Seoul — South Korea is moving to overhaul its nearly 50-year-old securities settlement system. Under a newly announced preliminary roadmap by financial authorities and market operators, the country’s stock settlement cycle will transition from the current T+2 system to T+1 by 2028, cutting the wait time for stock sales proceeds down to just one day.

The initiative follows a directive from President Lee Jae-myung earlier this year, who questioned why investors had to wait two days to receive funds from stock sales. Although initial discussions considered aligning with Europe's October 2027 timeline, market regulators opted for 2028 to ensure a smoother transition for both domestic and international participants.

What Changes for Investors?

*Faster Liquidity: Investors selling stocks will receive their cash on the next business day (T+1), enabling quicker reinvestment and cash rotation. Conversely, buyers must secure their purchase funds a day earlier.
*Margin Calls and Dividends: For margin trading, the deadline for forced liquidation due to unpaid purchases will move up from T+3 to T+2. Meanwhile, the cutoff date to qualify for dividend payments will be extended by one day, allowing investors to buy dividend-eligible stocks right up until the day before the record date.
*Lower Loan Rates: Ahead of the official transition, individual investors will benefit from reduced borrowing costs. With support from securities finance institutions, brokerages are lowering the interest rates on "proceeds-backed loans"—short-term loans taken while waiting for sales funds to settle—bringing rates down from 7.5%-10% to the mid-5% range.

Challenges and Global Competitiveness

While the reform is expected to reduce overall settlement risks—similar to the 23% drop in clearing funds seen in the U.S. after its 2024 switch to T+1—foreign investors face notable hurdles.

Foreign entities, which account for nearly 39% of South Korea's total market capitalization, must navigate tight time windows for trade verification and currency conversion. Operating across different time zones—such as the late-night hours for U.S.-based investors—presents logistical pressures, and some global funds expressed concerns over potential liquidity mismatches with neighboring markets like Japan, which still operates on a T+2 cycle.

In a recent survey, over 84% of surveyed global financial institutions and custodians favored a transition in late 2028 or later, with some warning that premature implementation could cause foreign investors to scale back their exposure to Korean equities.

Preparation and Infrastructure Overhaul

To mitigate these risks, South Korean financial institutions are rolling out phased support measures:

*System Integration: The Korea Exchange (KRX) and the Korea Securities Depository (KSD) will complete clearing and settlement infrastructure by October 2027, followed by brokerages and foreign institutions updating their systems by the first quarter of 2028, leading into a six-month market-wide testing period.
*Streamlining Foreign Settlements: The KSD plans to link its proprietary system with the U.S. Depository Trust & Clearing Corporation’s (DTCC) CTM platform, cutting the existing 12-step foreign settlement process down to 5 steps.
*Forex and Liquidity Enhancements: Financial authorities are extending foreign exchange market trading hours to 24 hours on weekdays and aiming to launch an offshore Korean Won settlement system by January 2027 to ease currency conversion burdens.

[ⓒ Global Economic Times. 무단전재-재배포 금지]