Settlement & Custody: Mastering T+1 with Process Efficiency

Proactive Action by Banks Is Crucial

Although TARGET2-Securities (T2S) has removed many cross-border settlement barriers - at least on paper - there are still numerous opportunities for optimization in practice. Some of these challenges are already being addressed by market infrastructure providers, for example through T2S Eligibility, OneClearstream, and KADI Corporate Action Harmonisation.

However, other issues - such as the optimization of internal and external custodians - require proactive action from the banks themselves. The focus here is particularly on automating manual processes and modernizing outdated systems to remain competitive in the evolving market landscape. This becomes even more urgent in light of recent developments like the introduction of T+1.

Starting Signal for T+1 Settlement: What Changes for Market Participants?

In May 2024, North America shortened its settlement cycle from T+2 to T+1. For internationally active financial service providers, this immediately introduced new requirements. Soon, the same will apply across Europe: According to a proposal by the European Commission, the switch is planned for October 11, 2027. The UK and Switzerland are also expected to align with this timeline.

This is an ambitious target, as Europe’s markets are more complex than those in the U.S., and the T+1 settlement will pose additional challenges. The European Central Bank (ECB) expects a temporary increase in settlement fails and cash penalties under CSDR following the transition.

When transitioning from T+2 to T+1, the available time for post-trade processes is not simply reduced by 50% as one might assume - in practice, it is reduced by approximately 83%. With typical trading windows closing around 4:00 PM and settlement deadlines at 6:00 PM, operations teams are left with just 2 working hours - instead of the previous 12 - to prepare settlement instructions in time for Night-Time Settlement (NTS).

This is just one of the many upcoming challenges in Settlement & Custody - and one that can hardly be tackled without extensive process optimization and automation.
Our experienced experts support you at all key interfaces to ensure your operations are fully prepared for the introduction of T+1.