Equity transaction settlement can be done by Clearing Member (CM) or Settlement Agent (Custodian Bank - CB) appointed by CM’s client. Generally, CM institutional clients prefer Settlement Agent in settling the transaction, because the stocks portfolio or cash owned by the client are stored in the custodian bank.
The equity transactions settlement time period is different for each type of market chosen. For the Regular Market, the settlement time is 2 trading days after the exchange transaction occurs (T+2), while for the Cash Market, it is on the same day the exchange transaction occurs (T+0). Meanwhile, for the Negotiation Market, the settlement time is based on agreement between Exchange members because the transactions are carried out from direct individual bargain process and not through continuous auction. KPEI does not guarantee the exchange transaction settlement in negotiation market, but still provides clearing information in the form of Clearing Result List.
CM obligation fulfillment to KPEI is conducted by securities or cash book-entry to CM delivery account (002 Account). Meanwhile, the fulfillment of CM’s client obligations, KPEI conduct securities or cash book-entry from CM client's Collateral Sub Account (004 Sub Account) to CM’s delivery account (002 Account). Book-entry transfer of the obligations is made no later than 12:15 on the settlement date. KPEI then performs a book-entry transfer from CM delivery account (002 Account) to KPEI Operation Account (007 Account).
Next, the fulfillment of CM right by KPEI is conducted by securities or cash book-entry from KPEI Operation Account (007 Account) to CM Delivery account (002 Account). And for fulfillment of CM clients' rights, KPEI conduct securities or cash book-entry from the CM Delivery Account (002 Account) to each of CM client’s Collateral Sub Account (004 Account). The book entry for rights is carried out no later than 13:30 on the settlement date.
If CM clients choose to meet exchange transaction settlement obligations through the Settlement Agent or not through CM, CM must ensure a few things, such as:
- CM must confirmation to the Settlement Agent, no later than 16:00 on the next trading day after the stock transactions occur;
- Settlement Agent conduct Affirmation to approve the settlement through the Settlement Agent to KPEI, no later than 16:00 on the next trading day after the confirmation process by CM;
- For the obligations fulfillment, Settlement Agent performs funds and/or securities transfer from client account to the Settlement Agent’s Delivery Account (002 Account) no later than 12:15 on the settlement date;
- For the fulfillment of CM clients' rights done through Settlement Agent, KPEI conducts securities and/or funds book-entry to Settlement Agent’s Delivery Account (002 Account), no later than 13:30 on the settlement date.
Definitions on account used in equity transaction can be accessed here. For KPEI Rules governing the equity transaction settlement mechanism which is KPEI Rule Number II-5 about Clearing and Guarantee for Settlement of Exchange Transactions Involving Equity Securities, click here.
The following picture shows the securities and/or cash transfer mechanism from Clearing Member or Settlement Agent to KPEI and vice versa in the equity transactions settlement process:
Equity transaction settlement is done several batches a day, with the aim to speed up the whole settlement process. This provides benefits for CM who had delivered all their securities transfer obligations to receive their funds rights more quickly. To support this settlement, KPEI cooperates with several payment banks to obtain financing facility.
The equity transaction settlement timeframe is shown on the picture below:
If there is CM that cannot meet some or all securities delivery obligations to KPEI on the settlement date, in order to avoid a failure, then CM can do some of the alternatives below:
- Request a securities borrowing transactions to KPEI; or
- Perform purchase transaction for the same stock on the Cash Market to be settled on the same date of the transaction in the Regular Market 2 trading days before, so it could be net off; or
- Replace obligations into cash substitute (called Alternate Cash Settlement - ACS) which is 125% of the highest price of the stock that could not be delivered.
The highest price is obtained from the stock price on the transaction date (T+0) in session 1 and session 2, and on session 1 of the transaction’s settlement date (T+2) for both the Regular Market and Cash Market, whichever is highest.