The Impact and Implications of Shortened Settlement Cycles in the US Stock Market

The Impact and Implications of Shortened Settlement Cycles in the US Stock Market

2024년 5월 28일부터 미국 주식시장의 결제주기가 T+2에서 T+1로 단축된다. 이는 결제 안정성을 강화하고 시장 참여자의 부담을 줄이기 위한 조치로, 코로나 팬데믹과 게임스탑 사태 이후 시장 변동성이 증가하면서 도입되었다. 결제주기 단축으로 인해 투자자들은 자금을 더 빨리 수령할 수 있어 자금 운용의 효율성이 높아지는 한편, 외화 조달 지연이나 결제 불이행의 위험이 증가할 수 있어 주의가 필요하다. 국내 주식시장에서도 결제주기 단축 논의가 불가피할 것으로 보이며, 이에 따른 시스템 개선과 비용 분석을 통해 신중히 검토해야 한다.

Introduction

Starting from May 28, 2024, the US stock market will reduce its settlement cycle from T+2 (two days after the transaction) to T+1 (one day after the transaction). This change aims to enhance market stability and reduce the burden on market participants, a decision driven by increased market volatility during the COVID-19 pandemic and events like the GameStop saga in early 2021.

Background and Rationale

The GameStop incident in early 2021, where extreme price volatility and trading volumes highlighted risks in the settlement process, played a significant role in this decision. To mitigate these risks, the US Securities and Exchange Commission (SEC) decided to shorten the settlement cycle. This move is expected to bring several benefits, including reduced price volatility risk and lower margin requirements for brokers.

Anticipated Benefits

1. Reduced Price Volatility and Margin Requirements: Shortening the settlement period reduces the time frame during which securities and funds are exposed to price fluctuations, thereby decreasing the margin requirements for brokers.
2. Improved Liquidity and Efficiency: Investors will receive their securities and funds more quickly, allowing for more efficient use of capital.
3. Enhanced Stability: The implementation of automation in the settlement process is expected to improve the overall efficiency and reliability of the financial system.

Potential Risks and Challenges

While the benefits are clear, several challenges need addressing:

1. Increased Operational Burden: The reduced time frame will require significant adjustments in operational processes and systems, necessitating substantial investments in technology and infrastructure.
2. Settlement Failures: There is a heightened risk of settlement failures, particularly for international transactions where time zone differences may complicate timely settlements.
3. Higher Costs: With the increased need for timely settlements, the costs associated with ensuring compliance with the new deadlines may rise, potentially impacting smaller firms more significantly.

Global Implications

The US's move to T+1 has sparked discussions about settlement cycles worldwide. Countries like India have already adopted a T+1 cycle, while others, including the UK and EU, are considering similar changes. However, the shift is not without its challenges, particularly concerning the need for coordination across different markets and the costs involved in transitioning to shorter cycles.

Implications for the Korean Market

For Korean investors and market participants, the US's move to T+1 will have significant implications. Korean investors in US stocks will benefit from faster access to funds and securities, enabling quicker reinvestment and potentially higher returns. However, the operational challenges and risks associated with the shorter settlement cycle will also apply.

Conclusion and Recommendations

The transition to a T+1 settlement cycle in the US marks a significant step towards modernizing the financial markets and improving their resilience. For Korea, while there are potential benefits to adopting a similar approach, it is crucial to thoroughly assess the associated costs and operational challenges. A gradual and well-planned approach, possibly starting with partial implementation or pilot projects, could help mitigate risks and ensure a smoother transition.

In conclusion, while the benefits of a shorter settlement cycle are compelling, careful consideration and strategic planning are essential to address the operational and financial challenges it presents. By learning from the US and other markets that have already made this transition, Korea can effectively enhance its market efficiency and stability.