New settlement period brings with it new Settlement Obligations

[Okty]

Received this in my inbox:

Dear Client

Your settlement obligations will change when the JSE moves to a T+3 settlement period

This communication aims to give you an overview of new JSE client settlement obligations that will affect everyone who trades on the JSE Equity Market from 11 July 2016. When you initially opened your account material Obligations where part of the Mandate signed.

Clients now have 11 obligations, but obligations 4 and 5 are the top two that will affect you

There are 11 obligations in total (which are in the annexure attached for your convenience), but in this letter we address the top two obligations (obligations 4 and 5 as set out below) that affect clients. We will also ask you to confirm receipt of this information about your obligations in future communication from us.

Each obligation is supported by appropriate regulations in the JSE Rules

These obligations are effective from the first day the JSE trades on a T+3 basis. Please familiarise yourself with these to avoid any breaches or penalties.

Obligation 4

You have until 16:00 on T+1 to have the necessary funds or securities to settle a T+3 transaction

By no later than 16:00 on T+1 a controlled client must ensure that his/her member is in a position to settle the transaction on T+3, either by providing the necessary funds or equity securities to the member or entering into an arrangement with the member to ensure that settlement takes place on settlement day.

If you don't have the funds or securities to settle this, the transaction may be margined

Where the controlled client does not provide the necessary funds or equity securities to the member by end of day on T+1, the transaction will be margined and, where margin is called, the member may call for the margin from the controlled client. If the transaction is subject to rolling of settlement and the failed-trade procedures, the margin will be held until the future settlement date of the rolling of settlement or when the failed trade is resolved.

If you fail to meet settlement obligations, the transaction may be reversed at 16:00 on T+2

Where a controlled client fails to meet his/her settlement obligations for a sale transaction, the transaction will be reversed to the member's account at 16:00 on T+2 and the member will assume the obligation to settle.

Obligation 5

If settlement obligations aren't met in time, disadvantaged members can recoup costs and losses

Where the controlled client fails to put the member in a position before 16:00 on T+1 to settle the transaction on settlement day, the member may close out the client's transaction and claim the difference between the original transaction value and the closeout value from the client, including interest, subject to any agreement with the client or notification to the client to the contrary, and to any action taken by the settlement authority in terms of the failed-trade procedures set out in the rules. The member may sell for the account of the client so many of any other equity securities held on the client's account as is necessary to cover any loss that may be incurred by the client as a result of the close out of the original transaction. The client will also remain liable for any losses, costs and charges incurred, or charges imposed by the member, in respect of any of the aforementioned transactions.

If settlement obligations aren't met by 10:00 on T+3, the trade will be declared a failed trade

Where the controlled client has not complied with his/her obligation to put the member in a position to effect settlement and neither the member nor the settlement authority is able to effect settlement, the settlement authority will, at 10:00 on T+3, declare the transaction to be a failed trade.

Notwithstanding the two points above, the notification at any stage by a controlled client to a member of his/her inability to put the member in a position to settle a transaction may result in the declaration of a failed trade by 09:00 on the following business day, if neither the member nor the settlement authority is able to ensure that settlement will take place on settlement day by doing a securities lending and borrowing.

Simply put clients are required to pre-fund their accounts in order to purchase shares and when selling shares either the shares must reflect in your account as dematerialised or alternatively have secured shares via a Scrip Lending Agreement. Failing this your Stockbroker will discuss options with you to prevent your trade from failing. The obligations also allow your Stockbroker to close out positions where by T+2 clients have not deposited funds to cover the purchase or hold shares on the account to deliver to the market.

 

Not sure I follow what the problem is here. The only thing I can conclude, is that if you do crap ton of trades per day (selling and buying), you must have the funds "cleared" in your trading account, before you can issue a payout, or something like that.

[Spreadsheet Ranger]

Basically means you can now cash out sooner than we could before. Overall this is good news

 

Whenever you buy or sell a stock, bond or mutual fund, there are two important dates of which you should always be aware: the transaction date and the settlement date. The abbreviations T+1, T+2, and T+3 refer to the settlement date of security transactions and denote that the settlement occurs on a transaction date plus one day, plus two days, and plus three days.

 

As its name implies, the transaction date represents the date on which the transaction occurs. For instance, if you buy 100 shares of a stock today, then today is the transaction date. This date doesn't change whatsoever as it will always be the date on which you made the transaction.

 

However, Settlement date is little trickier because it represents the time at which ownership is transferred. Now, it's important to understand that this doesn't always occur on the transaction date and varies depending on the type of security with which you are dealing.

 

If you buy (or sell) a security with a T+3 settlement on Monday, and we assume there are no holidays during the week, the settlement date will be Thursday, not Wednesday. The T or transaction date is counted as a separate day.

[Okty]

Thanks very much for the explanation, didn't know about the settlement dates, or that it could be after the transaction date (I always thought it was instant when you bought the shares).

[Spreadsheet Ranger]

Thanks very much for the explanation, didn't know about the settlement dates, or that it could be after the transaction date (I always thought it was instant when you bought the shares).

From the JSE -> https://www.jse.co.za/services/post-trade-services/t3settlement