Securities settlement revolution in Japan: The future of securities settlement

Abstract

This paper examines the efforts planned and in progress to shorten the settlement cycle of Japanese government bonds ( JGBs) from two business days after the trade date (T+2) to one (T+1). This report on the so-called ‘securities settlement revolution’, focuses on key trends and changes in the securities settlement market of Japan while exploring legacy systems and ecosystem migration as well as the related possibilities of innovation and emerging technologies in this context. The revolution currently underway in Japan is tackling the below five areas: (1) initiatives to shorten the settlement cycle for JGBs and securities; (2) efforts to enhance the functions, expand use, improve linkages and integration of the central counterparty (CCP); (3) enhanced functions of the central securities depositories (CSD); (4) accelerated adoption and use of straight-through processing (STP) by market participants; and (5) facilitating smoother cross-border securities settlement. The first chapter in this revolution is to be planned for the spring of 2018. In 2012, the market successfully introduced a settlement cycle that was shortened to two business days (T+2) for outright JGB transactions and SC repos (special collateral repurchase transactions) and one business day (T+1) for GC repos (general collateral repurchase transactions and together collectively regarded as T+2). The upcoming revolution builds on this with the aim of shortening this settlement cycle to T+1, one business day after a trade.