Following is a question by the Hon Lee Kwong-yu and a written reply by the Secretary for Financial Services and the Treasury, Mr Christopher Hui, in the Legislative Council today (May 13):
 
Question:
 
     Hong Kong Exchanges and Clearing Limited (HKEX) has published a consultation paper on transitioning the settlement cycle for the Hong Kong cash market from "T+2" to "T+1". The proposal aims to enable post-trade activities to be completed earlier on the trading day (T-day), giving market participants sufficient time to prepare for smooth settlement on the next business day (T+1). As major global securities markets gradually adopt shorter settlement cycles, there are concerns regarding how Hong Kong can seize this opportunity to enhance settlement efficiency and maintain the competitiveness of its market infrastructure. In this connection, will the Government inform this Council:
 
(1) whether the authorities and HKEX have conducted a quantitative analysis of the substantive benefits of changing from "T+2" to "T+1", including (i) market and settlement risk management; (ii) the efficiency of capital utilisation; and (iii) impact on market investors and specific products; if they have, the findings of the assessment (including a breakdown of the findings across the three areas mentioned above); if not, the reasons for that;
 
(2) against the background of global securities markets gradually moving towards shorter settlement cycles, whether the authorities will use the reform to introduce a "T+1" settlement cycle as an opportunity to encourage the Hong Kong stock market to streamline and automate the relevant processes; and
 
(3) given that there are views that shortening the stock settlement cycle will have far-reaching implications for the Hong Kong stock market as a whole, and that a number of market reform measures are currently being actively prepared or are being implemented in stages (including optimising the lot framework and promoting the uncertificated securities market regime), whether the authorities have assessed the synergistic of these measures to enhance their overall benefits to the securities market; if so, of the details; if not, the reasons for that?
 
Reply:
 
President,
 
     The Government is committed to driving the Securities and Futures Commission (SFC) and Hong Kong Exchanges and Clearing Limited (HKEX) to study and enhance measures relating to trading, clearing and settlement mechanisms, with a view to improving the efficiency, risk management capability and international competitiveness of the Hong Kong market.
 
     In view of the global trend towards shorter settlement cycles in major markets, HKEX published a discussion paper in July 2025 to explore with the market shortening the settlement cycle of Hong Kong's cash equities market to T+1, and further issued a consultation paper in April this year to seek market views broadly on the specific operational model and implementation timetable.
 
     In consultation with the SFC and HKEX, the reply to the three parts of the question is as follows:
 
(1) The settlement cycle is a fundamental element of cash equities market trading. In promoting the shortening of the settlement cycle to T+1, HKEX has analysed its impact across different aspects of the market, including market and settlement risk management, capital utilisation efficiency as well as potential opportunities and challenges for investors and specific product arrangements. On this basis, HKEX has engaged in in‑depth discussions with market participants to build consensus.
 
     From the perspective of risk management and capital utilisation efficiency, a T+1 settlement cycle shortens settlement to the next business day, meaning that only one day's worth of unsettled trades will be outstanding on each day. This helps reduce market risk arising from unsettled positions and correspondingly lowers systemic risk. Drawing on the experience of other major markets, the arrangement also facilitates a reduction in clearing fund requirements, thereby enhancing capital utilisation efficiency for clearing participants and market intermediaries. According to a relevant market report, the United States market saw a reduction of over 20 per cent in clearing fund levels following the implementation of T+1. Moreover, shortening the settlement cycle from T+2 to T+1 enables investors to receive proceeds from sell trades one business day earlier which improve cash flow efficiency and allow investors to reinvest more flexibly and promptly, bringing potential positive effects on market activity.
 
     While drawing on international experience, HKEX has also taken into account the characteristics of the Hong Kong market, including its highly international investor base and market structure. Statistics show that trading by international institutional investors or related proprietary trading accounts for over 60 per cent of total turnover, the proportion of which to retail participation is relatively higher compared with other major global markets. Given that international investors are likely to trade across multiple markets, the reform will facilitate smoother cross‑market capital flows for investors along the gradual transition of global major markets towards T+1 settlement cycles.
 
     On the other hand, as some market participants (including international investors, their brokers and custodians) operate across different time zones, and certain products and market activities under a T+1 settlement cycle may involve additional factors to consider (such as subscription and redemption of exchange‑traded products of multiple asset classes, securities lending activities, and the exercise and transfer of stock options), market participants may need to undertake appropriate system upgrades, promote process automation, and co-ordinate across the market to maintain overall operational efficiency and stability.
 
     To ensure an orderly transition to a shortened settlement cycle in the Hong Kong cash equities market, HKEX is consulting the market on specific proposed adjustments to trading and settlement processes and the implementation timetable. The consultation period will end on May 18 this year. HKEX will then carefully consider market feedback to finalise the arrangements, allowing sufficient preparation time for the industry to transition to the T+1 settlement cycle and providing appropriate support.
 
(2) and (3) Improving market efficieny and promoting dematerialisation and digitalisation are irreversible development trends in global financial markets. Relevant work is of critical importance to consolidating and enhancing Hong Kong's position as an international financial centre. To effectively improve market efficiency, we need to comprehensively enhance market infrastructure across all fronts, from listing, trading, clearing to settlement, thereby optimising the full-cycle and full-chain financial ecosystem.
 
     The shortening of settlement cycle in the cash equities market to T+1 is one of the key initiatives to enhance market infrastructure. Since commencing discussion with the market on the topic last year, HKEX has introduced new functionalities and upgraded post‑trade systems to ensure compatibility of the existing Central Clearing and Settlement System with the T+1 settlement cycle such that technical preparations could be completed in advance. The T+1 proposal put forward for industry consultation provides the industry with a common timetable and a clear direction, which are conducive to encouraging participants to review and enhance their post‑trade processes under a consistent market framework, thereby promoting systemic advancement of the securities market infrastructure.
 
     Meanwhile, HKEX has also actively taken forward various measures to enhance the efficiency and competitiveness of the full-chain operation of the Hong Kong market. Examples include launching a new digitalised initial public offering (IPO) settlement platform (FINI) which substantially shortened the cycle from IPO pricing to commencement of trading from T+5 to T+2; maintaining normal operation of the securities and derivatives markets (including Stock Connect, holiday trading of derivatives and after‑hours trading sessions) under severe weather conditions; and narrowing the minimum price spreads for equities to enable stock prices to reflect market conditions more promptly. In addition, HKEX has consulted the market on measures to enhance board lot sizes and is actively reviewing the feedback received. The Government, together with the SFC, HKEX and the industry, will also launch the uncertificated securities market regime this year, further enhancing market efficiency and infrastructure standards, while strengthening investor protection and market transparency.
 
     This series of measures will generate significant synergy and comprehensively optimise market infrastructure, so as to enhance the overall operational efficiency of Hong Kong's securities market, consolidate Hong Kong's competitive edge as an international fundraising centre and diversified trading platform, and lay a more solid foundation for the market's long‑term sustainable development. We will maintain close communication with the market and continue to explore measures to further enhance market efficiency and competitiveness.

Ends/Wednesday, May 13, 2026
Issued at HKT 12:35

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