The Stock Exchange will accelerate the settlement of commercial transactions

Business

Andrew Gioannetti

4 hours ago

Given that a lot can happen in 24 hours in the world of stock trading, the TT Stock Exchange's (TTSE) much-anticipated move from T+3 to T+2 settlements on April 15 is expected to bring new life at the market.

The Securities and Exchange Commission (SEC) recently approved two amendments to the TTSE rules, which Chief Executive Eva Mitchell said are widely supported by stakeholders.

Mitchell said the latest amendments, which take effect April 15, are among the most consequential and represent a transformative period for the 43-year-old organization.

This (accelerated process) roughly aligns the TT Exchange with most standard T+2 settlements seen internationally,” she told Newsday.

In January, the TTSE announced that the SEC had accepted its proposal to amend Rules 203 and 212.

The title of TTSE Rule 212 would change from trading and account periods to trading and settlement periods, and Rule 203, from ex-condition trading to ex-condition trading, would come into effect.

Rule 212 deals with the time required to settle transactions.

The letter T represents the word trade and the following number refers to the number of business days it takes for the transaction to settle.

The move from T+3 to T+2 reduces the settlement time from three to two business days when legal ownership is finally transferred to the buyer and funds credited to the seller.

Not only will the transition accelerate transaction settlement and increase activity, Mitchell noted, but it will also increase the attractiveness of our markets globally, and that is the intention.

By reducing the settlement period, the TTSE will facilitate faster access to funds and securities, which it believes will in turn stimulate more vibrant trading activity.

You now have faster access to your sale proceeds, which will allow you to trade again sooner and capitalize on any market opportunities.

In the case of buying stocks, you now have quicker access to those securities and can now trade them more quickly, Mitchell said.

This is what a vibrant market is all about (having) these efficient processes and infrastructure in place, so as to support liquidity and limit any potential risks, particularly settlement and credit risks.

The shortened settlement cycle will naturally reduce credit and liquidity risks associated with unsettled transactions.

This will reduce the number of unsettled transactions overall, because if you have a longer settlement period, you will have more unsettled transactions during that period,” Mitchell said.

She noted that there was less scope for price fluctuations during the exhibition period.

Mitchell admitted that the move was not necessarily groundbreaking on a global scale, as many larger markets have shorter settlements. However, these standards will not yet be applicable everywhere.

We are aware that parts of the United States and North America as a whole are transitioning to T+1,” she said.

The goal is to eventually achieve a transition to T+0 or an immediate settlement, Mitchell said. But before we do so, we must ensure that we do so as effectively and efficiently as possible, given the dynamics of our local market and the technological advances now available to achieve this.

The United States recently announced that the transition from T+2 to T+1 would take effect on May 28. The Indian stock market currently uses the T+1 settlement system.

The TTSE has evolved since its inception in 1981, when it operated with T+10 regulation. The exchange was cut in half years later, before reducing settlement to T+3 in 2006.

Mitchell said these recent rule changes embody TTSE’s efforts to provide the best experience for traders.

“In 2024, we are happy to say that we continue our transformation by leading our efforts to make the market more dynamic and more liquid, and another way to achieve this is to reduce the settlement cycle,” she said. declared.

This is something that the stock market and the broader market have been pushing for.

“Because we are an SRO (self-regulatory organization), we cannot make changes to our rules without the blessing of the SEC.”

The amendment to Article 203 will also come into force simultaneously.

The rule has been amended to clarify that transactions whose settlement period falls after the record date will be executed ex-dividend in the case of equity securities, or ex-distribution in the case of mutual funds.

Mitchell said this ensures our investors are clear on the change in the business environment in relation to dividend entitlement periods, in particular, dividend record dates.

Dividend record dates (highly depend) on who owns the dividends on a given date.

This decision follows the entry into force last December of a new method for calculating the closing price of bond securities and mutual funds.

Mitchell also noted the TTSE's proposal to the SEC to amend a rule regarding listing requirements for small and medium-sized enterprises (SMEs).

Currently, the issuer must have at least 25 unrelated shareholders holding at least 30 percent of the total shares issued by the company.

Mitchell said the TTSE had proposed reducing the requirement from 30 per cent to 20 per cent, meaning the issuer would not be required to relinquish majority control of the company.

She said key stakeholders had supported the proposal.

At this level, she explained, if a company wants to (re-enter) the market after its first offer to offer more shares, it can do so without giving up majority control.

The minimum (requirement) for majority control would be 51 percent and above.

Mitchell said feedback from the SEC has been positive and expects change to materialize in the coming months.