Pakistan’s regulator holds consultations on new equity settlement system

The Securities and Exchange Commission of Pakistan (SECP) has initiated a stakeholder consultation on the new equities settlement system.

Last month, the Pakistan Stock Exchange (PSX) transitioned to the T+1 settlement cycle, replacing the previous T+2 cycle. It reduced the trade settlement period from two days to one.

The consultations were initiated after stakeholders highlighted operational challenges in faster trade settlements. The issues were compounded due to limited banking hours during Ramadan, and delays in cheque clearances have created funding mismatches.

As a result, brokers are often required to manage short-term liquidity gaps at their own risk.

Market participants have also noted that a one-day settlement cycle works more effectively in a fully digitized environment, whereas in Pakistan, reliance on cheque-based transactions and existing banking cut-off timings are not fully aligned with the T+1 framework.

The consultations, expected to conclude after Eid holidays, have focused on identifying implementation challenges and assessing the impact of T+1 on liquidity, investor participation, operational readiness, and increased capital requirements.

According to the SECP, the consultations will ensure that any future decision supports market stability and efficiency. The regulator has also reviewed feedback received from various stakeholders over the past few weeks.

Globally, several leading markets have already transitioned to shorter settlement cycles to enhance efficiency and reduce risk.

The United States, Canada, and Mexico moved to T+1 settlement in 2024, while India has been a frontrunner, fully implementing T+1 in 2023.

China also operates on a T+1 framework for equities. Other major markets, including the UK and the European Union, are currently transitioning towards T+1, reflecting a broader global shift towards faster settlement cycles.