What is deferred settlement basis?

Hey guys

I was reading a company announcement and it said company shares trading on a deferred settlement basis today and company shares expected to trade on a normal settlement basis?

So if I buy shares on a deferred settlement basis, what does that mean? Does the share price change?

When you buy a share, the ASX initiates a process known as settlement whereby you have to "settle" or pay for the share on a day known as T+3 (3 days after trade). At such a time, your name is on the share registry of the company.

When a company is trading in "deferred settlement" the T+3 period no longer applies.

Typically this T+3 period is not available to online brokerages - you need cleared funds in your account to trade the stock. With a traditional broker they give you until T+3 to send them money for the stock (or you can sell on the market before this time so you don't need to settle).

Cheers,
Richard.

So what is the rationale for allowing stocks to trade on a deferred settlement basis? I notice it normally happens when there is an IPO.

I've also noticed stocks are not just traded on a deferred settlement basis, but on a "conditional and deferred settlement basis". What does the "conditional" part mean?

Stocky said:

So what is the rationale for allowing stocks to trade on a deferred settlement basis? I notice it normally happens when there is an IPO.

I've also noticed stocks are not just traded on a deferred settlement basis, but on a "conditional and deferred settlement basis". What does the "conditional" part mean?

Click to expand...

Conditional means that trading is based upon a condition specified by the issuer of the securities.

For example, Commonwealth Bank put out an interest bearing security recently (CBAPA) that was conditional upon certain contractual conditions being supplied to the ASX:
http://markets.news.com.au/Announcements/2009/1013/00997853.pdf

Typically this is not used very often though.

The typical times that deferred settlement is used is:
a) When a company undergoes a reconstruction (i.e. XYZ -> XYZDA -> XYZ).
b) When a partly paid security turns into a fully paid security following the payment of the final call (e.g. TLSCA -> TLSN (deferred settlement) -> TLS).