The JSE has provided the following overview of its T+3 Project:
What is T+3?
T+3 (or T3) is the abbreviation used to describe the JSE-driven market initiative to shorten the settlement cycle in the cash equity market from its current 6 day (or T+5) schedule to a new 4 day schedule. The T+3 project is a multi-year programme of work, and was kicked off in 2013.
On the JSE’s Equity Market, settlement is the process whereby equities are delivered in exchange for payment. T+3 refers to the number of days – counting from the day on which a trade takes place – within which a trade must be settled. To settle a securities transaction, the seller of the share must receive payment and the buyer must take ownership of the share.
What does the T+3 project aim to achieve?
The objective of the project is to shorten the cash equity settlement cycle to T+3, thereby aligning the South African market more closely with international benchmarks and standards (such as the IOSCO principles for Financial Market Infrastructures). The project has thus far seen the launch of the JSE’s new state-of-the-art Equities Clearing System (ECS), which is a prerequisite for the JSE to move to T+3, and the introduction of a number of enhancements to the JSE’s other legacy systems.
The move to T+3 will see a change in the schedule of events that form part of the settlement cycle. The following diagram provides a graphical view of the manner in which the settlement activities will be reorganised:
Why is the JSE undertaking this project?
The idea of a shortened settlement cycle has been contemplated within the local market for many years, and in 2012 the move to T+3 was formally mandated by South Africa’s Financial Services Board (FSB), the JSE’s regulator.
In addition to being a regulatory imperative, the move will also bring the South African equities market closer to international settlement cycle benchmarks.
Although many countries have moved or are in the process of moving to a T+2 settlement cycle the South African market will move to a T+3 settlement cycle and will further review moving to a T+2 settlement cycle after T+3 has been implemented.
What are the intended benefits of the move to a T+3 settlement cycle?
In addition to improving the credibility of our local equities market (via alignment with global best practice), the shortened settlement cycle will also unlock a number of operational benefits:
- Harmonisation across international markets – reducing complexities resulting from timing differences between jurisdictions with different settlement cycles
- Increased liquidity – enabling faster reinvestment of assets that are released from the settlement process quicker
- More prudent risk management
- A reduction in the number of outstanding unsettled trades, which in turn will:
- reduce settlement exposure/credit risk;
- reduce systemic risk; and
- improve operational efficiencies (by causing participants to adapt and modify behaviours).
How is the project structured?
The T+3 project will be implemented in 3 phases, 2 of which have already been successfully taken live. The following diagram provides an overview of the contents and timing of the 3 phases:
When will project go-live?
The final go-live date for T+3 is in the process of being determined, and its final confirmation will be dependent on the following considerations:
- Technical readiness of the JSE and market participants – The JSE cannot take the move to T+3 live without substantial changes to market participants (Brokers / CSDPs / Strate / Lending Desks / Clients) systems which also includes extensive testing. After consultation with the market participants and getting feedback on milestones such as development and full end-to-end market testing timelines, the JSE has indicated that that T+3 will be taken live between the months of May and July of 2016
- Business readiness of the market participants – The revised schedule of events (that form part of the new T+3 settlement cycle) have a direct impact on all market participants and their clients, as a number of internal process changes will have to be affected to ensure that the market is able to align to the new T+3 timetable. The shortening of the cycle means that various settlement activities have been reshuffled, and the market will have to make sure that it has designed and adopted the necessary process changes to fall in line with the new T+3 timeline.
The JSE has been in discussions with all market participants (locally and abroad), and indications are that all parties will be ready to take the project live during the period of May to July in 2016. A more specific date will be determined as the JSE and the market complete full end-to-end market testing and progress though their respective readiness activities.
How does one raise queries related to T+3?
Any queries related to the T+3 project can be submitted to the following email address: T+3@jse.co.za.
Please note that the JSE will be promoting its T+3 Project on 23 November 2015 at an International Roadshow, as well as hosting a panel discussion on T+3 at the NeMa Conference on 24 November. For further information, email T+3@jse.co.za.
