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The transition of US equity markets to a shortened T+1 settlement cycle in 2024 has put the benefits of faster settlement – lower counterparty risk, reduced margin requirements and improved capital efficiency – firmly in the global spotlight.
This focus, however, also highlights the significant need for enhanced operating infrastructure and rigorous processes to successfully compress post-trade workflows. With European and UK markets planning to transition by the third quarter of 2027, global momentum is prompting a thorough review of post-trade settlement processes across capital markets worldwide.
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1. Risk reduction |
2. Improved liquidity and cost |
3. Enhanced capital efficiency |
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The shortening of the settlement cycle is expected to reduce counterparty, systemic and operational risk |
Faster allocation of funds and a reduction of margin requirements freeing capital |
This transition is expected to drive operational efficiency improvement and system upgrades and automation |
What is T+1
T+1 settlement for equity securities refers to a trade settlement cycle in which transactions are completed one business day after the trade date. For instance, if a security is purchased or sold on day T, the transfer of funds and securities between the buyer and seller occurs on the following business day (T+1).
Within Asia-Pacific equity markets, the Chinese mainland operates on a T+0 cycle and India on T+1, while most other markets – including Hong Kong – currently follow T+2. Moving from T+2 to T+1 compresses each post-trade process, including allocation, confirmation, clearing and settlement from two days to just one.
Download our latest publication on T+1 whitepaper
Key observations
Realizing the benefits are heavily contingent upon overcoming several logistical and infrastructural hurdles. Key operational themes identified during the workshops included:
How we approached the study
Against this backdrop, EY, in collaboration with the Asia Securities Industry and Financial Markets Association Limited (ASIFMA), commissioned a study to understand the current state and readiness of seven Asia-Pacific equity markets – Japan, Hong Kong, South Korea, Taiwan, Thailand, Singapore and Malaysia – for a potential transition to T+1.
The study combines a factual review of existing post-trade processes with insights from market participants to provide a practical and unvarnished view of potential impacts in each market and across the region.
Five whiteboard sessions were conducted to gather feedback from participants in these seven markets. A total of 53 firms participated, predominantly asset managers, securities brokers and investment institutions. Several custody banks also contributed valuable perspectives. The feedback has been summarized into key focus areas in this whitepaper.
Summary
Transitioning to a T+1 equity settlement cycle in Asia-Pacific markets requires careful planning and investment to address major operational, technological and regulatory challenges. A key concern is the lack of automation and standardization in manual processes such as trade allocation, matching and confirmation. Combined with time zone differences for non-Asia-Pacific investors, this significantly compresses the settlement window and elevates the risk of trade failures.
The decision to move to T+1 must carefully ascertain the value it brings across the entire financial services value chain. A thorough evaluation of the business case for Asia-Pacific’s transition is therefore a critical step to ensure the change is implemented in the right context and achieves its intended objectives.