Global Banks Warn Asia to Move Carefully Toward Faster T+1 Trade Settlement

 Global banks and asset managers are urging Asian exchanges to proceed cautiously with adopting shorter settlement cycles, warning that markets must make significant operational upgrades to avoid higher risks of failed trades, according to a new report by the Asia Securities Industry & Financial Markets Association (ASIFMA).

The report, covering seven major markets including Hong Kong, Japan, Korea and several Southeast Asian exchanges, highlights the complexities of implementing T+1 settlement in a region defined by diverse currencies, varying market practices and high levels of cross-border trading.

“Solving the T+1 problem in Asia has a very different set of challenges compared to the West,” said Lyndon Chao, ASIFMA’s managing director of equities and post-trade.

A Different Starting Point From the West

The US shifted to T+1 settlement in 2024, and the EU and UK plan to follow in 2027. India already operates on T+1, while mainland China settles equity trades same day (T+0).

But ASIFMA says Asia must first automate key post-trade processes — including trade confirmation, pre-matching, settlement instruction management and stock borrowing and lending — before moving toward faster cycles.

Additional structural challenges include:

• Multiple local currencies, some with restricted convertibility

• Heavy foreign investor participation, representing 30%–50% of trades

• Fragmented market infrastructure across jurisdictions

Risk of More Failed Trades

Asian markets currently report far fewer trade failures than the US or Europe. But compressing the settlement window without sufficient preparation could sharply increase fail rates, the report warns.

Chao noted that rushed transitions could introduce issues such as naked short selling, which carries criminal penalties in some Asian markets.

Hong Kong Under Spotlight

Hong Kong Exchanges and Clearing (HKEX) has said it will be technically ready for T+1 by year-end, but regulators have given no timeline for implementation.

Smaller brokers have expressed concern about the cost of required back-office upgrades. Hong Kong also faces a unique strategic dilemma: about 57% of its trading volume comes from mainland Chinese investors via Stock Connect, giving it an incentive to align with China’s shorter cycle.

“The international community is watching how Hong Kong balances the ‘China factor’ with global investor needs,” Chao said. Increased friction could reduce Hong Kong’s attractiveness as an international investment hub, he added.

ASIFMA’s findings were based on a survey of 53 funds, brokers and custody banks. The group represents more than 150 financial institutions across the region.

Key Takeaways

• ASIFMA warns Asian markets to be cautious before adopting T+1 settlement, citing higher operational risks.

• The region faces challenges that differ from the US and Europe, including diverse currencies and heavy cross-border trading.

• Faster settlement could increase trade failures, potentially triggering compliance breaches such as naked short selling.

• Hong Kong is technically ready for T+1 but has not committed to a timeline; smaller brokers face cost pressures.

• With 57% of Hong Kong’s trading coming from mainland China, alignment with China’s settlement cycle is a major consideration.

• Global investors are watching how Hong Kong balances Chinese integration with international market standards.