Japan’s stock exchanges will shorten their stock settlement cycle by one business day starting in 2019 in a move to enhance their international competitiveness, four years after the plan was first introduced.
The Tokyo Stock Exchange (TSE), Japan Securities Clearing Corporation and the Japan Securities Dealers Association (JSDA) had set up a working group in July 2015 for the initiative.
The group conducted cross-industry studies before finalising the schedule to cut the stock settlement cycle from three days after transaction, or T+3, to two days after transaction or T+2.
In a statement on May 28, JSDA says “it was decided that the scheduled implementation date of the T+2 settlement cycle is Tuesday, July 16, 2019”. It will apply to all Japanese exchanges, including TSE, Osaka Exchange, and Nagoya Stock Exchange.
TSE had said earlier this year that the T+2 system is “a recognition of the urgency and importance of realising a secure and efficient securities settlement system for enhancing the international competitiveness of Japan’s securities market”.
The move will bring Japan in line with other major markets, including Europe and the US. The European Economic Area securities markets moved to the T+2 settlement cycle in 2014. The US Securities and Exchange Commission amended rules last year to shorten the trade settlement window from T+3 to T+2.
A shorter settlement period will help to increase stock market turnover, according to Terence Chong, associate professor of economics and executive director of Hong Kong-based Lau Chor Tak Institute of Global Economics and Finance.
“Ideally, a stock exchange should bring its stock settlement cycle to T+0 in order to enhance trading efficiency, but it is not workable in reality because of the opposition of financial intermediaries,” Mr. Chong tells Asia Asset Management.
He says brokerage firms earn interest on the money used for securities trading during the settlement cycle. A shorter cycle will cut into those earnings.
