Stock Settlement Cycle to Be Shortened to 'T+1' in 2028... Sellers to Receive Proceeds the Next Day

Korea Exchange and Korea Securities Depository begin infrastructure overhaul
Foreign investor settlement process cut from 12 steps to five
Continue identifying areas for improvement through public hearings and task forces.

A roadmap has been unveiled to shorten the securities market settlement cycle from the current two trading days (T+2) to one trading day (T+1) during 2028.

Roadmap for Shortening the Securities Market Settlement Cycle. Korea Exchange

In a press release on November 2, the Korea Exchange said securities-related institutions, including the exchange and the Korea Securities Depository, plan to proactively complete upgrades to the clearing and settlement infrastructure by October 2027. To enable financial institutions and foreign investors to complete IT development and changes to their business processes by the first quarter of 2028, the institutions will provide industry-specific business standards (guidelines) and implementation checklists in December 2026. A task force (TF) and a Project Management Office (PMO) for the settlement-cycle reduction will be established in the first quarter of 2027. They will regularly review, manage, and support progress on system and regulatory changes.

Once the infrastructure is in place, securities-related institutions and industry participants will conduct at least six months of integrated testing. If this proceeds as planned, the transition is expected to be possible during 2028. The final transition date will be determined through consultation with financial authorities, domestic and overseas financial institutions, and foreign investors. The implementation schedule takes into account the experiences of major overseas markets and feedback from financial institutions and foreign investors, allowing sufficient preparation time for a stable and smooth reduction in the settlement cycle. The preparation periods from roadmap announcement to implementation were 2.5 years in the United States, 2.7 years in the United Kingdom, and more than three years in Hong Kong. Hong Kong postponed implementation until the second half of 2028. Korea aims to make the transition in approximately 2.1 years.

For exchange-traded markets, the settlement cycle for shares, exchange-traded funds (ETFs), and exchange-traded notes (ETNs) will be changed uniformly to T+1. The institutions will also adjust the time for calculating settlement obligation statements, the cutoff for deferred settlement and the criteria for exceptions, as well as the calculation framework for trading margins and the joint fund. For institutional stock settlements, the deadline for settlement approval will be brought forward for foreign investors, collective investment managers (funds), and general institutional investors. For foreign investors, it will move from 3 p.m. on T+2 to 9 a.m. on T+1. For collective investment managers and general institutions, it will move from 4 p.m. on T+1 to 10 p.m. on T. The introduction of automated systems and improvements to the cycle for creating and redeeming domestic ETFs will also proceed in parallel.

Settlement processing for foreign investors will be streamlined from 12 steps to five through the Korea Securities Depository's development of its own system and its connection to the U.S. DTCC's CTM (Central Trade Manager). The institutions will also improve various market management rules, including the correction of erroneous trades, ex-rights and ex-dividend dates, securities transaction tax collection, and the short-selling management framework. To prevent settlement failures, they will also pursue the introduction of a system for sharing securities-holdings information among securities firms and an automated securities-lending system.

Roadmap for Shortening the Securities Market Settlement Cycle. Korea Exchange

Individual investors will benefit even before the reduction takes effect. The Korea Securities Finance Corporation will provide securities firms with funds needed for lending, and the firms will offer margin loans secured by sale proceeds at mid- to low-range interest rates. The interest rate charged to securities firms for the funding support will be set at the level of the rate earned on customer deposits. A loan secured by sale proceeds is a loan from a securities firm to an investor who has sold shares, using the shares sold as collateral before the sale proceeds are received. Such loans currently have short terms of one to two days, and their repayment funds are effectively secured by the Korea Exchange's guarantee of settlement completion, making them low-risk. Nevertheless, securities firms have funded and provided the loans themselves, charging annual interest rates of 7.5% to 10%.

The burden on institutional investors will also be eased. The Korea Securities Depository will restructure the settlement facilitation fund this November. The Korea Exchange will begin recalculating trading margins intraday on settlement dates in January 2027 and allow settlement payments to be made in installments starting in the first half of 2027. The plan is intended to significantly reduce the settlement-related liquidity burden on institutional investors, including securities firms and custodians.

The Korea Exchange said, "We will gather market participants' feedback through the websites of the exchange, the Korea Securities Depository, and other institutions through December 18, and will continue to identify areas for improvement through public hearings, task forces, and other channels."

This content was produced with the assistance of AI translation services.