Interim Report of the Study Group on T+1 Transition
Regarding the settlement period for stock transactions, Japan migrated from T+3 to T+2 in July 2019, and currently settlement takes place two business days (T+2) after the transaction date (T day) when stock trading occurs.
Regarding this stock settlement period, major countries and regions are implementing or considering T+1 migration. For example, North America migrated to T+1 starting in May 2024, and Europe has published a schedule for T+1 migration in 2027.
It has been pointed out that shortening the settlement period for stock transactions has merits such as reducing settlement risk, improving capital efficiency and reducing collateral burden, and further streamlining and improving efficiency of settlement operations.
On the other hand, T+1 migration has been criticized for issues arising from tightened post-trade processing. For example, challenges include addressing increased fail risk where securities are not delivered by the securities settlement deadline, and increased operational risk such as clerical errors due to increased administrative burden per hour. Additionally, when the settlement period is T+1, non-residents in countries and regions located east of Japan may have to conduct trade confirmation and settlement processing for Japanese stock transactions at night due to time differences, which raises concerns that this could lead to avoidance of Japanese stock trading.
While such challenges are anticipated, as international implementation and consideration of T+1 stock settlement periods progress, it is necessary for market participants to begin practical examination of methods and issues for advancing T+1 migration so that Japan's securities settlement system is not left behind international standards.
Financial Administration Policy for FY2024 (August 30, 2024)
"Regarding T+1 migration of stock settlement periods, practical examination will be advanced in cooperation with market participants while monitoring overseas market trends."
T+1 Migration Study Group (Non-public)
Structure:
- Secretariat: Financial Services Agency, Japan Securities Dealers Association, Japan Securities Clearing Corporation, Tokyo Stock Exchange
- Members: Securities companies, Japan Securities Depository Center, Japan Securities Finance, Trust Association, Investment Trust Association, Custody banks, etc.
- Observers: Ministry of Justice
Main Agenda Items: Overseas trends and opinions of foreign investors and foreign financial institutions, fail-related matters, infrastructure-related matters, securities lending-related matters, etc.
Overseas T+1 Migration Trends
Major countries and regions are implementing or considering T+1 migration.
Americas
[USA]
- May 28, 2024: T+1 migration completed
- DTCC (U.S. clearing and settlement institution) published a roadmap for T+1 migration in the first half of 2024 in December 2021. The SEC decided on T+1 migration on May 28, 2024 in February 2023, and migration has been completed.
[Canada, Mexico, Argentina, etc.]
- May 27, 2024: T+1 migration completed
- Migrated to T+1 in step with U.S. markets.
Europe (EU, UK, Switzerland)
[EU]
- European Commission published regulatory amendment proposal setting October 11, 2027 as T+1 migration date
- ESMA published T+1 evaluation report in November 2024. Based on this, the European Commission published a regulatory amendment proposal in February 2025 setting October 11, 2027 as the migration date.
[UK]
- Recommends T+1 migration on October 11, 2027
- Private task force published T+1 migration and implementation plan for October 11, 2027 in February 2025.
[Switzerland]
- Proposes T+1 migration in October 2027
- Industry groups propose T+1 migration in October 2027, same as EU and UK.
Australia and Asia
[Australia]
- Under consideration
- Australian Securities Exchange (ASX) published results of public consultation on appropriate timing for T+1 migration in August 2024 (recommends migration after 2030).
[Hong Kong]
- Under consideration
- Hong Kong Stock Exchange is conducting dialogue with market participants regarding T+1 migration and was scheduled to publish public consultation draft in the first half of 2025. (As of end of June 2025, not yet published)
[New Zealand]
- Under consideration
- ASX is cooperating with New Zealand Stock Exchange (NZX) based on public consultation results showing benefits of simultaneous Australia-New Zealand T+1 migration.
[Singapore]
- Under consideration
- Started examining possibility of future T+1 migration from 2024.
(Note) China has T+0 only for domestic transactions in RMB (T+3 for foreign currency). India has been migrating to T+1 in stages since 2022, with all issues T+1 since January 2023.
Current Status of Stock Settlement in Japan and Issues Associated with Shortening
It has been pointed out that shortening stock settlement periods (T+1 migration) has merits such as reducing settlement risk and credit risk and improving capital efficiency. On the other hand, while the GameStop stock issue in the US is said to have been a major driving force for T+1 migration, it was pointed out that similar events would not occur in Japan, which has different market structures such as strict application of price limits for individual spot stocks, and therefore the merits of T+1 migration might be limited. Additionally, it was pointed out that although about one year has passed since US T+1 migration, no operational inconveniences have arisen domestically due to differences in settlement periods with the US, and currently there are no situations where trading is being avoided by foreign countries (particularly the US) due to Japan's settlement period remaining at T+2.
Furthermore, T+1 migration would require construction of new systems from the perspective of preventing increased fails and operational risk due to tightened post-trade processing. Moreover, amid strong calls for structural problems such as labor shortages and work style reform, there is a possibility of individual companies having to handle nighttime operations. In the study group, voices saying "It remains questionable whether merits commensurate with costs can be obtained, and judgment cannot be made at this time" occupied the majority.
In the study group, there were many indications about the need to monitor conditions in foreign countries. Particular concerns were raised about whether tightened post-trade processing in the US due to time differences when Japan migrates to T+1 might lead US investors to avoid Japanese stock trading, the need to monitor trends in foreign countries in the same time zone as Japan such as Hong Kong, Singapore, and Australia from this perspective, and the need to understand progress toward T+1 migration in Europe.
(Reference) When migrating to T+2, it took about 5 years from start of examination to migration, with migration in July 2019. Note that Europe migrated in October 2014, and the US in September 2017.
Summary of Study Group Discussions
- It is necessary to continue examination while monitoring trends in foreign T+1 migration, particularly trends in foreign countries in the same time zone as Japan such as Hong Kong, Singapore, and Australia, and continuing to follow the situation from the perspective of the extent of merits of T+1 migration and demerits of not migrating to T+1, and whether market participants can bear the associated costs (expense burden, nighttime operations, etc.).
- Going forward, regular follow-up meetings of the study group will be held to bring together trends in foreign countries and additional knowledge of study group participants.
(When actually deciding on T+1 migration, market participants will be required to conduct more specific examination and discussion, referring to the decision-making process used for T+2 migration.)
Norbert Gehrke
