Five-day settlement will bring problems
Monday 26 June 1995
The move is part of the exchange's drive to improve efficiency and narrow the gap with best practice elsewhere. New York is about to move to a three- day settlement deadline and five days is already common on most other big exchanges.
A recent survey by Global Securities Consulting Service showed that the London Stock Exchange, the world's third-largest, remains relatively inefficient in its settlement procedures.
The larger the gap between a trade being conducted and being paid for, the greater the risk of something untoward occurring, and the more expensive it is for the traders carrying the sold stocks on their books.
Taking account of factors such as the proportion of trades not settled on time and the length of time they remain unsettled, the survey found that London ranks behind its main rivals.
"We are still a long way behind, which is why the exchange is trying now to push things through swiftly," said Brian Tora of stockbrokers Greig Middleton. "The trend is steadily moving towards faster settlement because it takes the risk out of the market. Same-day settlement will come once there is the technology for it."
Market professionals recognise that the average private investor is going to find it difficult to meet the five-day deadline, simply because of the length of the paper trail and the time required to clear cheques. For the time being, most private clients are expected to continue using T plus 10.
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