Saudi targets T+2 settlement cycle

Saudi Arabia’s Stock Exchange has revealed intentions to shorten its settlement cycle following similar moves by Japan and South Africa towards the end of 2016.
By Paul Walsh
The Saudi Arabian Stock Exchange (Tadawul) has published draft rules for the implementation of a T+2 settlement cycle with a targeted implementation date of Q2 2017.

The move is aimed at improving efficiency and transparency as well as aligning Tadawul’s capital markets with international best practice.

The draft rules are primarily involved with regulations and procedures surrounding adoption of a delivery versus payment (DVP) system including the segregation of custody and settlement and covered short selling.

Included within the draft rules is the requirement for all brokers that are exchange members to become custody members of the new securities depository centre.

Other requirements include procedures for securities borrowing and lending such as a 12 month cap for any securities borrowing and lending transaction.

In addition the plans state that borrowed securities may only be re-loaned on one occasion.

Tadawul’s attempt to shorten its settlement cycle follows similar attempts by other countries in recent months.

In October last year the Bank of Japan (BoJ) revealed its intentions 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.

Prior to this in September the Johannesburg Stock Exchange (JSE) unveiled plans to align to T+2 settlement time just one month after introducing T+3 in the country the previous August.

Brett Kotze, head of operations at JSE, described the move from T+3 to T+2 as “one of the biggest successes in the last 20 years in South Africa”, adding that there were no glitches and no system impacts.