SEC boosts capital market with shorter settlement cycle

The Securities and Exchange Commission (SEC) has approved a shorter settlement cycle for securities trades starting August 24 to facilitate more efficient transactions and spur activity in the Philippine capital market.

The Commission on August 11 issued Memorandum Circular No. 11, Series of 2023 (MC 11), providing Amendments on the 2015 Implementing Rules and Regulations of the Securities Regulation Code (2015 SRC Rules).

The amendments shortened the settlement cycle to T+2, referring to the transaction date plus two days, from the previous T+3 settlement cycle provided in the 2015 SRC Rules and SEC Memorandum Circular No. 16, Series of 2004 (MC 16).

Purchases by a customer in a cash account should now be paid in full within two business days after the trade date, versus the previous rule allowing three days, as per the amendment on SRC Rule 50.

This will allow investors to receive proceeds from securities trades within two days. Risk exposure for trading participants will likewise be reduced by one day.

“The shortened settlement cycle is in line with global standards and supports our mission to facilitate cross-border trading and encourage more investors to trade in the local stock market,” SEC Chairperson Emilio B. Aquino said.

“This will reduce the credit and market risks of unsettled trades, as well as liquidity risks in the payment system, thus reducing the overall systemic risk for the capital market. It will also encourage greater efficiency in the clearing and settlement process for securities trades. Accordingly, it will contribute in promoting the development of the Philippine capital market and protection of investors.”

MC 11 also amends SRC Rule 49 on the computation of net liquid capital (NLC), and SRC Rule 52, pertaining to the monthly aging of customers receivables and the appropriate allowance for doubtful accounts.

Amendments were likewise made to MC 16 to reflect the necessary changes for the computation of NLC, as well as the schedule for specific and general provisioning for overdue accounts.

“The SEC is continuously crafting plans to introduce institutional changes that would help develop and further deepen the Philippine capital market, as we aim to lift investor confidence amid the trend in both regional and global markets today,” Mr. Aquino said.