SINGAPORE: The Singapore Exchange (SGX) is planning several changes to the local securities market, including shortening the settlement cycle for trades from three days to two days.
The aim of these proposed changes, SGX said as it released its consultation paper on Wednesday (Nov 29), is to align the Singapore market with global best practices.
SGX’s CEO Loh Boon Chye said in a statement : “The changes proposed today are aimed at reducing systemic risks and aligning the clearing and settlement processes of the Singapore market with global practices”.
He also added that these changes will “strengthen Singapore’s position as an international financial centre”.
Among the key changes proposed are a shorter securities settlement cycle from three days to two days.
Currently, when securities are traded, buyers get their securities and sellers their money after three days.
“The shorter time frame between trade date and settlement date … reduces the timeline that the counterparties are exposed to the risk of settlement,” said Mr Nico Torchetti, SGX’s senior vice president and head of market services equities & fixed income.
Stock exchanges in Hong Kong and New York already operate a two-day settlement cycle.
This will also further make securities in cash available to investors earlier, he explained, which can then be “freed up for redeployment elsewhere or for reinvestments”.
The plan to have a shorter securities settlement cycle was first proposed by the Monetary Authority of Singapore (MAS) and SGX in 2014.
SGX has also proposed changes to the time between when securities and cash settlements are made.
Currently, there is a time lag of up to six hours between when cash and securities are settled, presenting “a current risk in the market”, Mr Torchetti said.
“Our proposal is therefore to introduce simultaneous settlements of cash and securities”.
The move is a bid by SGX to remove the current time lag between cash and securities settlements, which will remove the “low risk associated with our current settlement process”. This change will be applicable to both the ready market and the buying-in market.
Various settlement processes will also be enhanced, said SGX in a press release.
“We are proposing that Singapore dollar payments for settlements are conducted through MAS’ MEPS+, instead of the current arrangement that is using commercial banks”, said Mr Torchetti.
MEPS+ is the MAS’ electronic payment system.
Mr Torchetti said that this move would align Singapore to international standards.
“Other markets, and in particular, Europe, refers to this as central bank money settlement, which is being developed really as an international standard for most of the developed markets.”
He further explained that this will “reduce the dependency and risk in the settlement process posed by the commercial banks”.
SGX is also proposing that investors with shares in their Central Depository (CDP) direct accounts have the option of giving their brokers visibility over specific holdings by creating a broker-linked balance of their chosen holdings.
The broker can then offer their client more personalised services such as portfolio management services.
SGX is targeting to introduce the changes in the “later part” of the second half of 2018.
Public consultation on the changes will remain open until Jan 15, 2018.