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Risk Management

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International Push Toward Shortened Settlement Cycles Continues

Steps to shorten settlement cycles and reduce risk are not being pursued in the United States alone.

PricewaterhouseCoopers writes that steps to shorten settlement cycles and reduce risk are not being pursued in the United States alone. The consulting firm, which specializes in, among other things, financial services technology, writes that in Europe and Asia, firms are creating direct links to settle stock exchange-listed equities and resolve cross-border settlement issues.

In Asia, particularly in Japan, Singapore and Hong Kong, progress has recently been made to shorten settlement cycles, notes the report. In 1997, a T+3 (trade date plus three) settlement schedule was adopted for Japanese government bonds (JGBs)-reducing settlement time from T+7.

Also, states PricewaterhouseCoopers, the Bank of Japan is taking a leading role in developing a Real Time Gross Settlement (RTGS) system for JGBs. "RTGS will provide live intra-day settlement, and marks a significant step forward in developing a local infrastructure that will eventually permit T+1 settlement. Widespread adoption of a T+1 standard, however, remains several years away," states the paper.

PricewaterhouseCoopers also contends that in Singapore and Hong Kong, widespread moves to adopt T+1 are underway, as well as noting that finance ministries across Asia recognize that reducing the duration of the settlement cycle and implementing RTGS is desirable because it reduces risk, although cross-border implementation initiatives, such as those in Europe, do not exist to date.

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