Xu Zhengyu: Shortening the settlement period of stock spot trading helps to improve market operation efficiency and has a positive impact on the market.

Hong Kong Financial Secretary and Treasury Secretary Christopher Hui responded to questions from lawmakers, stating that the promotion of shortening the settlement cycle of the stock spot market to T+1 is an important element in enhancing market infrastructure. This move will help reduce market risks associated with unsettled shares and improve fund turnover efficiency. At the same time, he pointed out that improving market efficiency and promoting paperless and digitized transactions are irreversible trends in the global financial market, and these efforts are crucial for consolidating and enhancing Hong Kong's position as an international financial center. Hui stated that the settlement cycle is a crucial foundation for stock spot market transactions. In the process of promoting the shortening of the settlement cycle to T+1, the Hong Kong Stock Exchange has conducted an analysis of its impact on various aspects of the market, including market and settlement risk management, capital utilization efficiency, and the opportunities and challenges that may arise for investors and specific products. Based on this analysis, the Exchange has engaged in extensive discussions with market participants to build consensus. In terms of risk management and capital utilization efficiency, a T+1 settlement cycle can shorten the settlement to the next business day, which means that the market will only deal with unsettled transactions from one trading day each day, thereby reducing market risks associated with unsettled shares and lowering systemic risks accordingly. According to market reports, after the implementation of T+1 in the US market, settlement funds decreased by over 20%. Furthermore, shortening the settlement cycle from T+2 to T+1 allows investors to receive funds from sell transactions one business day earlier, improving fund turnover efficiency and potentially bringing positive impacts to market activities. Hui also mentioned that, in learning from international practices, the Hong Kong market includes a highly international investor base and market structure. With the global trend of transitioning towards a T+1 settlement cycle in major markets, these reforms will support the smooth flow of investors' funds across different markets. On the other hand, as some market participants (including international investors, their brokers, and custodians) operate in different time zones, and certain products and market activities under the T+1 settlement arrangement may involve other considerations (such as subscriptions and redemptions covering different asset classes, securities lending activities, and the exercise and transfer of stock options), market participants may need to upgrade systems, promote process automation, and coordinate with the entire market to maintain overall operational efficiency and stability. To orderly implement the work of shortening the settlement cycle of the Hong Kong stock spot market, the Hong Kong Stock Exchange is consulting the market on specific adjustment proposals to trading and settlement processes and the implementation timeline. The consultation period will end on May 18 this year, after which the Exchange will carefully consider market opinions to finalize arrangements, allowing sufficient time for the industry to transition to a T+1 settlement cycle and provide appropriate assistance. Since discussions with the market on this topic began last year, the Stock Exchange has introduced new functions to the post-trade system and conducted system upgrades to ensure the compatibility of the current central clearing and settlement system with the T+1 settlement cycle. The proposal for T+1 consulting with the industry provides a common timeline and clear direction, facilitating market participants to review and optimize their post-trade processes under a consistent market arrangement and promoting systematic progress in the overall structure of the securities market. Meanwhile, the Stock Exchange is actively advancing several measures to enhance the operational efficiency and competitiveness of the Hong Kong market, including launching the FINI digitalized IPO settlement platform, reducing the period from pricing to listing of new shares from T+5 to T+2; ensuring the normal operation of securities and derivatives markets in adverse weather conditions (including Shanghai-Hong Kong Stock Connect, derivatives holiday trading, and post-closing trading sessions); and narrowing the minimum price movements of stocks to make stock prices more reflective of market conditions in real time. Furthermore, the Stock Exchange has consulted the market on measures to optimize the trading unit of stocks and is actively studying the suggestions submitted by the market. The government will also work with the Securities and Futures Commission, the Stock Exchange, and the industry to launch a paperless securities market system this year, further enhancing market efficiency and infrastructure levels, and strengthening investor protection and market transparency. These measures will generate significant synergies, optimizing market infrastructure comprehensively, enhancing the overall operational efficiency of the Hong Kong securities market, consolidating Hong Kong's competitive advantage as an international capital-raising center and diversified trading platform, and laying a more solid foundation for the long-term sustainable development of the market.