A shorter three-day settlement cycle for equity trades, known as T+3, is now live in South Africa.

The project, described as a major milestone by market participants, is the result of three years of work by various industry players.

Previously a T+5 (trade plus five days) settlement cycle was in place. 

The change aligns South Africa’s market with global standards and is expected to increase interest from global investors, who already make up more than a third of the country’s equity market volumes.

It has been spearheaded by the Johannesburg Stock Exchange (JSE) and the South African Reserve Bank, National Treasury, Financial Services Board and other stakeholders.

On Thursday, officials at the JSE said the exchange had completed its first T+3 settlement cycle with no failed or “rolled” trades,

"A substantial portion of the risks in the downstream activities within the financial markets value chain (i.e. clearing and settlement) is directly related to the length of time it takes for trades to settle,” said Cuthbert Chanetsa, deputy executive officer, investment institutions, at the Financial Services Board.

“Simply put, in capital markets time equals risk. A shorter settlement cycle, which is to be welcomed, has positive implications for the volume of transactions, market liquidity and the opportunity cost associated with the provision of collateral.”

From a regulatory perspective, the switch to T+3 also brings South Africa’s capital markets in line with global best practice as recommended by the IOSCO - the umbrella body for the world's market regulators.

Monica Singer, chief executive of Strate, South Africa's central securities depository, said her group had worked closely with the market to make the JSE’s T+3 settlement cycle a reality.

“Globally, markets have moved to shorter settlement cycles. It’s viewed as a way to reduce risk and create further efficiencies, ultimately contributing to more liquidity in the market.

“With the JSE’s move to T+3, they have aligned the equities market to global standards, which is very attractive for foreign investors.

“A lot of hard work has gone into this project over the past few years and we’re excited to see the arrival of T+3.

"I commend the efforts of all players for continuing to advance on this project and helping the JSE achieve its goal of moving to a shorter settlement cycle for equities.”