SINCE a lot can happen in 24 hours in the world of stock trading, the TT Stock Exchange's (TTSE) highly-anticipated switch from T+3 to T+2 settlements on April 15 is expected to bring fresh life to the market.
The Securities and Exchange Commission (SEC) recently approved two amendments to the TTSE's rules, which chief executive Eva Mitchell said is widely supported by stakeholders.
Mitchell said the latest amendments, which take effect on April 15, are among the most consequential and represent a period of transformation at the 43-year-old organisation.
“This (expedited process) pretty much aligns the TT Stock Exchange with most of the standard T+2 settlements observed internationally," she told Newsday.
In January, the TTSE announced that the SEC had accepted its proposal to amend rules 203 and 212.
TTSE Rule 212’s title would be changed from “dealing and account periods” to “trading and settlement period,” and Rule 203, from “ex-condition dealing” to “ex-condition trading” take effect.
Rule 212, deals with the length of time trades take to settle.
The letter “T” represents the word “trade” and the following number refers to the number of business days for the transaction to settle.
The transition from T+3 standard 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 hasten transaction settlements and increase activity, Mitchell noted, but also “enhance our market’s appeal globally – and that’s the intention.”
By reducing the settlement period, the TTSE will facilitate faster access to funds and securities, which she said 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 capitalise on any market opportunities.
“In the case of buying stocks, you now have faster access to those securities and can now trade those securities quicker,” Mitchell said.
“That’s what a dynamic market is about – (having) these efficient processes and infrastructure in place, so that it supports liquidity, limits any potential risks, particularly settlement and credit risks.”
The shortened settlement cycle will naturally reduce credit and liquidity risks from unsettled trades.
[caption id="attachment_982703" align="alignnone" width="683"] Trinidad and Tobago Stock Exchange Limited , Nicholas Tower, Port of Spain. -Photo by Jeff K Mayers[/caption]
“It will reduce the number of unsettled trades overall because if you have a longer settlement period, you have more unsettled trades over that period," said Mitchell.
She noted there is less opportunity for price fluctuation during the exposure period.
Mitchell admitted the move isn't necessarily groundbreaking globally, since many larger markets have shorter settlements. Those standards, however, will not be practical everywhere, yet.
“We’re aware that some parts of the US and wider North America are actually switching to T
