Japan aims for 2018 T+1 settlement cycle

The Bank of Japan continues to push ever shorter settlement cycle as other countries follow suit.
By Paul Walsh
The Bank of Japan (BoJ) has revealed that it intends to shorten the settlement cycle of Japanese government bonds (JGBs) from T+2 to T+1 by the first half of the 2018 fiscal year.

Market participants and financial infrastructures are currently working toward shortening the settlement cycle for outright transactions of JGBs from two business days to one business day.

The shortening of the settlement cycle is aimed at reducing settlement risks concerning cost and liquidity.

A move to a T+1 cycle will be the latest development for the BoJ following its move to a T+2 cycle in April 2012.

Other initiatives have taken place in Japan designed to shorten the settlement cycle of securities.

With regard to JGBs, the Japan Securities Dealers Association (JSDA) established the “Working Group on Shortening of JGB Settlement Cycle” (WG)1 in September 2009 as a platform to facilitate in-depth discussions among market participants with varying business models.

Demand for a reduced settlement cycle has also been a recurring theme throughout other parts of the world.

Last month, The Johannesburg Stock Exchange (JSE) revealed it was looking at aligning to T+2 settlement time after introducing T+3 earlier this year.

Brett Kotze, head of operations at JSE, described the move as “one of the biggest successes in the last 20 years in South Africa”, adding that there were no glitches and no system impacts.

The BoJ has also revealed plans to introduce a new transaction scheme for general collateral (GC) repos entitled the Subsequent Collateral Allocation Method.

The scheme is designed to reduce settlement risks arising from unsettled positions as well as enhance the competitiveness and efficiency of Japanese financial markets.

The scheme is also eventually targeting a T+0 cycle for GC repos.