Transitioning from T+2 to T+1 Settlement Cycle in UK and EU Markets

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Andrew Dobbs

Solution Architect, TCS BaNCS

Industry

Capital Markets

Solution

TCS BaNCS™

Highlights

Following successful T+1 implementation in the US, Canada, and Mexico, the UK and EU markets are transitioning from T+2 to T+1 settlement cycles, with the UK aiming to complete the migration by 2027.
Industry collaboration, automation, and addressing operational challenges will be the key to a smooth transition, as manual processes have led to increased out-of-hours resourcing and staff costs.
Market participants must adapt to the new standards for trade date processes, revised timings for transaction input/trade matching, and other changes driven by regulatory bodies.

Following the implementation of a T+1 settlement cycle in the U.S., Canada, and Mexico, the UK and EU markets now find themselves firmly in the spotlight as industry participants assess the transition from T+2 to a T+1 settlement cycle for their respective jurisdictions.

The consensus from the Americas T+1 transition has been that the migration has been successful, mainly due to firms mobilising rapidly to ensure collaboration via working groups, which has facilitated the implementation of new market guidelines. This has resulted in minimal settlement disruption, resulting in trade failures remaining low across the new trade cycle.

On the downside, there has been an increase in both out-of-hour human resourcing and staff costs, particularly for the buy side, as firms relied on manual processes as opposed to seeking technology solutions and automation to address the operational challenges posed by T+1.

Within the UK, the Accelerated Settlement Taskforce has stated that the UK should commit to moving to a T+1 settlement cycle no later than 2027. Whilst this timeline is ambitious, the industry, if it mobilises quickly, should have sufficient time to assess the changes and prioritise what processes will require automation.

Similarly, Within the EU, the European Securities Markets Authority (ESMA) has issued a ‘Call for Evidence’ to market participants on how and when to transition to T+1.

For the buy side/sell side, depositories, and custodians, the migration effort for T+1 will be driven by several factors. These include new market standards for trade date processes, the requirement for revised timings at CSDs (Central Securities Depository) for transaction input/trade matching, and the adaption of common practices across jurisdictions.

Once new market standards are established, firms will need to assess the compatibility of their legacy platforms with T+1 requirements. Will tactical changes be required? Can a phased transition be supported where legacy systems are incrementally upgraded, or should complete strategic changes be implemented?

A common theme to a successful transition for the UK and EU jurisdictions will include a concerted effort by market participants to upgrade their operational infrastructures.

An industry-wide focus will also be required to address straight-through processing (STP) exceptions and eliminate manual processes.

Reengineering settlement platforms will be imperative to move from overnight batch processing to intra-day processing to support the matching and settlement of securities on a near-continuous basis.

It is also important to consider the cost implications related to system upgrades and process changes which may disproportionately impact smaller firms facing financial restrictions and resource challenges in meeting T+1 requirements.

Collaboration across jurisdictions will be critical to address misalignment issues across CSDs should the UK and EU follow separate paths to T+1.

As with the US Market, middle office processes, such as affirmations, allocations, confirmations, and matching, will need to be mandated on the trade date to ensure settlement instructions can be generated swiftly and efficiently. Investing in these key functions to improve automation levels will be the key to addressing these bottlenecks. Resolving trade exceptions and mismatches in a reduced window will require improved static data management. This can be achieved by maintaining static data / SSIs (Standard Settlement Instructions) via real-time updates, for example, via APIs, to ensure accuracy and improve client onboarding.

Firms may also want to consider adapting SWIFT’s Unique Transaction Identifier (UTI) to detect, manage, and track settlement discrepancies so that problems are remediated and resolved on the trade date and settlement fails are avoided.

Real-time views on exceptions will reduce settlement fails and improve operational post-trade/pre-settlement errors. Investment in automation to provide dashboards with risk-based views of work items based on proximity to business cut-offs will increase STP levels.

The compression of cash management processes and improved cash forecasting will ensure liquidity is maintained for T+1 settlements.

For FX execution, processing windows and cut-off times will need to be adjusted accordingly for the settlement of cross-border transactions.

For lenders and borrowers, T+1 introduces new challenges. For example, the collateral is held across numerous CSDs and is further compounded where cross-border securities financing transactions are not harmonised and are non-STP. New guidelines, such as the automation of recalls or automated processing between intermediaries, will be required.

Market Participants will need to ask themselves if their post-trade platforms are fit for purpose.

This will require an analysis of outdated legacy platforms and whether tactical enhancements will address such shortcomings, or the implementation of highly configurable rules- and event-driven systems is a more viable option.

Finally, firms must also consider using artificial intelligence in their post-trade operations. AI, such as machine learning, pattern recognition, and Generative AI, can be an exceptionally powerful tool for identifying and eliminating post-trade exceptions and increase STP levels.

As with the Americas transition, addressing these numerous challenges will require collaborative effort across all post-trade activities to ensure market readiness with minimal disruption. There cannot be an overreliance on plugging gaps with increased headcount and manual processes, which would result in both higher costs and excessive levels of non-STP.

The solution must be end-to-end automated processing, either by internal development, the reengineering of operational platforms, and/or outsourcing to external parties.

About the author

Andrew Dobbs

Andrew Dobbs is the Product Manager for post-trade securities at TCS, supporting trade management, clearing, and settlement. Andrew focuses specifically on middle to back-office operations and end-client servicing across securities, derivatives, and securities financing, working closely with clients to develop the product roadmap for the TCS BaNCS Securities processing platform across the EMEA region. His key responsibilities include product evolution, research, regulatory change, business process mapping, solutioning, and collaborating with clients directly or via working groups and user forums.

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Transitioning from T+2 to T+1 settlement in the UK and EU

Industry

Solution

Highlights

About the author

Andrew Dobbs

Transformation is within reach

Find out more

TCS is here to make a difference through technology.

We’re in it for good, driving positive change for the benefit of all.

Extraordinary expertise leads to remarkable results.

Want to be a global change-maker? Join our team.

Find the latest news about TCS in our Newsroom

Recent Press releases

Recent News

Recent recognitions

Upcoming events

TCS works hand in hand with world-leading investors.

Industry

Solution

Highlights

About the author

Andrew Dobbs

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Transformation is within reach

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