BSEC asks exchanges to move to T+1 settlement cycle

The securities regulator has moved to introduce T+1 settlement cycle for the stock markets.

T+1 means that settlements will have to be cleared within one day of the actual transactions taking place.

The T+1 share settlement cycle will initially be introduced for the A and B-category companies to increase trading activity in the country’s bourses, according to a letter sent to the stock exchanges on Sunday.

Currently, trades on the country’s stock exchanges are settled within two days.

For implementing the plan, the Bangladesh Securities and Exchange Commission directed the Dhaka Stock Exchange, Chittagong Stock Exchange and Central Depository Bangladesh Limited to make a roadmap within seven working days.

To provide an implementation roadmap with a specific time slot for each activity, including the amendment proposal to the relevant rules and regulations, system modification, user acceptance test, and other necessary modifications changes, if any, to execute the aforesaid settlement cycle, said the letter.

The securities regulator’s moves to shorten the settlement cycle for share transactions were largely meant to augment liquidity in the market, but the initiative now faces multiple challenges, it also said.

“In the interest of the investors and the securities market, the Commission deems it appropriate to shorten the settlement cycle (ie., at T1 instead of T-2) of A and B category securities,” said the BSEC in the letter.

The stock market regulator wants to introduce T+1, or the buyers to get the shares in the demat account and the sellers the sale proceeds the day after the trade, or within 24 hours. This means crediting funds and shares will be possible within a day.

Currently, the stock exchanges follow T+2 settlements, which means that the settlement of securities happens two business days after the order is executed.

On April 15, 2014, the Dhaka Stock Exchange started T+2 trading settlement periods from T+3 cycles.

A BSEC high official said that the T+1 settlement system will shorten the settlement cycle by a day and give investors more liquidity with the availability of funds and securities.

The move is to increase trading activity, thus increasing liquidity flow to the stock market, he said.