Securities settlement revolution: Japanese Government Bonds move to T+1 with the advent of a new repo market

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 move is designed to maintain and strengthen the market’s international competitiveness amid the challenge of putting in place a market infrastructure that will enhance the global appeal and convenience of JGBs. Towards this end, it seeks to jettison practices peculiar to the Japanese repurchase transaction (repo) market to harmonise repo transactions with global standards with the aim of creating a new market with new business opportunities. In practice and from a more granular perspective, this means transitioning to so-called shin-gensaki repos, or conditional sale securities repurchase transactions, from so-called gentan repos, or cash-collateralised securities lending repurchase transactions. In addition, the new market is also being designed to help spur greater diversity among market participants.