HKEX’s move to explore cutting stock trading settlement time gains broad support

Hong Kong Exchanges and Clearing’s (HKEX) plan to upgrade its stock trading system to shorten the settlement time has gained support from fund managers and stockbrokers. While they believe the move would help HKEX catch up with international exchanges, reduce risks and enhance liquidity, they urged the city’s bourse operator to give the market sufficient time to review and prepare for any changes as part of the reform. HKEX CEO Bonnie Chan Yiting and Financial Secretary Paul Chan Mo-po said separately in February that the company planned to explore shortening the settlement cycle. The Hong Kong stock exchange and many other major bourses use the so-called T+2 settlement cycle, which requires traders to pay up within two days after initiating a trade. HKEX’s Chan said with exchanges in the US and Canada shortening their settlement times to T+1 in May, and bourses in the UK and Europe exploring the same option, Hong Kong had to stay abreast of the developments. Meanwhile, the T+1 cycle has always been the norm in China. “HKEX is implementing system enhancements to ensure our cash market infrastructure is T+1 ready by the end of 2025,” a spokesman for the bourse operator said in reply to a query from the Post on Thursday. “We will be publishing a white paper in the first half of 2025 to facilitate the discussion on what settlement cycle is right for Hong Kong.” He added that the HKEX aimed to build broad market alignment for “any proposed changes to our market structure, and will fully engage with our stakeholders to ensure market readiness”. International fund managers and local brokers voiced support for the reform. “It is imperative that Hong Kong aligns with the international approach to ensure our competitiveness,” said Sally Wong, CEO of the Hong Kong Investment Funds Association, an industry body for fund managers. “With greater global alignment, market efficiency can be enhanced and trading friction and costs can be reduced. We fully support the reform, which will benefit investors.” Veteran broker Christopher Cheung Wah-fung, founder and CEO of Hong Kong-based brokerage Christfund Securities, said he supported the reform, but urged that local brokers and investors be given more time to prepare for the changes. “Shortening the settlement time will enhance market efficiency and liquidity,” he said. Cheung, who has traded stocks for over 50 years, said the new technology could support a faster settlement system. “Even in the old days when trading was conducted manually, we could still settle trades in T+2,” he said. “Now, with all the technology – trading, share settlement and money transfer taking place digitally – brokers and investors should be able to settle trades faster.” The HKEX this year will also review its board lot size, or transaction unit, to add flexibility. These reforms could help Hong Kong attract more new international listings and help US-listed mainland companies move to the city in the event of mass delisting from American exchanges should the US-China trade war take a turn for the worse. A total of 286 mainland firms were listed on the New York Stock Exchange (NYSE), Nasdaq and NYSE American with a combined market capitalisation of US$1.1 trillion on March 7, according to a US government report. Their fate remains uncertain after US Treasury Secretary Scott Bessent earlier this month declined to rule out the possibility that Washington might delist shares of mainland companies from US exchanges amid the escalating US-China trade war. “Hong Kong’s stock market turnover has been rising substantially in recent years, so it makes sense for HKEX to explore shortening the settlement cycle as well as the board lot size,” said Tom Chan Pak-lam, honorary president of the Institute of Securities Dealers, an industry body for local stockbrokers. The average daily turnover in Hong Kong in the first quarter jumped 144 per cent year on year to HK$242.7 billion (US$31.3 billion), according to HKEX data. For investors, the Institute of Securities Dealers’ Chan said the shorter settlement time would lead to quicker cash flow, thereby reducing interest payments on margin lending for trading. “A shorter settlement cycle will be a better risk management measure for the financial markets in Hong Kong,” said King Au King-lun, an executive director of the Financial Services Development Council and asset-management industry veteran. “With technology developments such as blockchain, the trading and settlement cycle can all be enhanced, while trading can also be extended,” Au said. “The T+1 reform is just the beginning of a journey for Hong Kong to improve itself to be a leading international financial centre.”

HKEX’s move to explore cutting stock trading settlement time gains broad support

With the US and Canada cutting their settlement time, and the UK and Europe planning to follow suit, Hong Kong has to keep up, analysts say