T+2 rattles US investors on public holiday breaks
Strict implementation of the T+2 rule has forced foreign investors to avoid the local stock market ahead of overseas public holidays, stock exchange council member David Roberts said.
Mr Roberts, the managing director of ABN Amro Asia, said the tightened settlement rule had kept many US investors out of the local market last Friday due to the Columbus Day public holiday on Monday.
As public holidays were not an excuse for delayed settlement in Hong Kong, many investors might refrain from buying to avoid penalties, he said. Hongkong Clearing has strictly implemented the T+2 rule since September 24.
The rule means all transactions must be settled no later than two trading days after execution.
Under the new system, the clearing house will buy stocks in the market on the morning of T+3 to cover unsettled positions, and impose a fine on offenders.
Previously, the clearing house gave a one-day grace period to brokers who failed to settle trades on time. Mr Roberts said the recent increase in market turnover would make it more difficult for brokers to follow the T+2 rule.
Since the strict implementation of T+2 last month, brokers had followed the tightened settlement rule smoothly, he said.
'However, the market was quiet and turnover was low last month,' he said.
It was a question of whether brokers could comply when turnover was more than $10 billion, as in recent days.
The international settlement period is T+3. Mr Roberts believed Hong Kong's trading and back-office systems were not sophisticated enough to allow a shorter settlement period than the international standard.
'It needs advanced technology to support the T+2 settlement rule,' he said.
Another stock exchange council member, Syed Bokhary, said the strict implementation of T+2 had made brokers' lives more difficult.
He believed time would tell whether brokers would cope with the tightened settlement rule.
