delivered in exchange for payment within four days (trade plus three days) instead of the previous trade plus five days (T+5) cycle.

The JSE and a network of participants in the industry have been working hard over the past few years to ensure a swift transition to T+3. ‘The first benefit is that it has aligned us with global best practice,’ says Kotze. ‘This makes it easier and more attractive for investors. It also increases liquidity in the market, which should translate to growth in capital markets.’

He adds that releasing significant amounts of funds into the market two days sooner has had a big impact on increasing liquidity, although it has been difficult to pinpoint given the movement in the markets on the back of political developments in SA.

A huge amount of preparation helped the swift transition to a shorter cycle for equities and the no-fail rate so far. ‘A lot of work went into the readiness, making sure we had all the documentation and explaining the different concepts and processes to users of the JSE,’ says Kotze. He adds that the JSE has held workshops with brokers and helped them review and document processes and procedures.

Initially there was some concern in the market that there would be an increase in failed trades. The JSE called on member firms to ensure they had enough capital to put up against the margins. Kotze says they have enjoyed the wholehearted support of all listed companies.

The JSE anticipated rolling of trades of between 5% and 10% in the new environment. It set a target of less than 5%. ‘Ten months later, we’ve had no failed trades and are hoping to keep this up,’ says Kotze, adding that this is a major achievement, particularly considering the JSE registered around 300 000 trades a day.

The Financial Services Board, which regulates the JSE, announced in 2011 that moving to T+3 would become a licence requirement, in line with global trends. The shift was broken down into three phases, with the final phase going live in July last year.

‘The key focus was to automate the manual processes we had before so that it would benefit clients and members of the JSE,’ says Kotze.

The exchange has been lauded for being among the best-regulated markets in the world but the shift has been keenly awaited for some time – a wait Kotze believes has been worthwhile.

‘When you see the amount of work in terms of systems and processes that we needed and the careful planning with the market, it was the right thing to do to enable a smooth transition.’

Kotze says that while the JSE may have driven the project, its success is due to a network of all participants – from exchange members who deal directly with the JSE to Strate, CSDPs and all clients.

In 2016, the UK moved to T+2 and the US is due to transition to T+2 this year. ‘From a South African perspective, after discussions with global clearing houses, we believe T+2 is the ultimate cycle,’ says Kotze.

‘We won’t rush into it but we are reviewing the methodology and looking closely at the cycle. We’re not getting any pressure from regulators or anywhere else. We do have time. It’s just a matter of firming it up.’

By Kim Cloete
Image: Gallo/GettyImages