By Gabriel Chen

THE move by the Singapore Exchange (SGX) to change its clearing and settlement system for shares traded here is on hold after a systems glitch.

It has postponed the implementation of the proposed changes until a date yet to be announced, the bourse operator said in a statement yesterday.

Last month, SGX outlined changes to the Central Depository (CDP) settlement processes and penalty framework - all in the name of reducing instances where transacted shares are not delivered to the buyer on time. The changes were due to have been implemented from today.

CDP provides depository, clearing, settlement and computerised book-entry services for SGX-traded securities.

A key revision involves shortening the cut-off time for delivering securities. Instead of having a delivery time slot ranging from 2pm to 8pm on T+3, or three days after the day of trade, this will now be noon on T+3.

The change will allow CDP buying-in to be done in the afternoon for securities that are not delivered.

Basically, market participants must have sufficient securities in their accounts by that time, or else this will result in what traders commonly call an instance of 'fail to deliver'.

Under the proposed changes, the CDP will conduct a buy-in of undelivered securities on T+3, from 3pm to 5pm, instead of the morning of T+4.

SGX believes this will allow identified open positions to be covered before the trade is deemed to have failed - and before penalties have to be imposed.

A buy-in occurs when an investor sells a financial instrument he does not already own without first borrowing the security - a practice known as naked short selling.

Only securities that are not successfully bought-in by the end of T+3 will be deemed to have failed.

SGX said yesterday that the implementation of the new settlement processes and refined penalty framework will be rescheduled to a 'later date'. Also, the subsequent implementation of buy-in for failed securities due on T+3, scheduled for Nov 30, is under review.

'The rescheduling is due to an isolated incident experienced today in the pre-settlement matching system,' SGX explained. 'This incident affected settlement of less than 1 per cent of institutional trades. Settlement for retail trades is not affected.'

SGX said that the trading and settlement of securities remain orderly in the marketplace. 'These affected trades will be processed for settlement tomorrow,' said an SGX spokesman.

The Straits Times understands that the hiccup is likely to be a technical, rather than an operational issue, since the majority of the trades were unaffected.

This article was first published in The Straits Times.