The domestic stock market's settlement cycle will be shortened from the current two trading days (T+2) to one trading day (T+1) starting as early as 2028. The implementation date has been delayed from the initially planned second half of next year due to concerns about time differences and currency exchange for foreign investors, as well as the burden of system upgrades in the financial sector. This change will mark the first revision of the current settlement system, which has been in place since 1972, in 56 years.
On November 2, the Korea Exchange, Korea Securities Depository, Korea Securities Finance Corporation, and Korea Financial Investment Association jointly announced a draft roadmap to shorten the stock market settlement cycle from the current T+2 (two business days after the transaction) to T+1 (one business day). To achieve this, they will pursue 22 tasks across eight key areas, including the overhaul of clearing and settlement infrastructure and enhancing investor benefits.
Currently, if stocks are sold on a Monday, investors receive payment on Wednesday. With the shortened settlement cycle, they will be able to withdraw funds starting Tuesday. The T+1 settlement system will also apply to exchange-traded funds (ETFs) and exchange-traded notes (ETNs).
With the new settlement cycle, investors who purchase stocks will need to pay for them one day earlier. The payment deadline for margin transactions will shift from T+2 to T+1, while the deadline for forced liquidation due to unpaid margin will move from T+3 to T+2. This change is expected to enhance the convenience of fund management for investors, but it may also increase the burden associated with margin trading. However, the exchange has stated that it has not yet conducted specific statistical analyses or simulations regarding the potential increase in forced liquidations and investor protection issues. They plan to comprehensively review investor protection and overall market benefits during the implementation process.
The exact implementation date has not yet been finalized. The exchange and the Korea Securities Depository aim to complete the establishment of the clearing and settlement infrastructure by October 2027, while financial companies, including securities firms, are expected to finish system development and operational restructuring by the first quarter of 2028. Afterward, a minimum of six months of integrated testing will be conducted before the transition is pursued in 2028.
Park Sang-wook, head of the Clearing and Settlement Division at the Korea Exchange, stated, "Currently, more than 600 financial institutions need to participate, and each institution's readiness and conditions vary, making it difficult to predict a definitive timeline. However, we have established this schedule to provide a visible goal."
The government and the exchange initially planned to revise the settlement cycle starting in the second half of next year. However, they postponed the implementation date considering the burden of expanding related infrastructure and the settlement burden on foreign investors. A survey conducted by the exchange among 32 entities, including overseas securities firms, custodians, and investors, revealed that 84.4% preferred the transition to occur after the second half of 2028. Some respondents indicated that they would reduce their investment share in the Korean market if the transition to T+1 occurred without adequate preparation.
In this context, the United States is set to transition to the T+1 settlement system in May 2024, while the European Union and the United Kingdom aim for implementation by October 2027. Hong Kong has postponed its transition target from the second half of 2027 to the second half of 2028. Park emphasized, "While we considered Hong Kong's delayed schedule, the most important factor is the readiness of investors and financial institutions. The final implementation date will be determined based on the industry's preparedness and the results of integrated testing."
Before the settlement cycle is shortened, measures will be implemented to reduce the financial burden on individual investors. One such measure is to lower the interest rates on sale proceeds collateral loans, currently ranging from 7.5% to 10%, to the mid-5% range. Sale proceeds collateral loans are short-term loans used by investors to receive payment before the settlement date after selling stocks. Mirae Asset Securities will launch related products starting today, while Kiwoom Securities will do so from the 20th. Relevant institutions estimate that if interest rates are reduced to the mid-5% range, investors' interest burden could decrease by approximately 25%. If this product expands to 12 securities firms, an annual interest cost reduction effect of about 15 billion won is expected. Kim Hee-moon, head of the Institutional Finance Division at Korea Securities Finance Corporation, stated, "Interest rates are determined autonomously by securities firms, and those launching in November are expected to operate at about 25% lower than existing rates."
* This article has been translated by AI.
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