An analyst says the T+2 trade cycle is aligned with the practices of most developed markets and could weed out speculators

By MARK RAO / Pic By ISMAIL CHE RUS

The shift to a shorter two-day settlement cycle (T+2) for the trading of securities on the local bourse will be effective from April 29 this year, according to local brokers.

Bursa Malaysia Securities Bhd launched a consultation paper early in December last year, seeking public feedback for the proposed move to a shorter securities settlement cycle from T+3 to T+2.

This was in view of improving operational efficiency and reducing systemic risks in Malaysia’s capital market, while aligning itself to the clearing and settlement processes of developed markets.

The local exchange planned to introduce the changes by the second quarter of 2019 after the consultation paper closed on Dec 28 last year.

Local brokers told The Malaysian Reserve (TMR) that April 29 will be the date of implementation for the T+2 cycle this year.

A market analyst said the T+2 trade cycle is aligned with the practices of most developed markets and could be geared at weeding out speculators in the market.

“The settlement period was at T+7 15 to 20 years ago, and investors have adjusted to the shorter cycle,” the source told TMR.

“While this will create a shorter period for speculators, genuine and long-term investors will be unperturbed by the new requirements,” said the industry source.

Bursa Malaysia announced earlier the shorter settlement period avails securities and funds earlier to investors, while reducing counter-party settlement risks due to the shorter exposure to unsettled trades.

The local bourse is also seeking to raise its competitiveness by aligning itself to major global exchanges in the US, Europe and Asia Pacific which already adopt the T+2 settlement cycle.

Rakuten Trade Sdn Bhd VP for research Vincent Lau said there will be an initial period of adjustment to the shorter settlement cycle which may affect trading volume, but the market will adjust quickly.

“Settlement cycles have been trending downwards in Malaysia and the move to T+2 is a good step to increase volume in the market,” he told TMR.

“The T+2 cycle will generate faster velocity in securities trading as investors can re-enter the market quicker (compared to the T+3 cycle).”

Meanwhile, the Royal Malaysian Customs Department is implementing a 6% service charge on securities brokerage and underwriting starting March 1 this year, in line with the Sales and Services Tax which came into effect in September last year.

It remains unclear how retail and institutional investors will react to the tax rate, but historically, investors have adjusted to the higher trading costs.