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CSRC Proposes DvP Settlement for Institutional Buyers

The China Securities Regulatory Commission (CSRC) will introduce Delivery Versus Payment (DvP) for institutional buyers, according to a statement.

The document titled “Measures for the Administration of Securities Registration and Settlement” was drafted to bring the country’s securities settlement system in line with global practices.

The draft rules enable DvP settlement for proprietary and custody business involving institutional investors by linking securities transfers to cash payments.

Currently, the securities market uses third-party custody systems and pre-trade capital and securities verification to achieve the DvP effect in brokerages, securities lending businesses and margin financing.

For institutional buyers, stocks are settled on T+0 but the cash settles on T+1. The proposed new rules will enable DvP settlement for propriety and custody businesses that involve institutional investors by linking securities transfers with cash payments.

The reform seeks to improve China’s securities settlement system and further attract international funds into its domestic market, according to the CSRC. In addition, the measures will reduce the reserves settlement participants must hold and improve the efficiency of fund utilization.

The proposed rules also impose additional requirements on securities registration and clearing institutions to improve self-discipline and increase the integration of the Chinese Communist Party regulations in their leadership.

The appointment and removal of key executives must be reported to the CSRC for approval before action is taken. Requirements to protect investors’ confidentiality is also strengthened.

Concerning the management side of securities accounts, the rules clarify the requirements for nominees to provide accurate and complete information to securities regulation and clearing institutions.

The proposal also clarifies default arrangements by allowing securities registration and clearing institutions to use multilateral netting in settlement when a settlement defaults.

The draft is open for public consultation until February 13.