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Transition to T+2 Settlement for Cash Equities

ASX transitioned to a T+2 Settlement cycle for cash equities on 7 March 2016. The pages below provide detailed information on the change.

 

Background & Benefits:

A  drive for market efficiency and determination to keep Australia at the forefront of global best practice underpins ASX’s move from a T+3 to a T+2 settlement cycle for cash market trades in Australia.

ASX implemented a T+2 settlement cycle on Monday 7 March 2016. The transition to T+2 settlement received  strong industry endorsement following broad market consultation in 2014, and in February 2016 industry participants  confirmed their readiness for the change.

Shortening the settlement period by one business day creates capital and margin savings for industry, and a faster settlement of transactions for investors.  It also lowers systemic risk for the market as a whole by reducing counterparty risk for individual investors, participants and the clearing house.

ASX’s adoption of T+2 Settlement keeps Australia aligned with leading settlement practices around the world, including Hong Kong and Europe, where many countries adopted T+2 Settlement in October 2014.  The US financial services industry has proposed a move to T+2 for equities, corporate and municipal bonds, and unit investment trusts trades with a target date of 5 September 2017.

Australian and New Zealand markets aligned for the implementation of T+2 settlement. New Zealand Stock Exchange also adopted a 7 March 2016 implementation date for NZX's cash equity and debt markets. In Australia, the Australian Financial Markets Association (AFMA) also moved to T+2 Settlement for fixed income products on 7 March 2016.

ASX media release 4 March 2016

NZX media release 7 March 2016


Scope of Change:

The transition to T+2 settlement included the following changes for cash equities:

  • T+2 settlement (trade date + 2 settlement days) for cash equities securities as settled via CHESS (including ordinary shares, units, bonds, hybrids, CDIs, exchange-traded Australian Government Bonds (AGBs) , exchange-traded products (including ETFs), warrants and instalments).
  • Corporate action ex periods reduced to 2 days (including ex date and record date)
  • Batch Settlement cut off amended to 11.30am
    • Maintain the CHESS batch cut-off extension option of 30 minutes
    • Reduce the Payment Provider Authorisation Cut-off to 60 minutes (from 90 minutes)

More information on the changes implemented by ASX is provided in the Business & Technical Overview document available in the Implementation & Readiness section.

For Australian Debt Markets information - refer to
AFMA media release dated 19 August 2015
AFMA member news dated 30 September 2015

For New Zealand Markets information - refer to the NZX T+2 web page


Key Dates:


Click on the image above to see the full size

 

 

Investor Information

The transition to a T+2 Settlement cycle for sharemarket trades will impact on investors.  Firstly, it means faster settlement of transactions (in two days from the trade date, rather than three days), so you will receive your payment or purchased securities sooner.  It may also mean that your broker will ask you to change your funding arrangements to ensure settlement occurs efficiently.

ASX has prepared a brochure on T+2 to explain the changes and how they may impact on you.  The brochure is available here.

ASX has also prepared the following frequently asked questions and answers for your information.

Q: What is T+2?
A: T+2 is a description used to explain the settlement period of a trade.  The date of the trade is referred to as (T) and (+2) refers to the number of settlement days following the trade date. This means that when you buy or sell shares, the exchange of the shares for payment occurs two settlement days after the trade.  Settlement days are business days on which banks are open and non-national public holidays.
   
Q: Why is ASX changing the settlement period from T+3 (3 days) to T+2 (2 days)?
A: The securities industry in Australia and ASX have collectively made a decision to move the settlement period from T+3 to T+2 to enhance market efficiencies and ensure Australia continues to be aligned with global settlement timeframes.
   
Q: What does this change mean to me?
A: From 7 March 2016, any trading you do will settle one day earlier. This means you will be required to deliver stock or cash to your broker earlier to ensure settlement.   Depending on your existing settlement arrangements, your broker may ask you to make changes to assist them in meeting settlement obligations to the market by T+2. Such changes may include the requirement to be broker sponsored, the requirement to have direct debit arrangements or linked cash accounts. You will need to speak to your broker to understand if there are any changes relevant to you.  The nature of your settlement arrangements are between you and your broker and are outside the ASX rules. However it is important to understand that the ASX rules do require brokers to take steps to do all things necessary to ensure they comply with the obligation to settle by T+2.
   
Q: Why haven’t I received information about the settlement period changes?
A: ASX has conducted a comprehensive communication program to ensure that all information about the move to T + 2 has been provided to the industry. This has included workshops with brokers and system providers, information on the ASX webpage, industry newsletters and media campaigns.   Your broker is best positioned to communicate how the changes impact your personal arrangements with them.
   
Q: Why is my broker asking me to sign a sponsorship agreement?
A: Depending on your existing account structure, your broker may ask you to make changes to your settlement arrangements to assist them in meeting their settlement obligations to the market by T+2. Such changes may include the requirement to have your holdings sponsored in CHESS to ensure they can be delivered to market to meet your settlement obligation.   The nature of your settlement arrangements are between you and your broker and are outside the ASX rules. However it is important to understand that the ASX rules do require brokers to take steps to do all things necessary to ensure they comply with the obligation to settle by T+2.
   
Q: What does it mean to be broker sponsored?
A: A broker sponsored account is an account held on the CHESS subregister maintained by ASX Settlement. CHESS is an electronic system that registers legal title (or ownership) of shares and other securities, and facilitates the settlement of trades in those securities.  As a sponsored holder of securities in CHESS, you are the person who is registered as the legal owner of those securities. You are given a holder identification number or HIN, which is used to identify you as the legal owner of securities in CHESS. A HIN is similar to an account number.  If you hold securities in CHESS then your sponsoring broker controls the transfer of securities to and from your CHESS holdings. However, it may only do so on your instructions and under the terms of the sponsorship agreement you have entered into with them.   Securities that you hold in CHESS are your property, and not the property of your sponsoring broker. However, your sponsoring broker may have contractual or other rights that it may exercise in relation to your property, for instance, to secure any outstanding amounts that you owe. You should refer to your client documentation to confirm this.   Please see the fact sheet  for more information about the differences between issuer sponsored and CHESS Sponsorship.
   
Q: How can I pay for my trades?
A: You will need to contact your broker who will be able to provide you with their requirements for financial settlement.
   
Q: Why do I have to pay for my buy earlier under T+2?
A: The ASX rules require brokers to take steps to do all things necessary to ensure they comply with the obligation to settle transactions by T+2. To do this, brokers will require you to provide them with cleared funds at a defined time prior to settlement.   Please contact your broker to understand any changes to your current obligations due to the move to T+2.
   
Q: Why has my broker advised me that I can no longer use cheques to pay for my trades?
A: The nature of your settlement arrangements are between you and your broker and are outside the ASX rules. However it is important to understand that the ASX rules do require brokers to take steps to do all things necessary to ensure they comply with the obligation to settle by T+2. To do this, broker will require you to provide them with cleared funds at a defined time prior to settlement. That may mean that your broker may have determined the use of cheques are no longer suitable due to the time for cleared funds to be available.
   
Q: I rely on cheques, how can I make arrangements for my cheques to accepted?
A: Please speak with your broker who may have made alternative arrangements for customers who wish to pay with cheques.
   
Q:  I have a dividend or entitlement due ….what is the impact?
A: The key change for corporate actions such as dividends is that the period known as the “ex period” (e.g. ex dividend date to record date inclusive) is 2 business days.  Any trades conducted on a cum entitlement basis will settle by or on the record date, ensuring you are entitled to that dividend or participate in the entitlement offer.  You may also receive your issued securities or distribution quicker than prior to the T+2 Settlement changes.

 

 



Industry engagement:

ASX will engage with stakeholders via various channels including the Market Implementation Group, consultation, Market Notices, bilateral meetings, Code of Practice meetings and other events and publications. If you would like to be included in ASX’s contact list or have any questions, please contact ASX at the email address shown below.

Market Implementation Group:

ASX has established a Market Implementation Group that will work towards full industry readiness for implementation of T+2 Settlement.  The Market Implementation Group is an open forum and meets at least quarterly during the lead up to implementation, timed for key milestones in ASX’s project delivery.

ASX encourages participation from all interested stakeholders and their associations, share registries, participants and system vendors. Meetings are held virtually (via webinar) to allow open access to interstate and overseas stakeholders, and where possible documentation, including webinar recordings, are available on this page. The Standing Agenda and Forward Agenda Program for the MIGs is available at the following link:

MIG Standing Agenda and Forward Agenda Program

ASX has prepared the following document with tips on how  to set up your PC for the optimal webinar experience:

ASX T+2 Settlement MIG webinar tips

Market Implementation Group meetings:

Meeting Date (Sydney time)
 Registration link
 Webinar recording
 Presentation
2pm Thursday 11 Dec 2014 closed

MP4 format (70MB)
WMV format (106MB)

  Presentation slides
2pm Thursday 19 Mar 2015 closed

MP4 format   (140 MB)
WMV format (150 MB)

Presentation slides

2pm Thursday 25 Jun 2015 closed

MP4 format   (53 MB)
WMV format  (108 MB)

Presentation slides
2pm Thursday 22 Oct 2015

closed

MP4 format   (77 MB)
WMV format  (173 MB)

Presentation slides
2pm Thursday 10 Dec 2015 closed

MP4 format (93 MB)
WMV format (95 MB)

Presentation slides

2pm Thursday 18 Feb 2016

(final meetng)

closed

MP4 format (68 MB)
WMV format (105 MB)

Presentation slides

Implementation & Readiness Material:

ASX will publish documents during the course of the project to assist industry stakeholders with their own readiness for T+2 Settlement. Documentation includes technical specifications, answers to frequently asked questions and a readiness guide.

To assist industry stakeholders with their own and their customer's readiness ASX has developed a T+2 Industry Readiness Guide. Ask yourself if you have considered the questions in the guide in your plans and preparedness for T+2.  The guide is available in PDF format for view online or printing.  ASX recommends printing on A3 paper, landscape format, colour and if double sided - flipped on the short edge.

Frequently Asked Questions  (updated February 2016)

Business and Technical Overview document:

updated 9 March 2016 - change to date information in section 7.3 and 7.4 - pages 19 - 21.

updated 4 February 2016 - additional information on page 13 - Block/Unblock Trades, Change Settlement Instruction Novated Market Trades.

updated 20 January 2016 - Settlement Extension information on page 15. Update to clarify the allowable extension times and allowable values for CHESS Event Type in EIS Section 8.

updated 22 December 2015 - updates to pages 11-12, and on page 18 - to note delivery timing for Broker Trades T+3 file and Execution Venue file is unchanged from current timing.

T+2 Investor Brochure
ASX has prepared a T+2 Brochure intended for communication with retail investors.  The brochure explains the proposed changes and how they may impact an investor. Market and other participants are encouraged to use this brochure in their own communication with clients, and can also save a copy of this brochure to their own websites. You can also publish a direct link to the brochure on the ASX website using the following url: www.asx.com.au/T2Brochure

Testing and Readiness Tracking:

CHESS Software Vendors, Clearing and Settlement Participants:

ASX issued a Market Notice on 19 August 2015 to advise CHESS Software Vendors and Clearing and Settlement Participants of ASX's approach to testing and customer readiness tracking. These entities are requested to complete a T+2 Questionnaire and return to ASX by 28 August 2015. More information is included in the following documents:

ASX Information Regarding Customer Readiness Tracking and Testing (19 August 2015)

CHESS External User Testing Guidelines - T+2 Settlement (August 2015)

T+2 Questionnaire Due 28 August 2015

Market Participants(Trade):

Market Participants are not required to complete CHESS testing, nor complete an Attestation. Market Participants should amongst other things consider the changes that may impact their processes as outlined in the T+2 Industry Readiness Guide, and the Business & Technical Overview document, for example:

  • Investor Awareness - How will you notify your investors of the changes to the settlement regime?

  • Electronic Trade Confirmations - How is your business managing the update to the settlement date when you send your customer's electronic trade confirmations?

  • Trade Cancellations - With the introduction of T+2 there will no longer be a facility to cancel trades on T+1. Trade cancellations will only be accepted on Trade date.

  • Special Markets - In line with the reduction of settlement period the ex-period has also been reduced. This means special markets will be effective for one day instead of two.

Payment Providers:

Payment Providers are not required to complete CHESS testing, nor complete an Attestation. Payment Provider Deeds will change effective on the transition date, and ASX will be in contact with Payment Providers closer to the transition date. Payment Providers should amongst other things consider the internal changes required in their procedures to meet the new batch cut off time of 11.30am from the transition date onward.

mFund Participants:

mFund Participants are not required to complete CHESS testing, nor complete an Attestation. mFund Participants should amongst other things consider the internal changes required in their procedures to meet the new fund batch cut off time of 11.15am from the transition date onward.

Attestation:

ASX requested that CHESS vendors and Clearing and Settlement Participants complete an Attestation with regard to T+2 readiness and return it to ASX by no later than close of business on Friday 12 February 2016.

T+2 Attestation form for CHESS vendors

Attestations have been received from the following CHESS vendors:

Attestation date CHESS vendor
18 December 2015 GBST
21 December 2015 Dion Global Solutions
24 December 2015 Broadridge
4 January 2016 Computershare Technology Services
6 January 2016 SecuritEase

ASX has contacted CHESS Access and CHESS PC customers directly to confirm changes, if any.

T+2 Attestation form for Clearing and Settlement Participants

ASX confirms that attestions have now been received from all clearing and settlement participants.

Market  Notices:

ASX will release key information via Market Notices during the course of the project.  Links to the Market Notices will also be provided on this page.

Market Notice Date and link Content
20 November 2014 Details of establishment of Market Implementation Group
28 November 2014 Details of 1st Market Implementation Group meeting
20 February 2015 Details of 2nd Market Implementation Group meeting
3 March 2015 Business & Technical Overview document, Vendor & Participant workshops to be held in March 2015
29 May 2015 Details of 3rd Market Implementation Group meeting and Consultation on proposed draft rule amendments
19 August 2015 Customer Readiness Questionnaire and Testing Guidelines
24 September 2015 Details of 4th Market Implementation Group meeting
2 November 2015 Capital Liquidity Handbook - T+2 settlement changes
3 Novermber 2015 Changes to ASX Trade test environments
12 November 2015 Details of 5th Market Implementation Group meeting
13 November 2015 CHESS Release Test Environment (RTE), other test information
23 November 2015 Creation of Corporate Action events in CHESS RTE
24 November 2015 Fixed Income Products - Market Preparedness Statement
4 December 2015 Impact on ASX Market Information Products, availability of test files
7 December 2015 Creation of Corporate Action events (December) in CHESS RTE
17 December 2015 Impact on ASX Market Information Products - correction to Broker Trades and Execution Venue Reports availability
22 December 2015 Market Information Products - availability of second batch of test files from Wednesday 23 December 2015
7 January 2016 Creation of additional Corporate Action events in CHESS RTE
8 January 2016 Market Information Products - availability of third batch of test files from Friday 8 January 2016
11 January 2016 Details of 6th Market Implementation Group meeting
29 January 2016 Market Information Products - additional information on Settlement Date and ReferencePoint Course of Sales & Broker Trades test files availability
5 February 2016 Reminder of the Attestation Deadline - 12 February 2016
9 February 2016 Market Information Products - additional ReferencePoint Course of Sales & Broker Trades test files
18 February 2016 Implementation 'Go' Decision and ASX Rule Book changes
19 February 2016 Market Information Products - confirmation of go live date and re-cap on changes
29 February 2016 Criteria for participant requests to extend DvP settlement cut-off - effective 7 March 2016
29 February 2016 T+2 Settlement for Fixed Income Products
1 March 2016 ETO Margin Settlement changes in Austraclear for T+2
2 March 2016 Update - Implementation of the ETO Margin Settlement changes in Austraclear for T+2 have been delayed
4 March 2016 ASX media release - T+2 Settlement begins in Australia on Monday 7 March 2016
4 March 2016 T+2 Transition Cash Market Margining (CMM) Margin Settlement Process and Reports
4 March 2016 Update - Held collateral changes for T+2 Settlement
9 March 2016 Completion of first T+2 batch settlement, reminder re non-settlement and non-business days in March 2016


 

Consultation Papers, articles and publications:

Consultation Paper - Shortening the Settlement Cycle in Australia: Transitioning to T+2 for Cash Equities - published 25 February 2014

Consultation Paper - Implementing a T+2 Settlement Cycle for the Cash Market: Draft Rule Amendments - published 27 May 2015.  Submissions received in response to this consultation paper are available here.

Note the rule changes proposed in the consultation papers are subject to regulatory clearance.

 


Vendor & Participant Workshops:

ASX hosted a second round of workshops in November 2015 with CHESS vendors (Broadridge, Dion Global, SecuritEase and GBST) and their Participants to review testing and readiness.

Participants who operate in-house settlement systems and other stakeholders can also request a workshop by contacting ASX at T2Settlement@asx.com.au.


Contact us:

You can contact the ASX T+2 Settlement project team on the following email address:

T2Settlement@asx.com.au