The Stock Exchange of Thailand (SET) and stakeholders in the domestic capital market are set to implement a two-day clearing and settlement cycle (T+2) Friday, a move meant to reduce settlement risks and upgrade the bourse's competitiveness.
The new settlement cycle can reduce settlement risk by 30% compared with T+3, whose last day was Feb 28.
The Thai stock market has used the T+3 settlement cycle for decades, while the Thai bond market and the Thailand Futures Exchange have shorter settlement cycles of T+2 and T+1, respectively.
The SET's move is in line with a clearing settlement system adopted by the European and US securities markets.
"After having completed all the preparations covering the amendment of related rules and regulations, an industry-wide test and communication with investors, we are ready to move towards the T+2 settlement cycle," said SET president Kesara Manchusree. "This change will keep the SET aligned with leading settlement practices in capital markets around the world. It is also in line with the SET's strategic plan to enhance infrastructure and strengthen the Thai capital market's competitive edge."
This smooth implementation demonstrates good collaboration among Thailand's capital market stakeholders and related parties, including the Securities and Exchange Commission, the Bank of Thailand, securities firms, custodians, asset management firms and financial institutions, Mrs Kesara said.
"We are certain that moving toward T+2 will benefit all stakeholders, not only in reducing the risks and costs, but also in terms of making it more convenient for cross-border portfolio investment," she said.
Reducing the settlement period for securities trading to T+2 from T+3 will also pave the way for blockchain-based securities trading.
Blockchain, which underpins the digital currency bitcoin, is a distributed-ledger technology that can facilitate near-instantaneous transaction settlement.
With its decentralised system for verifying information, transactions no longer need to be channelled through banks, clearing houses and other middlemen.
Pattera Dilokrungthirapop, chairwoman of the Association of Securities Companies, said a reduction in the clearing and settlement period will reduce risks from securities trading and help generate higher liquidity in the stock market, particularly when the SET index rises, as the system facilitates trading at a faster pace.
The bourse's move is commendable, said Paiboon Nalinthrangkurn, chief executive of Tisco Securities, as the T+2 clearing and settlement system induces greater stability and reduces systemic risks, while supporting new technological innovations that could be used as trading mechanisms in the future.
No stock market in the world can implement the T+1 clearing and settlement system because of obstacles associated with time zones, which is an inconvenience for some investors, Mr Paiboon said.
The T+2 system is embraced by bourses worldwide, while some countries have tried a real-time clearing and settlement system via blockchain technology, which is in the sandbox stage, he said.