Financial investment firms, related institutions and individual investors largely agreed on the need to shorten the domestic securities market settlement cycle from the current T+2 days to T+1 day. But suggestions were made that a sufficient preparation period is necessary.
The Korea Financial Investment Association held a "Securities market settlement cycle shortening in-depth debate" at the KOFIA Bulls Hall in Yeouido, Seoul, on the 2nd.
Korea Financial Investment Association Chairman Hwang Seong-yeop said in opening remarks, "The shift to T+1 is expected to improve convenience in the use of funds and market efficiency," but added, "As settlement processing time is reduced, we must meticulously overhaul systems and infrastructure across the market to guard against the possibility of settlement failures or errors."
Regulatory Rationalization Committee Vice Chair Park Yong-jin said in congratulatory remarks, "President Lee Jae-myung is also paying attention to this issue," and added, "From the standpoint that our capital market should not fall behind global changes and should deliver changes that individual investors can tangibly feel, the government also regards this as important."
He added, "What matters now is how quickly we can change while maintaining stability," and said, "On the premise that market stability and investor protection are sufficiently ensured, if we have decided to proceed, please act proactively so the timing of the制度 change can be brought forward as much as possible."
If the settlement cycle shifts to T+1, the point at which an individual investor can withdraw the proceeds after selling stock will come a day earlier. However, back-office tasks such as transaction corrections currently processed on T+1, clearing and netting, tax processing, institutional investors' trade confirmation and settlement instructions will all be moved up.
For individual investors, schedules linked to the settlement date, such as the occurrence of unsecured balances and the day of forced liquidation, may be brought forward.
First, the settlement process for foreign investors was identified as a key task. SC Bank Director Kim Mi-gang said, "If Korea, along with Asian and European markets, shifts to T+1 around the same time, there are concerns that system and infrastructure construction expense could surge."
Kim added, "If T+1 is introduced in a short period of time, there are concerns that the currently stable settlement infrastructure could be undermined," and said, "There is strong sentiment that sufficient verification time must be secured."
The securities industry also indicated that a sufficient preparation period is necessary.
Park Sang-hyun, deputy department head at NH Investment & Securities, said, "The settlement cycle functions like a cornerstone of the market, and this is the work of replacing that cornerstone while the market keeps running," adding, "If even one or two securities firms fail to settle, it can become a trust issue for the entire market, so sufficient time is needed to ensure all market participants can move together."
Choi Hoon, Director General at the Korea Exchange (KRX), also said, "Shortening the settlement cycle is not a process that only securities firms and the Korea Exchange go through; it is a process in which all market participants change at once," adding, "Because infrastructure institutions such as the Korea Securities Depository, the Bank of Korea and Korea Securities Finance must comprehensively change systems, and asset managers, pension funds and foreign exchange procedures all change as well, time is needed for stable adoption."
Korea Securities Depository Director General Kim Jin-taek said, "After implementation, it will be difficult to return to the prior framework, so if unforeseen problems arise, we will also prepare contingency measures in advance, such as extending settlement deadlines."
Concerns were also raised about settlement failures. Kang So-hyeon, a research fellow at the Capital Market Research Institute, noted that in the United States settlement failures occur at a frequency of 2%–3% of total transactions, and said, "If the settlement cycle is reduced to one day, the time for adjustment and correction during settlement shrinks accordingly, so the likelihood of operational settlement failures naturally increases compared with now."
Kang said, "Because the likelihood of failure increases, the approach should not be to prevent failures from happening at all, but to identify the causes and resolve them quickly, and to assess how much expense is involved."