Shorter settlement cycle to be introduced by end 2000

Kuala Lumpur, 7 June 2000

The Securities Commission (SC) is pleased to announce that a T+3 settlement cycle will be implemented for all trades on the Kuala Lumpur Stock Exchange (KLSE) and the Malaysian Exchange of Securities Dealing and Automated Quotation (MESDAQ) by the end of this year.

This move will shorten the delay between trade date and settlement date thereby increasing efficiency, reducing risk and instilling greater confidence in the safety and soundness of the Malaysian securities clearance and settlement system. It will also standardise local settlement time frames with that of the internationally accepted norm thereby increasing Malaysia's international competitiveness.

Currently, trades on KLSE and MESDAQ are settled five days after the trade date (known as T+5). With implementation of the shorter settlement cycle, the settlement date will be changed to occur three days after trade date (T+3). This means that a seller will need to deliver the sold securities on the third business day after trade date. Similarly, the buyer will have an obligation to pay for the securities on the third business day after trade date.

The move to a T+5 cycle was introduced in 1997 with a view to eventually shortening the settlement period to the international norm of T+3. A phased approach towards a shorter settlement cycle was adopted to minimise disruption to the market and to allow for adequate preparation by investors, intermediaries and market institutions. As securities trading becomes more globalised, the need to shorten the settlement cycle further and reduce settlement risk becomes a priority.

In financial markets, time equals risk. Shortening the settlement period would reduce the delay between trade date and settlement date as well as the number of unsettled trades pending at any one time and consequently, minimise counterparty risk and market exposure.

In addition, liquidity will increase as buyers can realise value for their securities once they have paid for them while sellers can realise their cash sooner. Convergence with the international norm will reduce trade failures encountered by global investors, thereby increasing cross border and institutional business.

The SC and the exchanges, in consultation with market participants, are currently working on the business, operational and regulatory requirements for a move to a T+3 settlement cycle. This joint effort will ensure that all issues are appropriately addressed to ensure smooth implementation of the shorter settlement cycle by end of the year.

The move to shorten the settlement cycle is one of many reforms introduced by the SC to reduce settlement risk. Other market reforms include full immobilisation of all securities listed on the KLSE into the central depository, closing of the trade settlement mismatch with the successful implementation of final settlement on T+5 and more recently, the introduction of the institutional settlement service which enables eligible institutions such as custodian banks to clear and settle trades directly with the Securities Clearing Automated Network Services (SCANS) on settlement date.


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