Korea delays faster stock settlement amid foreign investor concerns

South Korea has pushed back its planned shift to faster stock settlement to 2028, giving financial institutions and overseas investors more time to prepare amid concerns over higher costs and operational risks.

The move will shorten the settlement cycle from two business days to one, allowing investors to receive proceeds from share sales sooner and reducing the amount of capital tied up in unsettled trades.

The Korea Exchange had initially targeted the second half of 2027, in line with Europe's planned transition. But its revised road map, unveiled Monday, sets 2028 as the earliest feasible date, citing the need for system upgrades and extensive testing.

"We believed thorough deliberation and preparation were necessary to ensure a smooth transition to a shorter settlement cycle while maintaining Korea's exceptionally low settlement failure rate, which is close to zero," said Park Sang-wook, head of clearing and settlement at KRX, at a briefing Monday.

"While we are targeting 2028, unexpected variables could arise, and the final implementation date will be determined based on the state of preparations."

The revised timeline follows concerns raised by foreign investors after Korean authorities announced plans in March to accelerate the transition to T+1 settlement.

Overseas investors warned that a shorter settlement window could increase costs and operational risks, particularly because cross-border trades require additional foreign exchange transactions and coordination among multiple financial institutions.

Unlike domestic investors, foreign investors typically settle trades through a network of overseas brokerages and domestic and foreign custodians, requiring additional steps to verify transactions and authorize payments.

To ease these burdens, authorities plan to automate more of the settlement process and introduce the new system in stages, allowing market participants additional time to adapt.

Under the revised road map, a joint task force involving relevant institutions and a dedicated project management office will be established in the first quarter of 2027 to coordinate preparations.

KRX and the Korea Securities Depository aim to complete upgrades to their clearing and settlement systems by October 2027. Financial institutions and foreign investors will have until the first quarter of 2028 to finish their own system upgrades and operational preparations.

The transition will then undergo at least six months of integrated testing before implementation.

The final launch date will depend on the results of those tests and consultations with financial authorities, domestic and overseas financial institutions, and foreign investors, officials said.

Korea's revised timetable comes as major financial markets move toward faster settlement to reduce counterparty risks and improve capital efficiency.

The US adopted T+1 settlement in May 2024, while the UK and European Union are scheduled to follow in October 2027.

Hong Kong is also considering a shorter settlement cycle, but has postponed its tentative transition target from the second half of 2027 to the second half of 2028.