Korea Securities Depository (KSD) is revamping its stock settlement system as surging trading volumes have significantly increased the financial burden on member firms during the settlement process. The move is seen as an effort to ease infrastructure-level strain by subdividing transaction units and advancing settlement times.
According to the financial investment industry on Thursday, KSD is conducting integrated testing with member firms to reduce settlement data batch units from 5 billion won to 1 billion won. The measure aims to lower the burden of settlement facilitation deposits incurred during on-exchange institutional stock settlements. System development began last month, with implementation scheduled for late April after testing is completed.
Trading-related financial burdens have expanded substantially as stock market activity has surged recently. Average daily trading value in the on-exchange market jumped 138.7% from 12.4 trillion won at the end of last year to 29.6 trillion won during January-March this year. Institutional stock settlement amounts, which represent brokerage settlement between securities firms and institutional investors, also surged 157.1% from 1.4 trillion won to 3.6 trillion won. Consequently, the average daily settlement facilitation deposit per member firm increased approximately 131% from 36.7 billion won to 84.8 billion won.
Settlement facilitation deposits are cash collateral that securities firms or institutions pay to KSD to receive securities promptly in institutional stock settlements. These deposits arise from a structure where securities are delivered first and funds are settled after operating hours. Since these funds are ultimately used for settlement payments, they cannot be artificially reduced and naturally increase alongside trading volume and value.
KSD has focused on reducing member firms' funding burdens by subdividing settlement units. Previously, individual trade data was bundled into 5 billion won batches to generate settlement data, but the plan is to split these into 1 billion won units, reducing the initial collateral required to process the same transactions. "Being able to process trades in smaller units will improve institutional efficiency in receiving and delivering securities," a securities industry official said. "We welcome this as it can also reduce settlement delay cases."
KSD previously introduced a split settlement system with 10 billion won units in 2021 to address chronic settlement delay issues. In 2024, it applied the same improvement approach by reducing the split unit from 10 billion won to 5 billion won, which reportedly achieved settlement facilitation deposit reductions of approximately 15-20%.
Measures to accelerate securities settlement and reduce settlement facilitation deposits are also being implemented in parallel. Since late February this year, KSD has expanded settlement batch operating hours from 9 a.m.-4:10 p.m. to 7 a.m.-4:10 p.m. The intent is to advance settlement processing by approximately two hours, allowing member firms to recover their collateral funds more quickly.
"With trading volumes surging since early this year, we preemptively initiated system reforms to prepare for potential settlement failures," a KSD official said. "We are also building a monitoring system that allows member firms to identify required fund amounts in advance before the settlement date (T+2)."