ASX Settlement Date Changes

The Australian Securities Exchange (ASX) recently announced that come March 2016, the Exchange would be introducing a T+2 settlement cycle. This is in comparison to the current T+3 settlement cycle.

What is T+2?
‘T’ stands for ‘Transaction Date’ with the ‘+2’ referring to the number of days after the transaction date that a share purchase, or sale, is completed. This settlement date is the day that the ownership of the shares in question are transferred to the purchaser, and the cash consideration is transferred to the seller.

Why the change?

In 1992, the ASX utilised T+5 settlement, and has progressively improved the cycle as technology has allowed for efficiency upgrades and risk reduction. A shorter settlement period ensures that investors receive their stock and cash in a timely manner.

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

What does this mean for you?

The SMSF Club utilises a strict credit policy whereby investors must have adequate cash to cover any purchases, and adequate stock to cover any sales, prior to trades being executed. This ensures investors are compliant with ASX market integrity mandates. However, it is important for you to note the change so as you’re aware that when selling stock to recoup invested capital, your funds will be available a business day earlier.