Japan will move its settlement cycle to T+2 on 16 July 2019, a working group has confirmed.
The project has been three years in the making, as the country will follow regional counterparts Hong Kong, Korea and Thailand in making the transition.
The group driving the move consists of the Japan Securities Dealers Association, Tokyo Stock Exchange and Japan Securities Clearing Corporation.
Globally, the push towards shorter settlement cycles gained momentum after the 2008 financial crisis, with Europe going first followed by the US last year. In contrast, Asia’s experience has been far less coordinated which, in part, is a function of the region’s diversity.
Asian markets range from the Yangon Stock Exchange (YSE), with five listings, and the Lao Securities Exchange (LSX), with six, to the TSE, with 2,600 in the First Section alone. In between are markets at varying degrees of development in terms of systems, infrastructure and investor profile.
Even within the Association of Southeast Asian Nations (ASEAN) pushing for market harmonisation and eventual seamless regional trading, no consensus exists on post-trade architecture. The markets can at times be more competitive than cooperative, while some are held back by domestic legal systems and the interests of their local brokerages.
In part, the mixed pace in Asia has to do with the lack of a strong driver. While it is widely agreed that T+2 is better than T+3 from a risk perspective, no one is screaming for the transition. Investors won’t often shun a market because it has a long settlement cycle.
T+2 is instead an industry-driven best practice that provides marginal benefits in terms of capital liberated and risk lowered.