Market participants expect to see an uptick in demand to borrow securities in South Africa, driven by a soon-to-be-introduced shorter settlement cycle in the country.

Johannesburg Stock Exchange (JSE), the country's premier bourse, will switch the settlement period from five days to three (T+3) in July this year.

In practice, it means the time it takes for the seller of a share to receive payment and the buyer to take ownership will soon take 72 hours.

Although cutting the settlement cycle to three days is likely to cause more failed trades, the market is expecting more volume from a securities lending perspective, helping to drive liquidity.

“We definitely expect to see an increase in demand to borrow securities, especially around the shorter settlement cycle,” said Juanita Taylor, head of securities lending at Standard Bank.

“Ideally, we need to encourage more lenders to come into market, or increase the percentages of assets available for lending, to ensure T+3 is effective,” Taylor added at Global Investor/ISF’s Securities Finance event in Cape Town last week.

More than twenty institutions make up South Africa’s securities lending market, including banks, insurance companies, pension funds, asset managers and service providers.

Stats from survey of South African lenders last year estimated that around ZAR 130bn ($8.5bn) worth of South African securities were on loan at any given time.

Brett Kotze, JSE’s head of operations for clearing & settlement and one of the main architects behind T+3, also spoke at the Global Investor/ISF conference.

He described the new settlement system as the biggest financial project for South Africa in over two decades.

Kotze and other major market players in the region say the move will align South Africa’s capital markets with global best practices and mitigate systemic and settlement risk.

Other benefits include increased foreign investment, as the T+3 schedule is closer to international standards.

Liquidity is also set to improve given that assets will be released from the settlement process more quickly.

The project has taken years and relied on close communication and collaboration from all market participants.

“We’re now switching to a market and user readiness focus,” Kotze said. The go-live date for T+3 in South Africa is on July 11 this year.

In Europe a two day settlement period, T+2, was introduced across 27 markets back in 2014.

The US is still working on shortening its own settlement cycle to two days.

Post-trade giant the Depository Trust & Clearing Corporation (DTCC) has already recommended shortening cycle for US equities, municipal and corporate bonds, from T+3 to T+2.