SA equity market moves to 3-day settlement cycle
The Johannesburg Stock Exchange (JSE) has announced that the final market testing phase of the project which will see its equity market move to a shorter, T+3 settlement cycle has been successfully completed. The JSE currently settles on a five day (T+5) settlement cycle. The transition, scheduled to take place on 11 July this year, will align South Africa to international best practice settlement standards. Dr Leila Fourie (pictured), JSE Executive Director, said:
"South Africa must ensure that it remains as attractive as possible for foreign inflows of capital, and settlement assurance is vital for us to retain and keep attracting investment from outside of the country. Global investors need to be assured that, if they trade on our market, their trades will settle seamlessly. Currently, 37% of equity trades are held by non-residents with approximately 30% trading on a daily basis."
Fourie added that the move to a shorter settlement cycle will "catapult the country and the JSE to compete confidently among global equity markets, making it a matter of major importance for SA Inc."
The move will also result in additional benefits to the market, such as cash being released earlier in the settlement cycle, increasing the funds in circulation. Based on the average value traded per day of R25 billion, this will create a release of R50 billion into circulation, according to Fourie.
A further benefit of a shorter settlement cycle is that it dramatically reduces the amount of unsettled trades at any given point. Thus, in the event of a market default, the number of unsettled trades that needing to be unwound is significantly reduced, which lessens potential losses between trading parties, and enhances investor protection during the process, Fourie says.
The implementation of a new settlement cycle impacts all market participants, including listed companies, traders, investors, clearing and back office participants, Strate, the JSE and all regulators. The move is being spearheaded by the JSE in close collaboration with the South African Reserve Bank, National Treasury, Financial Services Board and other stakeholders.