Australia requires swifter settlement cycle: SIAA

Australia is at risk of getting left behind if it does not adopt the T+1 settlement cycle along with major global financial centres, according to operations experts who spoke at the Stockbrokers and Investment Advisers Association Conference (SIAA) this morning.

The possibility of Australia shortening its trade settlement cycle was a pressing topic on day two of the conference.

The US, Canada, Argentina, and Mexico are transitioning to T+1 in late May. Leading the pack, India and China already settle trades on a T+1 basis.

The Australian financial market has operated on T+2 since 2016, meaning cash equity transactions settle two days from the trade date.

Computershare global capital markets president Paul Conn said the move to T+1 is "a big, big step for markets globally."

"The tectonic plates are really starting to shift, and it will not be long before there is pressure on all markets to adopt a T+1 settlement period," he told this morning's opening session.

The UK flagged it is aiming to move to T+1 by the end of 2027. Meanwhile, Europe, with its more complex infrastructure, is still trying to work out what it will do, Conn said.

"The connectivity between the UK and European is critical, as well as the UK's connectivity to the US. So, there are some really important decisions that need to be made by markets. Australia is no different," he said.

Conn believes there will be immense pressure on Australian market participants to move towards a T+1 environment.

"That's the time when the CHESS replacement 2.0 heats up. There's a lot to do and Australia's not alone," he added.

Australia's financial market operators are seriously considering a move to T+1.

The ASX recently released a whitepaper, Considerations for accelerating cash equities settlement in Australia to T+1, which canvasses industry players to weigh up the pros and cons of moving to T+1, asking for feedback until June 18.

Some of the advantages includes aligning Australia with global shifts, delivering benefits early, allowing time for adjustments, and mitigating disruption.

On the flip side, the ASX warned that the transition will be costly and disruptive and divert resources and funds from other projects including the CHESS replacement.

FinClear chief executive and managing director David Ferrall, who was also on the panel, made a bold prediction of Australia moving to T+0 instead.

"We're already seeing that the frictionless movement of assets is going to become more commonplace. One of the things that we have to become accustomed to here is that technology and markets are going to keep moving much faster than we appreciate," he said.

Ferrall believes this will eventuate even though it may take a while to work through. He urges Australian participants to seize the opportunity to get ahead of the curve and move to T+0 and points to crypto and other products that aren't supported by T+2.

"They need to be accommodated in a more frictionless real-time environment. So, the debate needs to focus on what position is Australia in if we can't transition to a more efficient T+1, T+0 timeframe, while CHESS replacement happens?" Ferrall said.

Financial Standard is the media partner of the 2024 Stockbrokers and Investment Advisers Association Conference.