Effective 28 May 2024, the standard settlement cycle for transactions in US securities1 will be shortened from two business days after the trade date (T+2) to one business day after trading (T+1) (the Transition)2. As such, the timeline for completing post-trade settlement processes3 will be compressed. The Securities and Futures Commission (SFC) is of the view that the impact of the Transition may be particularly significant for market participants in Hong Kong due to time zone differences.
In this connection, the SFC wishes to remind licensed corporations (LCs) to assess the impact of the Transition on their businesses and take appropriate measures to maintain their smooth and effective operations after the Transition. These include enhancing their operational processes, technological infrastructure and systems as well as staffing arrangements where appropriate.
LCs should assess their readiness and ensure they are able to cope with the shortened settlement cycle, including:
Reviewing their liquidity risk management practices and ensuring the necessary funding is available for settling US securities transactions on time. For cross-currency transactions, given that the standard settlement cycle for foreign-exchange transactions remains at T+2, LCs should be mindful of potential liquidity mismatches and settlement failures arising from the different settlement cycles for US securities and foreign-exchange transactions;
Ensuring the availability of staff to complete the post-trade settlement processes within the shortened timeframe. LCs may consider adjusting their staff’s work shifts, extending working hours or arranging evening or morning duties in conjunction with automating their operational processes to enable timely trade settlements. Adequate training should be provided to enable relevant staff to effectively perform their duties under the shortened settlement cycle; and
Proactively engaging and communicating with their clients who are potentially affected by the Transition in order to raise their awareness and facilitate their preparations for a smooth transition.
In addition, management companies of SFC-authorised funds (Funds), particularly those with considerable exposures to US securities, are reminded to:
Carefully assess the impact of the Transition on their Funds, including any potential mismatches in settlement cycles relating to the deployment of subscription money or sale proceeds from non-US markets to purchase US securities;
Make appropriate arrangements where necessary, such as expanding pre-funding facilities and allocating additional staff to handle the compressed settlement timeline, to ensure that the Funds’ operations remain fair and orderly, and in the best interest of investors; and
Give early alerts to the SFC and investors about any intended changes, issues or untoward circumstances arising from the Transition that may materially affect the Funds and investors, and take remedial actions accordingly.
The SFC will continue to monitor market developments in relation to the Transition.
Intermediaries Supervision Department Investment Products Division Intermediaries Division Securities and Futures Commission Securities and Futures Commission
1 Such as equities, bonds, exchange-traded funds and options.
2 The settlement cycle in Canada will transition to T+1 on 27 May 2024. The reference to the Transition in this circular includes the transition in the US and Canada.
3 Including trade allocation, confirmation and affirmation.
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