Common Questions (FAQ)
T+2 is the settlement cycle where the completion of a securities trade, including the transfer of ownership and payment, occurs two business days after the trade is executed. For example, a trade executed on Monday (Trade Day) will be settled by Wednesday (Trade Day + 2 Business Days).
Here’s how it works:
Trade Day (T): A trade is carried out (e.g., an investor buys shares on Monday).
Settlement Day (T+2): The transaction is completed – the seller receives cash, and the buyer receives securities on the second business day after the trade (in this case, Wednesday)
The reduction impacts all tradable instruments except for fixed income instruments and commodities which already settle on a T+2 cycle. You can find a detailed list of impacted assets/stocks on the website for the respective exchanges. {Insert link to Exchanges website showing price list / active & inactive stocks}
The settlement cycle will normally impact secondary market transactions and is to be implemented on the following exchanges: The Nigerian Stock Exchange (NGX), the NASD OTC Securities Exchange and, the Lagos Commodities & Futures Exchanges (LCFE)
All clients trading in eligible assets will be subject to T+2 changes without exception
Yes, the existing penalties will still apply. Additionally, the trade default mechanism & guarantee funds have been reviewed in line with the updated settlement process to mitigate late settlement.
We recommend that all market participants take the following actions to prepare:
- Familiarize yourself with industry timelines, expectations and considerations
- Review internal operating models to ensure their alignment with the T+2 change
- Ensure you have a plan to comply with the change
- Discuss any concerns with your stakeholder group, service representative or transaction agents (e.g., Stockbroker, Custodian, Asset Manager, etc.,)
Ensure that allocations and affirmations are provided as soon as technologically possible on trade date & T+2. It is also recommended that pre-trade, settlement advice receipt and post settlement processes be automated by using API connections and STP solutions
We have compiled a list of links under “External Materials ” that will direct you to various industry resources such as settlement cycle articles, newspaper publications, SCRC snippets, circulars, etc., from across the entire market
The transition to a T+2 settlement cycle introduces several key changes for clients & counterparties:
- Shorter time to settle trades
- Accelerated post-trade processes
- Earlier cash and asset readiness
- Global clients must consider time zone differences to ensure timely and aligned settlement
- Firms are encouraged to reduce manual interventions and adopt STP for quicker processing
- Clients dealing in multiple currencies may face timing challenges for FX settlement, and may need to adjust cut-off times for currency conversations
The transition process is a multifaceted approach involving technical reviews and enhancements, regulatory and risk management alignment, industry-wide testing and stakeholder collaboration. Key measures include:
- Conducting a gap analysis to ensure that all required changes to the settlement process & supporting technology infrastructure(s) are all identified and addressed
- Performance evaluation for existing risk management procedures, compared to the T+2 settlement cycle process requirements
- Review of the clearing and settlement legal framework to ensure that existing guidelines align with the T+2 process requirements
- Stakeholder awareness sessions and regular market updates on the transition process
- Market-wide collaboration and testing to ensure operational readiness of all stakeholders for the T+2 timeline
This transition is in line with the best global practices where several global markets have successfully moved towards T+2 or even T+1 settlement cycles
The shift to a T+2 settlement cycle will shorten the time between trade execution and settlement, which in turn impacts payment timelines. As such the T+2 timeline will see DCS clients receive cash proceeds faster compared with the T+3 timeline/process
With a transition to T+2, the qualification dates for corporate actions, such as dividends, rights issues, and stock splits, will be adjusted to align with the new settlement cycle. Specifically, investors must note the new settlement timeline to ensure that their transactions are completed by the settlement/qualification date.
In the event of system disruptions or unforeseen delays in processing trades within the T+2 window, fallback measures would include:
- Market-wide communication protocols to promptly notify market participants if an operational issue arises, for the purpose of implementing manual or alternative processes
- A post implementation monitoring framework has been developed to manage activities including monitoring of the settlement process, data gathering on incidents, and a dedicated support desk to resolve incidents and ensure settlement within the T+2 timeline
- Business continuity measures exist to ensure essential functions continue to operate during and after a disruptive event, minimizing downtime and protecting investors
CSCS, which is responsible for the safekeeping and transfer of securities, will experience several changes in its depository functions:
- Faster Processing of Securities Transactions: The depository will need to expedite the transfer and settlement of securities to comply with the T+2 timeline.
- Enhanced Reconciliation Procedures: API & STP integrations with market stakeholders exist to ensure data accuracy across the market and reduce settlement risks.
- Increased System Capacity: The depository, clearing & settlement systems have been upgraded to handle more trades in a shorter amount of time, ensuring enhanced operational capacity.
These changes will streamline operations and improve market efficiency, contributing to an overall more liquid and transparent market environment.