The Johannesburg Stock Exchange (JSE) has completed its move to a shorter settlement cycle to bolster the credibility of South Africa as an investment destination.

Going forward, all trades conducted on the exchange will be settled on a T+3 cycle.

The primary aim of T+3 is to bring South Africa in line with international markets, many of whom settled on T+3 as far back as 1995.

It will also further increase the liquidity of the local market.

 Paul Ferreira (pictured), Group Integration and Automation Lead, Maitland, said: “The big advantages for the international buy-side are increased liquidity and shorter timelines which are more in line with international practices, making the JSE more attractive generally.”

 “The main benefit for local fund managers is that they will instantly become more internationally competitive,” he told Africa Global  Funds.

 The JSE was mandated by the Financial Services Board in 2012 to shorten the settlement cycle for equities from five to three  business days.

 The project has been rolled out in three phases and has taken three years to reach implementation stage.

One of the main benefits of the shorter settlement cycle is that the number of unsettled trades will be nearly halved.

In addition to lower settlement risk, the shorter cycle will release funds two days earlier and therefore increase the circulation of funds in the market.

John Able, Executive Director, DTCC Settlement Services, said: "The JSE’s move to a shorter settlement cycle is in line with a trend that we are seeing across many markets, where, for example, the US is positioned to move from T+3 to T+2 in September 2017 and the EU moved to a shorter cycle last year. Participants and policymakers realize that the efficiency gains of shorter settlement cycles can lower costs, improve liquidity and reduce risks - significant benefits for the industry." 

"Like any participant moving to a shorter cycle, South African fund managers must consider their entire trade lifecycle to ensure that the technology and processes that they have in place are capable of supporting an accelerated settlement timefram,” he added. 

As the largest fund administrator in the South African market, Maitland has worked closely with the JSE and other key stakeholders on the T+3 project to ensure that the new timelines and processes are feasible and will be implemented successfully into the market.

Ferreira said that from an administrator’s perspective, the shorter T+3 trade lifecycle has meant more time pressures and the need for even greater precision to support clients in the transition.

“The project has also led to proactive engagement on our part with all our stakeholders in order to get an optimal result in terms of straight-through- processing (STP) and this has been beneficial for the industry,” he said.

Ferreira added that in South Africa, Maitland has done as much client education as possible: “What we will be watching closely for is a behavioral change, so that the mindset fits the system.”

“We have created the environment for fund managers to abide by the rules so that settlement can be guaranteed. We have created more transparency throughout the trade lifecycle; ensured more real time trade matching and automation to ensure we can meet the shorter lifecycle; achieved overall general improvement of STP – from initiation to completion,” he said.