LCQ17: Accelerated settlement for cash market
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Question:
The Hong Kong Exchanges and Clearing Limited (HKEX) published a consultation paper in April this year, proposing to shorten the settlement cycle for the Hong Kong cash market from the current "T+2" to "T+1" (where "T" denotes the trading day), with implementation expected in the fourth quarter of 2027 at the earliest. There are views suggesting that shortening the settlement cycle will have far-reaching implications for the operational processes and system configurations of securities firms, as well as for the trading habits of investors. In this connection, will the Government inform this Council:
(1) given that securities firms will be required to complete trade confirmation and fund settlement procedures within a very short time frame following the shortening of the "T+1" settlement cycle, whether the Government has assessed the financial and technical difficulties faced by local small and medium-sized securities firms in upgrading their back-office settlement systems and implementing automated technologies; whether the Government and HKEX will consider providing targeted transitional support measures or funding for technological upgrades to assist the industry in making a smooth transition; if so, of the details; if not, the reasons for that;
(2) with regard to retail investors (particularly elderly investors who rely on physical cheques or non-real-time fund transfers for settlement), of the specific strategies the Government and the Investor and Financial Education Council have in place to strengthen public education to ensure that investors fully understand the impact of the "T+1" settlement cycle on their fund allocation and margin call requirements, thereby avoiding the risk of default or incurring additional interest expenses; and
(3) while advancing the "T+1" settlement reform, whether the Government will urge HKEX to further explore the application of advanced financial technologies such as artificial intelligence and blockchain, with a view to comprehensively optimising and automating post-trade settlement and delivery processes, thereby boosting market efficiency and the long-term competitiveness of Hong Kong's capital markets, as well as further reducing overall systemic risk; 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 the Hong Kong Exchanges and Clearing Limited (HKEX) to explore and enhance measures relating to trading, clearing and settlement mechanisms, with a view to modernising market infrastructure, enhancing trading efficiency and consolidating Hong Kong's competitiveness as an international financial centre.
Following the trend towards shorter settlement cycles in major markets globally, the HKEX issued a discussion paper in July 2025 to explore with the market the shortening of the cash equities market settlement cycle to T+1, and further sought market views broadly on the specific operational model and implementation timetable in April this year. As mentioned in the Chief Executive's 2026 Policy Address, the HKEX is conducting preparations with the market for launching a T+1 settlement cycle for the cash market upon co-ordination with relevant Mainland units. The HKEX's target is to publish the consultation conclusions and announce relevant details such as the implementation arrangements and timetable within the year.
In consultation with the SFC and the HKEX, the reply to the three parts of the question is as follows:
(1) and (3) The adoption of a T+1 settlement cycle in the cash equities market is an important initiative to enhance market infrastructure. It will align Hong Kong's settlement cycle more closely with international market practice and facilitate smoother capital flows between Hong Kong and overseas markets, thereby further consolidating and enhancing Hong Kong's position as an international financial centre. A shorter settlement cycle will also improve capital utilisation efficiency for market participants and reduce settlement-related market risks.
As shortening the settlement cycle requires adjustments to settlement processes and existing infrastructure of the market, the HKEX will accord priority to a smooth and orderly market transition when formulating the implementation model, while taking into account the practical circumstances of the local industry. In this regard, the HKEX has put forward a number of specific proposals in its consultation paper with a view to working together with market participants to review and enhance post-trade processes. In addition to adjusting the timetable for settlement and clearing procedures to ensure that the relevant processes can be completed in a timely and orderly manner within the shortened settlement cycle, the HKEX has also proposed extending the service hours for settlement instruction activities (such as the input and matching of settlement instructions), having regard to the reduced timeframe available for post-trade processing. This would provide participants with greater flexibility in completing the necessary procedures. At the same time, the HKEX has proposed retaining the existing delivery-versus-payment arrangements, the batch settlement processing framework and the settlement risk management framework, thereby reducing transition costs for the industry. The HKEX is carefully considering market feedback on the various proposals in order to finalise the details of relevant arrangements.
Since the issuance of the discussion paper, the HKEX has been encouraging the industry to begin reviewing its internal infrastructure and procedures as early as possible, including the need for system upgrades and process automation. To better support market participants, the HKEX is exploring the feasibility of developing tools to streamline the allocation and confirmation processes (including a centralised standard settlement instruction repository, a management information dashboard) so that participants can complete the key preparatory activities (such as allocation and confirmation) before the commencement of settlement. This would enhance the efficiency of pre-settlement matching activities. In response to market feedback, the HKEX is also exploring the establishment of a new workflow platform for stakeholders, including investment fund managers, custodians and brokers, to help improve their operational efficiency. The HKEX will release the relevant technical specifications, operational guidance and supporting measures in due course to facilitate the necessary system enhancements by the industry.
To ensure Hong Kong transitions to T+1 in a stable and orderly manner, the HKEX will take full account of the practical needs of the industry (particularly small and medium-sized brokers) in relation to system upgrades and process adjustments when formulating the implementation timetable. Sufficient preparation time will be allowed to ensure an orderly transition across the market. The HKEX will continue to engage closely with the industry to understand the preparedness and practical needs of different market participants. Through the phased release of information materials, the provision of adequate preparation and testing time, the facilitation of industry-wide guidance and the promotion of standardisation initiatives, the HKEX will assist market participants in preparing for and transitioning smoothly to the T+1 settlement cycle.
The HKEX will also continue to maintain close communication with the financial industry and explore further opportunities to leverage emerging technologies to enhance matching, clearing and settlement processes. Through the continuous upgrading of clearing house technology infrastructure, optimisation of market risk management and promotion of paperless and automated processing workflows, the HKEX aims to further improve market efficiency, reduce overall systemic risk and strengthen Hong Kong's position as a leading international financial centre.
(2) Shortening the settlement cycle from T+2 to T+1 will improve capital efficiency. As proceeds from sell trades can be received one business day earlier, investors (including institutional and retail investors) will be able to conduct subsequent investments more flexibly and promptly. To ensure that retail investors fully understand the T+1 settlement arrangements, the Government will encourage the HKEX and the Investor and Financial Education Council (IFEC) to strengthen public education efforts targeted at retail investors. The HKEX will provide comprehensive implementation support to the market through a dedicated T+1 webpage containing relevant information materials and implementation arrangements. The HKEX will also continue to maintain close communication with the market and facilitate market participants' advance preparation through briefings, industry participation events and systematic testing.
On the other hand, the IFEC will leverage a wide range of communication channels (including its one-stop investor education website, social media platforms, radio programmes, online media, newspaper columns and media interviews) to enhance retail investors' understanding of the implementation of the shortened settlement cycle for the cash equities market and the operational changes arising from the new arrangements. The IFEC will also continue to work closely with the SFC, the HKEX and other stakeholders to disseminate investor education messages to market participants effectively through stakeholder networks, including brokers, financial industry bodies and professional associations. Such messages will cover, for instance, the benefits of transitioning from a T+2 to a T+1 settlement cycle, funding arrangements, order placement arrangements and other changes relating to trading and settlement.
Ends/Wednesday, October 7, 2026
Issued at HKT 12:56
Issued at HKT 12:56
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