BURSA Malaysia plans to shorten the trade settlement period to only two days (T+2) from three days, a move that is in line with practices in many major markets.
Under this plan, investors who buy shares through contra trading would need to settle stock trades on the local bourse in two working days compared with three days currently.
Contra trading involves buying and selling the shares without paying for them upfront. Local brokerages provide facilities for a trading limit of three to five times the value of cash and collateralised shares.
After purchasing the shares, investors are given three days of contra period to settle their purchase with cash.
But if investors opt to sell their shares before the end of the contra period, investors will be paid any profits they made from the trade or pay to the brokerage if they incur losses.
Many retail investors use contra trading to punt on shares without putting money upfront but, of course, this is very risky.
The question is would shorter settlement period affect the liquidity and interest in the market?