News | 4 February 2016

ASX transitions to T+2 settlement – are you ready?

What is changing?

The settlement cycle for trades on the ASX is set to be shortened from T+3 (trade date plus 3 business days) to T+2 (trade date plus 2 business days). ASX has proposed (but is yet to confirm) that the move to T+2 settlement will commence with trades conducted on 7 March 2016.

Why is ‘settlement’ important when dealing in securities?

When shares, units, bonds and other financial products are traded on the ASX, there is a lag time between the date when the trade occurs and when the settlement of the transaction actually takes place. The settlement date is the date on which both the change in legal ownership of the traded securities and the transfer of funds for the transaction actually occur. ASX has provided a helpful brochure to explain the change.

Ex date and record date

In line with shortening the settlement cycle, ASX is proposing to shorten the period between the ex date and the record date for corporate actions to 2 business days.

Taking the example of one of the most common corporate actions, the payment of dividends, the record date is the date a company closes its share register to determine which shareholders are entitled to receive a particular dividend. It is the date by which all changes to registration details must be finalised. The ex date occurs before the record date, and is the date by which a shareholder must have purchased shares in order to be entitled to the dividend (ie to be recorded as the holder of shares on the register by the relevant time).

Why the change?

ASX has been gradually reducing the settlement cycle, from T+5 to T+3 in 1999, and now to T+2. With strong industry support, ASX is shortening the settlement cycle to reduce counterparty risks for individual investors and to improve efficiencies. It also means that the ASX remains globally competitive: securities markets in countries such as Hong Kong, Germany, South Korea and India already operate under a T+2 settlement cycle, and all financial markets in the European Union are in the process of moving to a T+2 settlement cycle.

What impact will this have on me?

A settlement cycle of T+2 will mean one less day for both investors and their brokers to be ready to provide either securities or cash to settle a trade. As such, it will be even more important to fund your purchases of ASX-listed securities efficiently: the use of cheques may no longer be viable, due to the length of time needed to clear the funds. Your broker may be in contact to set out the range of funding arrangements that they will support under T+2.

For listed entities and their advisers, it will be important to factor in this change to the settlement cycle when preparing future capital markets transaction timetables (eg for rights issues and bonus issues). It has become second nature to work off a T+3 settlement cycle, so we will all need to be particularly mindful of this important change once it takes effect.

Contact

Oliver Jankowsky

Partner & Head of International Practice

Ed Paton

Partner & Head of SE Asia Practice

Eugene Chen

Partner & Head of China Practice

Melanie Smith

Director - Business Development, Marketing and Communications

Juliet O’Brien

Lawyer

Katie McKenzie

DIRECTOR - PEOPLE & CULTURE

James Bull

Senior Associate and Head of Frank

Melanie James

PEOPLE & CULTURE MANAGER

Karli Thomas

Lawyer

David Mummery

Lawyer

Stephanie Rocca

Lawyer

Peter Campbell

Director - Client Solutions

Jacqui Barrett

Partner & Head of US Practice

Christopher Brown

Partner & Head of UK Practice

Alicia Haesslein

Lawyer and German Practice Manager

Todd Bromwich

Lawyer

Cameron Forsyth

Lawyer

Vanessa Murphy

Lawyer

Will Francis

Lawyer

Nhu-Thuy Dinh

Lawyer

Ella Simmons

Lawyer

Alexandra Lane

Lawyer

Ellie McGrory

Lawyer

Nicholas Simpson

Lawyer

Aisling Murray

Lawyer

Holly Turner

Lawyer

Paul Simos

Lawyer

Sam Tempone

Lawyer

Harry Croft

Lawyer

Lucy Wilcox

Lawyer

David Holland

Lawyer

Harriet Simpson

Lawyer

Melinda Woledge

Marketing & Communications Manager

Natasha Curry

Lawyer

Erin Doyle

Lawyer

Jasmine Koh

Lawyer and Head of Frank

Stephanie Gribbon

Lawyer

Alison Choy Flannigan

Partner & Leader, Health & community

Nicholas Simone

Lawyer

Courtney Daunt

Lawyer

Danielle Davis

Lawyer

Chris Forder

Lawyer

Louise Chen

Lawyer

Jordon Lee

Lawyer

James Fisher

Lawyer

Gemma Hallett

Lawyer

Geoff Benson

Lawyer

Paul Todd

Lawyer

Sining Wang

Lawyer and China Practice Manager

Mark Reily

Lawyer

Norberto Rodriguez

Lawyer

Harvey Duckett

Lawyer

Alexandra Davies

Lawyer

Charlie Renney

Lawyer

Ashlee Johnson

Lawyer

Rebecca Kazzi

Lawyer

Paul Bonjour

Lawyer

Alexandra Armstrong-Millar

Lawyer

Winnie Chu

Lawyer

Anthony Hallal

Lawyer

Jessica Kamleh

Lawyer

Cara Sorensen

Lawyer

Sarah Walsh

Lawyer

Vanessa Asumugha

Lawyer

Luke Denham

Lawyer

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