Settlement Cycles: Preparing for the Transition to T+1 and Beyond

Compressing Time: Aligning Operations for the T+1 Deadline

The financial services industry has witnessed a significant evolution in settlement cycles over the past few decades. From the lengthy T+5 cycles in the 1980s to the current discussions around T+1 and even to T+0. This article delves into the context of the T+1 change, some of the anticipated impacts and actions needed to be undertaken by financial institutions in the UK and in Europe.

Settlement Cycle Evolution – A Shift Towards Speed and Efficiency

Settlement cycles have steadily shortened from T+5 in the 1980s (manual paper processing) to T+2 around a decade ago, thanks to digitalisation and market efficiency demands. The industry is now exploring T+1 and T+0, leveraging technologies like blockchain, smart contracts and real-time data processing. Markets such as India have already implemented T+1 ahead of many global markets. The U.S., Canada and Mexico adopted T+1 processing in May 2024. The move aimed to boost capital efficiency and reduce risk – a significant step towards modernising financial infrastructure.

A key enabler has been dematerialisation – the shift from physical to electronic securities – reducing fraud and enabling faster, secure settlements. The UK's adoption of CREST in the 1990s was a turning point in this transition.

Both the UK and EU plan to shift to T+1 settlement by October 11, 2027, aligning with Switzerland. The goal: reduce risk, boost efficiency, and support cross-border market activity. The timeline allows for system upgrades, industry coordination and smooth implementation.

Key impacts - Operational and Others

Better Liquidity and Market Resilience [1] : A faster settlement cycle means that investors’ funds/stocks are released a day earlier, so they have better liquidity/stock availability besides reduced exposure to market risk. Better liquidity helps feed market activity. Markets would be better prepared to handle exuberance situations.

Cross-Border Processing: As more markets move towards T+1, it would mean greater  settlement harmonisation across global markets [2].

Cost Impact: The immediate effect would be increased (implementation) costs, however the expectation is that these costs would even out in the long term [3]. 

Repo Processing: Shorter cycles would have a positive effect on repo and stock lending processing. In the short term, these would create operational challenges, but would lead to efficiencies in the medium and long term. Market volatility exposure would be cut down by a day. Smart contract processing (thanks to market products such as Broadridge’s DLR - Distributed Ledger Repo) have already brought about efficiencies in repo processing in US treasuries.

Reduced Fx Risk: Shorter settlement cycles reduce Fx risk as the time when the trade is booked verus when it is settled is brought down by 24 hours.

Better Risk Management: T+1 adoption in the market would lower counterparty risk due to reduced exposure period. Risk of default or credit issues are also reduced. The adoption of T+1 requires firms to adopt streamlined processes reducing the likelihood of settlement failures, which can incur penalties and operational costs.

Market Insight: Focus on Volumes

Equity volumes in the US market have grown to record levels in the past year indicating that the T+1 settlement regime hasn’t applied any brakes since its introduction. It seems to have accelerated the market activity in line with the volatile socio-political and geo-political situation.

(Source: https://www.sifma.org/wp-content/uploads/2025/04/SIFMA-Insights-Market-Musings_Volumes.pdf)

Market Insight: Focus on Settlement Fails

Fail Rates Overview [4]

Following the U.S. market's transition to T+1, settlement fail rates have remained stable, dispelling initial concerns about operational disruption. On day one, Continuous Net Settlement (CNS) fail rates dropped to 1.9% and have held around 2%, consistent with previous T+2 levels. Similarly, DTCC's non-CNS fail rate averaged 3.31% in July 2024, aligning closely with historical norms. These figures suggest that accelerated settlement has not adversely affected trade completion and indicate the robustness of market infrastructure under tighter timelines.

Increased Market Activity [5]

Contrary to fears of market slowdown, the introduction of T+1 has coincided with increased trading activity. By July 2024, key affirmation rates had markedly improved: Prime Broker affirmation surged to 98% (from 81% in January), Investment Manager auto-affirmation reached 96%, and self-affirmation by custodians or managers climbed to 88%, up from 51%. These gains reflect growing automation and efficiency in trade processing—critical elements in meeting T+1’s tighter cut-offs without sacrificing market throughput.

Smart Contracts: Is this the way forward?

The integration of smart contracts in post-trade processes, particularly within repo markets, signals a fundamental shift in financial infrastructure. Leveraging Distributed Ledger Technology (DLT), platforms such as Broadridge’s Distributed Ledger Repo (DLR), Paxos, and Digital Asset’s DAML are enabling real-time, code-based automation of collateralisation, trade matching, and settlement. These innovations remove manual dependencies, reduce reconciliation friction, and shrink operational risk—goals aligned with the efficiency mandates of a T+1 environment. As settlement cycles shorten, the precision and speed offered by smart contracts become even more crucial. By embedding legal and operational terms directly into code, smart contracts support deterministic outcomes, reduce fail rates, and enhance transparency, making them not just compatible with T+1, but foundational to its long-term success.

Time to act is now: What do firms need to do in preparation of T+1?

To successfully transition to T+1 by 11 October 2027, firms in the UK must undertake a comprehensive transformation programme spanning operational, technological, and procedural enhancements, as outlined in the Accelerated Settlement Taskforce (AST) implementation plan.

Key deliverables include the automation of trade allocation, confirmation, and settlement instruction workflows to ensure completion by trade date (T+0), using industry-recognised standards. Firms must also review and align internal systems and policies to meet strict cut-off times—such as the submission of settlement instructions to central securities depositories (CSDs) no later than 05:59 UK time on T+1.

Asset servicing processes must be reconfigured to comply with the shortened cycle, requiring earlier communication and execution of corporate actions. The adoption of the Financial Markets Standards Board’s best practices on Standing Settlement Instructions (SSIs) is critical, alongside stronger static data governance and improved reconciliation practices.

Market infrastructures, particularly CREST, must be modernised to support accelerated settlement timelines. In the securities financing space, firms will need to automate stock loan recalls and comply with newly established recall cut-off guidelines. These industry-wide changes are supported by the UK T+1 Code of Conduct (UK-TCC), which defines implementation timelines and behavioural expectations.

Firms should act now to define transition roadmaps (with steps implemented well ahead of the official start of T+1), secure executive sponsorship, and engage early with clients, service providers [6] , and technology partners to ensure coordinated, end-to-end readiness and testing to minimise disruption.

How we can help you

Our expertise

Our team includes professionals with transformation and operational expertise, including:

• Program managing the transition to T+1 for major US banking institutions.

• Senior Management responsibilities in managing Operation and Client Service functions.

• SMF responsibilities for UK regulated entities.

Our services

We will assist you throughout the transition journey, from initial assessment to full implementation. Our solutions are tailored to meet your business requirements, ensuring that the target operating model aligns with your strategic goals and market requirements. 

[1] The recent transition to T+1 settlement in the U.S. has demonstrated notable enhancements in market liquidity and resilience. Specifically, the Depository Trust & Clearing Corporation (DTCC) reported a 23% reduction in margin requirements, equating to $3 billion less posted daily, thereby freeing up approximately $750 billion annually for broker-dealers to deploy elsewhere. Additionally, trade affirmation rates improved from 73% to 95% on trade date, and settlement fail rates remained steady at 2%, indicating maintained market stability despite the accelerated cycle (Source: Reuters 2024).

[2] The upcoming T+1 adoption in Europe and the UK will reduce current frictions in cross-border settlement, especially with the U.S., by eliminating the mismatch between T+2 and T+1 cycles. During the U.S. transition, 46% of firms reported funding gaps and operational strain due to time zone and FX constraints (Source: Citi). Aligning major markets to T+1 is expected to ease these pressures and enhance global settlement harmonisation (Source: FT, Citi 2024).

[3] ​The U.S. transition to a T+1 settlement cycle in May 2024 required substantial industry investment over a three-year period, encompassing system upgrades, process automation, and extensive coordination. Despite these upfront costs, the move yielded significant long-term financial benefits. Notably, the National Securities Clearing Corporation (NSCC) Clearing Fund saw a reduction of $3.1 billion (25%) in margin requirements, enhancing liquidity for market participants. Additionally, simulations by DTCC indicated a potential 41% decrease in the volatility component of margin requirements, translating to considerable capital efficiencies. These outcomes suggest that, while the initial investment is considerable, the long-term cost savings and risk mitigation benefits of T+1 settlement are substantial (Source: SIFMA, DTCC 2024).

[4] Source: https://www.sifma.org/wp-content/uploads/2024/09/T1-After-Action-Report-FINAL-SIFMA-ICI-DTCC.pdf

[5] Source: https://www.sifma.org/wp-content/uploads/2024/09/T1-After-Action-Report-FINAL-SIFMA-ICI-DTCC.pdf

[6]5 Major global custodians—including BNY Mellon, Citi, BNP Paribas, State Street, and SGSS—have already begun preparing for the move to a T+1 settlement cycle in the UK and EU by October 2027. At least eight of the top ten securities services providers have publicly outlined steps to adapt their operations. Common actions include system and infrastructure upgrades, adjustments to FX and liquidity processes, and accelerated client communication and education. Many are also actively participating in regulatory and industry task forces to shape and align implementation strategies. These efforts aim to ensure operational readiness and minimize settlement risk as the transition approaches.