Investors will soon receive payment for stock sales the next trading day instead of waiting two days. South Korea's securities market is moving to shorten the settlement cycle by one day by 2028, marking the first overhaul of the settlement system since its introduction in 1972.
On November 2, the Korea Exchange, Korea Securities Depository, Korea Securities Finance Corporation, and the Korea Financial Investment Association jointly announced a roadmap draft to reduce the current T+2 (two business days after the transaction) settlement cycle to T+1 (one business day). The initiative includes 22 action items across eight key areas aimed at enhancing market competitiveness and investor convenience.
Currently, if an investor sells stocks on a Monday, they receive payment on Wednesday. With the new 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).
The United States shortened its stock settlement cycle to T+1 in May 2024, while the European Union and the United Kingdom aim to make the transition by October 2027. Hong Kong initially planned to implement the change in the second half of 2027 but has postponed it to the second half of 2028. South Korea plans to gradually reform its system to align with global markets while maintaining settlement stability.
The specific timeline for the transition has not yet been finalized. The exchange and the Korea Securities Depository aim to complete the clearing and settlement infrastructure by October 2027, while financial firms are expected to finish system development and operational restructuring by the first quarter of 2028. After a minimum six-month integration testing period, the transition is expected to occur sometime in 2028.
Before the settlement cycle is shortened, measures will be implemented to reduce the financial burden on individual investors. This includes plans to lower the current interest rates on margin loans for sale proceeds, which currently range from 7.5% to 10%. Margin loans allow investors to receive proceeds from stock sales before the actual settlement date.
Relevant agencies estimate that if loan rates drop to the mid-5% range, investors' interest burden could decrease by about 25%. If this product is expanded to 12 securities firms, it is expected to save approximately 15 billion won in interest costs annually. Mirae Asset Securities announced on November 2 that it will launch related products, while Kiwoom Securities plans to do so starting November 20.
However, a shorter settlement cycle means that investors purchasing stocks will also need to pay for their purchases one day earlier. The payment deadline for margin transactions will shift from T+2 to T+1, and the deadline for unpaid margin transactions will move from T+3 to T+2.
Challenges related to the overhaul of the securities industry's IT systems and the settlement burdens on foreign investors have also been identified. Foreign investors have expressed concerns that the reduced settlement preparation time could be problematic due to time zone differences and currency exchange issues.
A survey of 32 foreign securities firms, custodians, and investors revealed that 84.4% hope for a settlement cycle reduction after the second half of 2028. Some respondents indicated that a transition without adequate preparation could lead to a decrease in their investment share in the Korean market.
In response, relevant agencies plan to establish an automated trading and settlement information system and simplify the settlement process for foreign investors from the current 12 steps to five. The final implementation date will be determined based on the readiness of domestic and foreign financial institutions and foreign investors.
* This article has been translated by AI.
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