Key points
▶ On Nov. 2, the Korea Exchange, Korea Securities Depository, Korea Securities Finance Corporation and Korea Financial Investment Association released a draft roadmap to shorten the stock settlement cycle from two business days after a trade (T+2) to one (T+1).
▶ Individual investors who sell shares on Monday will receive the proceeds on Tuesday instead of Wednesday. But buyers will have to deposit payment a day earlier. If investors fail to repay money borrowed to buy shares on credit, the resulting forced sale will move up from T+3 to T+2. To qualify for a dividend, investors will need to buy shares by the day before the record date, rather than two days before.
▶ Foreign investors, who hold 39% of the market’s total capitalization, will have to complete trade confirmation and won currency conversion between 10 p.m. and 7 a.m. Korea time.
Investors will receive proceeds from stock sales a day sooner. The Korea Exchange, Korea Securities Depository, Korea Securities Finance Corporation and Korea Financial Investment Association on Nov. 2 announced a draft roadmap to shorten the securities market settlement cycle.
The plan would replace the current T+2 system, under which cash and shares change hands two days after a trade is executed, with T+1 settlement one day after the trade. The system, introduced in 1972, will change for the first time in 54 years. The transition is targeted for 2028.
The discussion began at the presidential office. At a capital markets meeting in March, President Lee Jae-myung asked, “If I sell a stock today, why do I get the money the day after tomorrow?” Some proposed aligning the change with Europe’s planned transition in October 2027, but the institutions set 2028 as their target after considering overseas examples and the readiness of domestic and international investors. The United States moved to T+1 in May 2024, while the European Union and the United Kingdom are targeting October 2027, and Hong Kong is aiming for 2028.
What will change for individual investors
At present, investors who sell shares on Monday receive the proceeds on Wednesday. Under T+1, they will receive them on Tuesday. They will be able to use or withdraw the money a day sooner, including to buy other stocks. Conversely, buyers will have to deposit the purchase price into their accounts a day earlier.
Credit transactions will also change. If investors buy shares with money borrowed from a brokerage and fail to repay it on time, the brokerage currently sells the shares by force three business days after the trade (T+3). That forced sale will move up by a day, to T+2. The deadline for requesting a correction to an order mistakenly placed by a brokerage will also shift from 3:30 p.m. the following day to 8:30 p.m. on the day of the trade.
Dividend eligibility will change as well. Currently, investors must buy shares at least two days before the dividend record date to be listed as shareholders. With settlement a day faster, they will need to buy only by the day before the record date.
Across the market, the risk of settlement failures will decline. A shorter interval between trade execution and settlement means less time for a counterparty to fail to meet its obligations, and brokerages will need to set aside less collateral against that risk. In the United States, after the move to T+1, the National Securities Clearing Corporation’s (NSCC) clearing fund collected from member firms fell 23% compared with the three-month average immediately before the transition.
Foreign investors face the biggest challenge
The biggest task will be preparing foreign investors. In the first half of this year, they accounted for 38.9% of the market capitalization of Korean stocks and 24.7% of trading value. Because foreign investors settle trades through overseas and domestic custodian banks, the process involves multiple steps, from trade confirmation to currency conversion into won. With settlement a day sooner, the time available to complete those steps will be cut in half.
Time-zone differences add to the challenge. The business hours of U.S. financial firms fall between 10 p.m. and 7 a.m. the next day in Korea. U.S. investors will effectively have to complete trade confirmation and currency conversion within a single working day. Thin foreign-exchange trading in the early morning could also make it necessary to buy won in advance. Differences in settlement schedules across Asian markets are another factor. Japan moved to T+2 in 2019 but has not set a timetable for T+1. Global funds that sell Japanese stocks to buy Korean stocks could therefore have to pay for their Korean purchases before receiving the proceeds from their Japanese sales.
In a survey of 32 overseas brokerages, custodians and investors, 27 (84.4%) said they wanted the transition to take place in the second half of 2028 or later. Seven of the 21 investors surveyed said they might reduce their investment in Korea if the change occurred before they were ready.
The institutions plan a phased transition. The Korea Exchange and Korea Securities Depository will build clearing and settlement infrastructure by October 2027, while brokerages and foreign investors will update their IT systems and operating procedures by the first quarter of 2028. The entire market will then take part in an integrated test lasting at least six months. The number of steps in the foreign-investor settlement process will be cut from 12 to five.
The Korea Securities Depository will build its own system and connect it to the U.S. Depository Trust & Clearing Corporation’s (DTCC) CTM trade-management system. Measures will also be introduced to prevent settlement failures, including sharing information on shareholdings among brokerages and automatically lending shares between them. Foreign-exchange authorities are working to extend weekday trading in the foreign-exchange market to 24 hours and are preparing an offshore won settlement system, targeted to begin operating in January 2027.