29 November 2018
On 13 November 2018, Singapore Exchange Limited (“SGX”) announced that it will be launching a new securities settlement and depository framework and system on 10 December 2018, enabling a shorter securities settlement cycle of two days (T+2) and simultaneous settlement of money and securities. The amendments are aimed at aligning SGX’s securities clearing and settlement processes with global standards, reducing systemic risk in the securities market and strengthening Singapore’s position as an international financial centre.
The changes that will take effect on 10 December 2018 include:
- Shortened trade settlement cycle of T+2;
- Simultaneous and conditional delivery-versus-payment settlement;
- Singapore Dollar deposits finalised in MEPS+;
- Removal of securities overdrafts; and
- Service enhancements such as allowing broker-linked balances and enhancing the real-time gross settlement system
SGX’s announcement follows its public consultation held from 29 November 2017 to 15 January 2018 on proposed changes to the securities settlement framework and service enhancements. On 8 November 2018, SGX issued its Response to the feedback received from the consultation. SGX noted that most respondents supported and agreed with the changes proposed in the consultation.
Shortened trade settlement cycle of T+2
A trade will become due for settlement after two market days (i.e. T+2) instead of the current three market days (i.e. T+3). This move will harmonise Singapore’s stock market with that of global markets such as Australia, the EU, Hong Kong and the US.
Simultaneous and conditional delivery-versus-payment settlement
Trades will be settled on a delivery-versus-payment (“DVP”) basis by simultaneous transfer of securities and money held in trust with the Central Depository (Pte) Limited (“CDP”). SGX also noted respondents’ general support for the new point of finality for money settlement (i.e. upon book entry, instead of upon payment into bank accounts currently).
The implementation of simultaneous and conditional DVP settlement will result in the removal of CDP as the central counterparty guaranteeing institutional DVP settlements and of the two-tier bank guarantee.
Singapore Dollar deposits finalised in MEPS+
Currently, payments between CDP and settlement participants are made through and finalised in commercial settlement banks. Payments are final when the funds are received in the intended recipient’s settlement bank account.
Going forward, the deposit of Singapore Dollars (“SGD”) by settlement participants and the release of SGD to settlement participants will be made through and finalised in the electronic inter-bank payment and fund transfer system operated by the Monetary Authority of Singapore (“MEPS+”) instead of in settlement banks. This change will help participants reduce their exposure to settlement bank risks. This new arrangement will only apply to SGD payments, and not to payments in foreign currencies.
Removal of securities overdrafts
CDP will no longer create securities overdrafts when a seller fails to deliver securities. CDP will settle trades only to the extent of the securities available and will cash settle failed sell trades which are not settled by ISD+6.
Allowing broker-linked balances
The new settlement and depository system will allow a broker-linked balance functionality to be made available to investors. This functionality enables investors to give their chosen brokers visibility over specific securities, giving brokers the ability to offer more personalised products and services to their clients.
Enhancing the real-time gross settlement system
The real-time gross settlement system (“RTGS”) will be enhanced by allowing it to effect money settlement. Money and securities settlement will be conducted simultaneously in the same way as in batch settlement, i.e. by book entry. In addition, the new RTGS facility will be available for all types of securities and all settlement currencies.
The following materials are available on the SGX website www.sgx.com:
- Media release: SGX launches new securities and depository system, T + 2 securities settlement cycle from 10 December 2018
- Response to feedback on consultation paper on changes to securities settlement framework and service enhancements
- FAQ: Post Trade Modernisation - Implementation of Securities Settlement and Depository System