HA NOI (Biz Hub) — The settlement cycle for securities has been officially reduced from the current three business days (T+3) to two (T+2) after the trade is executed, effective from January 1, 2016.

Meanwhile, the settlement period for the bond trade is the next business day following the trade, as referred to as T+1.

According to Decision 112/QD-VSD on the regulations of clearance and settlement of securities transactions, issued on December 18 by the Vietnam Securities Depository Centre (VSD), the settlement time will shorten from 9am on T+3 to 4pm on T+2, 30 minutes earlier than the original plan of 4.30pm on T+2.

The VSD's decision was in line with the State Securities Commission's general development plan of shortening the securities settlement cycle with the aim of catching up with international standards and practices for trading activities and transaction settlement.

Duong Van Thanh, VSD's general director, said the reduction in settlement time to T+2 would not be complicated when securities companies only needed to adjust system parameters which are purely technical factors.

He said this rule had been applied to all market participants and every securities firm must update their technology to meet the requirement of completing the payment period to T+2.

This new regulation is considered a new improvement of Viet Nam's stock market as it can boost trade and increase liquidity, especially to ensure the important principle of delivery versus payment (DVP) on the international financial market.

The T+2 settlement cycle has been applied in many markets such as European or Taiwan. This practice is believed to benefit investors as it reduces counterparty risk, decrease clearing capital requirement and increase liquidity and global settlement harmonisation.

In 2001, the International Organisation of Securities Commission (IOSCO) and the Bank for International Settlement (BIS) encouraged global stock markets to complete the settlement period for equities transactions in no later than three business days after the trade date and consider a further cut on the settlement cycle. — VNS