As many financial market participants will already be aware, the
Australian Financial Markets Association (AFMA) recently announced
that the change to T+2 settlement for secondary market traded fixed
income products will go live on 7 March 2016.
This change is intended to complement the Australian Securities
Exchange's (ASX) move to T+2 settlement for cash equities, with
the ASX currently targeting the same transition date for those and
other types of CHESS eligible securities. It also brings Australia
into line with other major markets across the world, with other
jurisdictions currently either examining or in the process of
implementing the change (USA, Canada, Japan) or having already
completed a move to T+2 (European Union, Hong Kong and South
So what does this mean for the Australian fixed income
The change will apply to Australian dollar denominated
secondary market traded fixed income securities with an
"AU" ISIN prefix within Austraclear or "XS"
ISIN prefix within other foreign settlement systems such as
Euroclear and Clearstream. These securities include fixed rate
bonds and floating rate notes, supernational and corporate bonds.
Importantly, AFMA has emphasised that only secondary market
products are included in this change. Origination settlement cycles
and conventions will remain the same.
The settlement cycle for trades of the above securities will
change from T+3 (trade date plus 3 business days) to T+2. The
settlement cycle is the time from when a trade occurs to the time
the trade settles.
Applicable programme and/or trade documents, to the extent that
they provide for a T+3 settlement cycle for secondary market
trading, may need to be amended to reflect the change to T+2 (in
particular, the current record date reflected in many documents
will need to be revised).
As noted by the ASX and AFMA, the change reflects a desire to
achieve further market efficiency and reduce counterparty risk for
individual investors, participants and the central counterparty,
with the expectation that this will result in reduced systemic risk
for the market as a whole. The change is an important step towards
ensuring that Australia's fixed income markets conform to
global best practice and further settlement harmonisation.
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