A year after the US moved to a trade plus one day settlement cycle and with the UK and Europe set to make the switch in two years, market watchers say it is time for Asia-Pacific markets to prepare for their own transitions to shorter cycles.
Trade settlements could historically take as many as five days, meaning anyone buying a share or bond would have five business days between buying and paying for the trade and the seller would have the same time to transfer the security. Markets over the years compressed trade cycles to T+3, then T+2, and now T+1 and even T+0 in some markets.
The US and Canada switched to T+1 from T+2 last May and the UK and Europe are moving over in October 2027.
Most markets in Asia still operate on a T+2 basis, and experts say it is time for authorities to start planning and preparing the industry for a move to T+1.
“We do think it is important that the industry and market players start to think about it – it sets the stage that the change is happening, and market participants do have an active role to play,” said Michele Pitts, global product head of transaction management for investor services at Citigroup.
Moving over to a shorter trade settlement cycle improves efficiency and reduces risk for both the buyside and the sellside, and is widely expected to be the way forward.
Jesse Forster, head of equity market structure research at Crisil Coalition Greenwich, highlighted the advent of 24-hour trading.
“More than a need, there is an expectation for more streamlined operations, more automation, more real-time processing,” he said.
“A lot of markets in the region are in the exploratory phase. I think everyone agrees that it is a necessary step to ensure that the market is as efficient as possible,” Citigroup’s Pitts said.
Some markets in Asia have a move to T+1 on their radar and are taking active steps in that direction.
The bourse operator for Hong Kong, which operates on a T+2 basis, intends to publish a white paper in the first half of 2025 to initiate discussions regarding the appropriate settlement cycle for the city.
Hong Kong Exchanges and Clearing said it plans to enhance its systems by developing “a next-generation clearing and settlement platform”, which by the end of 2025 will enable the technology supporting HKEx’s cash market infrastructure to be T+1 ready.
Notably, Hong Kong’s Stock Connect trading link with mainland China operates on a T+0 settlement cycle.
Australia, which is in the middle of upgrading its Clearing House Electronic Subregister System after multiple delays, has said that any potential move to T+1 would take place after the exchange delivers the second phase of the upgrade, which is currently planned for 2029.
There are concerns that as Australia is already nearly a day ahead of large parts of the globe and the Australian market is effectively operating on T+1.5 settlement currently, a move to T+1 would be akin to T+0 in effect for foreign investors into the Australian market.
This is a decision that needs to be determined by the entire market including the regulators, not just ASX, an ASX spokesperson said by email.
“We’ve had conversations with a number of regulators around the region and generally I would say that the expectation is that a number of jurisdictions here will plan to move to T+1 at some point,” said Peter Stein, chief executive officer of industry body the Asia Securities Industry and Financial Markets Association. “The way I’ve heard it described is that it is inevitable but at the same time nobody is rushing to do it.”
"Closely monitoring"
Singapore, which follows a T+2 trade settlement cycle, is “closely monitoring global developments around the transition to T+1,” according to a spokesperson for SGX Group.
“At this stage, market participants have not indicated a need to move away from the current T+2 settlement cycle, which continues to serve the market effectively,” the spokesperson said.
Singapore’s exchange remains engaged with industry stakeholders on the subject and acknowledges that any future shift would require careful coordination across the entire ecosystem to ensure a smooth and successful transition.
Markets in South Korea, Taiwan, Thailand, Indonesia and Malaysia follow a T+2 settlement cycle.
“I think the general expectation is that the regulators out here will want to wait to see how the transition goes in Europe and the UK first. They wouldn’t want to front-run the changes there,” ASIFMA’s Stein said.
“Asia is a very fragmented market. It is not a monolith. It is probably a smart move to wait and watch. The exchanges and regulators might be better off taking this approach,” Coalition Greenwich’s Forster agreed.
A notable exception in Asia is India, which has operated on a T+1 basis since 2023 and is piloting a T+0 settlement cycle for some stocks. Analysts say the switch was to align with trading of virtual digital assets.
An ample runway
Industry participants highlighted that the US switchover went smoothly as the result of years-long planning and coordination and Asia will need that also.
"One lesson that came from the US was that preparation helped. Having the ample runway to do that was important," said Citigroup's Pitts. There were concerns that the switchover would result in some failed trades, "but the go-live was seamless [with] same settlement efficiency percentages. There were no abnormal spikes or changes to overdrafts or liquidity."
“Anybody looking at the US switchover would say that it was seamless and a non-event. But there was a tremendous amount of planning that went into it to make it a non-event,” Coalition Greenwich’s Forster said.
“The transition in the US was a three-year-long project involving close collaboration with industry. Regulators here should be taking that as a reference point and giving the industry as much notice as possible, making sure everyone is involved in the journey,” ASIFMA’s Stein agreed.
The lesson clearly has been that more engagement between industry and regulators and the exchanges reduces the likelihood of operational risks getting in the way of things, he said.