Hong Kong Securities and Futures Professional Association: Shortening the stock settlement cycle can improve liquidity and accelerate capital turnover.

The Hong Kong Stock Exchange published a discussion paper on shortening the settlement cycle of the Hong Kong stock market on July 16, aiming to lead the market to discuss this issue. The paper shows that the Hong Kong Stock Exchange is considering shortening the current "T+2" settlement cycle to "T+1". Ma Zengjie, a director of the Hong Kong Securities and Futures Professionals Association, stated in an interview that the association supports the shortening of the settlement cycle of the Hong Kong stock market. "T+1" is a trend that can reduce the backlog of unsettled transactions and speed up fund turnover. The Hong Kong Stock Exchange stock market has been using a T+2 settlement cycle since 1992, while other international stock markets have gradually shortened the settlement cycle to T+2 over the past 20 years. In recent years, many markets have shifted to or are considering moving to a T+1 or shorter settlement cycle. According to statistics from the World Federation of Exchanges and international exchanges, the Hong Kong Stock Exchange expects that by the end of 2027, 88% of global stock market transactions will adopt a T+1 or T+0 settlement cycle. Regarding the impact of transitioning to "T+1" on securities firms, Ma Zengjie stated that for internet securities firms, there is no difference between "T+2" and "T+1" as they require customers to deposit funds in advance before trading, which can be seen as "T+0" to a certain extent. However, for traditional securities firms that generally provide credit lines to customers, if "T+1" is implemented, customers who do not adapt to the new system in time may have to bear the related funds if they fail to "settle" in time. He further stated that the expected upgrade of the related settlement system will not bring additional costs to securities firms, as the systems can be divided into two categories: self-developed systems by securities firms and systems provided by suppliers in the market. For the former, "this is the work of the IT department," and does not require additional costs, while for the latter, as securities firms have already submitted monthly fees to the relevant suppliers, the related upgrades should be provided by the suppliers and have nothing to do with the securities firms. He pointed out that shortening the settlement cycle of the Hong Kong stock market is a global trend. However, investors need to readapt to the operating rhythm, and securities firms may see a reduction in margin interest income. He also mentioned that adjustments to the Southbound trading of Stock Connect need to be synchronized to "T+1," involving technical integration and compliance with mainland regulatory agencies. Additionally, as the paperless reform is accelerating, the overlapping of the dual reforms may increase operational complexity. He further pointed out that as Hong Kong is the earliest market to open globally, with the implementation of "T+1," the buffer time for European and American institutions handling Hong Kong stocks will significantly decrease, leading to an increase in settlement failure risks. There may also be pressure in borrowing stocks, and a sense of urgency may arise when retrieving stocks. The Chairman of the Hong Kong Securities Industry Association, Gao Juan, stated that "T+1" is a major trend that is being implemented in mainland China and the United States. She believes that shortening the settlement cycle will enhance Hong Kong's competitiveness and that the major challenge lies in the securities firms and exchanges having to make system adjustments. However, she believes that this can be completed in a few months, and she expects that "T+1" can be implemented as early as next year. Gao Juan believes that the settlement cycle will eventually be shortened to "T+0," as in the case of the United States, where trading is 5X24, and the settlement time must follow suit.