From T+2 to T+1: HKEX Proposes Shortening Settlement Cycle for Hong Kong Stock Market—Challenges and Opportunities Ahead

After 33 years, the Hong Kong stock market’s cash equity segment may soon enter the era of T+1 settlement. On July 16, Hong Kong Exchanges and Clearing (HKEX) published a consultation paper on shortening the settlement cycle for the Hong Kong cash equity market. The paper is intended to encourage market dialogue and build consensus with the industry on how and when to implement the change.

Settlement cycle refers to the time, usually measured in business days, between trade execution and the settlement of securities and funds. It forms a fundamental part of the trading infrastructure in Hong Kong’s cash market. Although Hong Kong operates on a T+0 trading basis, the T+2 settlement cycle has remained unchanged since 1992.

According to interviews conducted by Jiemian News, multiple market participants believe that moving to T+1 would significantly shorten the investor settlement period, enhance market efficiency, and reduce systemic risk. Jiemian News notes that global markets have generally been trending toward shorter settlement cycles in recent years.

HKEX stated that markets currently operating on T+1 include Mainland China, the United States, Canada, Mexico, Argentina, and India. By 2027, this group is expected to include the European Economic Area, the United Kingdom, and Switzerland. According to HKEX’s forecast, by transaction value, 88% of global equity trading will be settled under T+1 or T+0/T+1 cycles by that time.
Earlier this year, HKEX CEO Bonnie Y Chan announced that the exchange would complete the technical preparations for T+1 by the end of 2025, though the market would also need time to prepare.

Chan explained that market operations may need adjustment to accommodate a shortened settlement cycle. The increased velocity of fund turnover could improve liquidity, and as an international exchange, HKEX must align with global practices.

Over the past decade, Hong Kong’s cash market has expanded significantly. As of the first half of 2025, total market capitalization reached HK$42.7 trillion, up 70% from ten years ago. Average daily turnover rose to HK$240.2 billion, marking a 246% increase over the same period. In H1 2025 alone, an average of 3.47 million Exchange trades were processed daily via the Central Clearing and Settlement System—more than double the full-year total from 2014.

Industry experts interviewed by Jiemian News acknowledged the advantages of shifting from T+2 to T+1. Wang Haiping, a researcher at the Zhejiang Institute of Public Policy, noted that shortening the settlement cycle reduces both market risk from price fluctuations and counterparty credit risk. T+1 would facilitate faster delivery of funds and securities, thereby minimizing potential loss due to volatility.

Wang also pointed out that T+1 can be particularly beneficial for securities that are difficult to borrow, such as those from small and mid-cap companies. It may narrow bid-ask spreads, increase trade volume, and improve liquidity. The shortened capital holding time allows investors to redeploy funds more quickly, which lowers financing costs. For retail and leveraged investors, it offers greater investment flexibility; for institutions, it boosts capital efficiency and eases liquidity management pressure. Furthermore, T+1 could enhance capital utilization and reduce risk in extreme conditions for cross-market arbitrage strategies involving derivatives.

Shen Meng, Executive Director at Chanson & Co., told Jiemian News that major exchanges around the world are improving services to attract more listings and investment. Adopting T+1 would align HKEX’s settlement cycle with leading international capital markets, improving the coherence and efficiency of global capital flows.

However, T+1 implementation would affect market participants differently. For brokers, banks, and other service providers, the major challenge lies in operational transformation resulting from reduced turnaround time. Industry consensus suggests that T+1 will raise expectations around broker standardization, system automation, and liquidity management.

A custodian department employee at a South China brokerage noted that the shift to T+1 would create greater pressure on post-trade operations. System upgrades would be essential due to the reduced time available for trade matching and fund allocation.

An IT product manager at a Hong Kong subsidiary of a Mainland brokerage firm mentioned that while the daily workload would remain unchanged, the required responsiveness would increase. He added that clients would welcome quicker access to funds and securities. Compared to the U.S. transition to T+1 last year—which significantly strained back-office teams due to time zone differences—the operational burden for Hong Kong may be milder.

Still, the manager acknowledged that multiple hurdles remain. A-shares were launched later and are highly digitized. Both A-shares and U.S. equities settle in a single currency. By contrast, Hong Kong uses renminbi, U.S. dollars, and Hong Kong dollars, making the settlement process more complex.

According to HKEX, most foreign exchange markets operate on a T+2 basis. If the settlement cycle is shortened, investors may not hold the appropriate currency on the settlement date. Market convention allows investors to obtain necessary currencies through spot FX trades, rollovers, or FX derivatives, though these incur transaction costs.

HKEX emphasized that the industry must find effective ways to manage foreign exchange requirements and ensure that intermediaries can provide adequate support. Jiemian News also noted that trades conducted through Stock Connect currently follow a T+2 settlement cycle. If the broader Hong Kong market shifts to T+1, Mainland investors trading Hong Kong stocks via Stock Connect would also be affected.

Since the launch of the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect programs in 2014, the mechanism has expanded substantially. Northbound trading volume through Shanghai and Shenzhen Connect has risen by more than 29 times compared to the launch period, while Southbound trading volume has increased by over 110 times.

Data from Wind show that Southbound capital inflows through Hong Kong Connect reached over HK$730 billion in the first half of 2025—90% of the total for 2024 and a record for the same period. HKEX revealed that Southbound trades accounted for 23% of total turnover in Hong Kong’s market during the first half of 2025.

HKEX believes that T+1 will benefit Mainland investors participating in the Hong Kong market via Stock Connect by bringing the settlement cycle closer to that of A-shares, where funds settle on a T+1 basis. Wang Hongying, President of the China (Hong Kong) Financial Derivatives Investment Research Institute, told Jiemian News that accelerated settlement could improve trading efficiency and stimulate Southbound participation. However, further collaboration will be needed between the regulators and exchanges on both sides to formulate detailed implementation plans, and brokers will need to adjust Stock Connect systems accordingly.

Wang also mentioned that T+1 could encourage brokers and institutions to develop more trading strategies, including A+H arbitrage, intraday turnover, and T+0 models. This could further diversify the investment options available to market participants