Philippine Stock Exchange

[ANALYSIS] Migration to stock market’s T+2 new settlement cycle

Den Somera

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[ANALYSIS] Migration to stock market’s T+2 new settlement cycle
The Securities and Exchange Commission also approves a two-week transition period where the applicable settlement deadlines are extended by one hour from August 29 to September 11

Keeping up with the settlement cycle of financial markets overseas along with the objective of enhancing efficiency and the reduction of transaction risks, the Philippine Stock Exchange (PSE) on August 24 went live in the migration of all trading transactions of member brokerage houses to the so-called T+2 settlement cycle.  

This came after the wholly-owned subsidiary of the PSE’s clearinghouse, the Securities Clearing Corporation of the Philippines, obtained approval from the Securities and Exchange Commission (SEC) to start implementing the T+2 settlement cycle, following a public hearing that was called by the latter for the purpose.

Looking back, this action is an offshoot of the proposed amendments to the 2015 Securities Regulation Code rules and memorandum circular no. 16 s.2004 relative to the stock exchange’s plan to transition to a shorter settlement cycle.

In the US, the T+2 settlement cycle was formally adopted in 2017 when the US SEC on March 22, 2017 amended Exchange Act Rule 15c6-1to shorten the standard settlement cycle to T+2.  

What this means

For the information of the general reading public, “settlement” simply means the formal transfer of the stocks to the buyer and receipt of payment of said sold stocks to the seller.  And the period of time by which the transaction is to be consummated is called the “settlement cycle.” 

Thus, the settlement cycle would particularly refer to the time between the transaction date and the settlement date.

Under the new T+2 settlement cycle, stock transactions will now settle in two business days of their transaction date.  For example, if you sell shares of GT Capital Holdings Inc. (GTCAP), on Monday, the transaction would settle on Wednesday.  

In this connection, if you have a “named” stock certificate (meaning, the stock certificate is in your name), you need to surrender your stock certificate to your stockbroker before giving your order to sell.  

Likewise, if you have a “street name” certificate (meaning, you still retain ownership rights but the stock certificate is in the name of your stockbroker for settlement convenience as you are actively trading it), your stockbroker is to deliver the stock certificate on your behalf one day earlier.  

Similarly, if you are buying, you need to pay for your stock transactions one business day earlier.  And if you are trading on margin, you have to work out the specific arrangements with your stockbroker.

Transition adjustments

From what I can remember, our settlement process before this new T+2 cycle policy has always been under the T+3 settlement cycle. 

The transactions covered by the new settlement cycle are the same as those covered by the old T+3 cycle, as well.  This includes all types of securities listed with the stock exchange such as stocks, bonds, exchange-traded funds, and certain mutual funds, among others.

As a transition arrangement, the settlement for the last T+3 trades executed on August 23, 2023 and the first T+2 trades executed on August 24, 2023 were both done on August 29, 2023. All trades, thereafter, were settled on a T+2 basis.

If you will notice in the above days of settlements, the first T+2 transactions were completed after three days. Under the T+2 cycle rule, their settlements should fall on August 28, Monday. This could not be done, however, because August 28 was a national holiday.  It was National Heroes Day.  

The SEC also approved a two-week transition period where the applicable settlement deadlines are extended by one hour from August 29 to September 11. This is to give member-brokers some leeway to comply with the delivery of the stock certificates and cash obligations. 

However, starting September 12, all transactions will be subject to the regular 12:00 noon settlement deadline. And applicable penalties for late settlement under the SCCP Rules will be imposed.

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Market update and advisory

In the last two weeks the market has been moving sideways to downward.  When it closed last Friday, August 24, which was the first day of bourse’s migration plan to the T+2 cycle, the PSEi precariously hanged by some 60.61 points only above its technical immediate support – at the same time breakdown – point of 6,100.  

When trading resumed this week, however, the market was able to stop its fall withstanding continued foreign investors’ net selling activities. Market bulls showed some muscle that on Wednesday, August 30, the PSEi closed at 6,295.29 with a day’s gain of 1.12% or 70.29 points.

At the trading close of 6,160.61 last Friday, however, the market has actually fallen deeper into negative territory with a YTD loss of 6.18% or 405.78 points. In comparison, the PSEi was down by only 4.11% over the same period.  

In view of this, more stockbrokerage houses and multinational macroeconomic and geopolitical research firms are starting to issue some downward revisions on the growth outlook for the Philippines this year and next year. Most of these concerns are about the lingering external geopolitical and economic headwinds we have been facing, the continuing threat of inflation, and the fading of revenge spending.  

Revenge spending is a financial phenomenon. As defined, it is “a consumer behavior characterized by excessive shopping and indulgent purchases as a response to previous limitations or deprivations” caused by some events like the COVID-19 pandemic. 

With our fundamentals tending to look less favorable over the near term wherein prices can just go south anytime, we may have to lessen our exposure in the market in the meantime. –

The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity. You may reach the writer at  

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