Transitioning to T+1 Settlement: Measuring the Operational Impact in the UK 

Investment Technology

Transitioning to T+1 Settlement: Measuring the Operational Impact in the UK 

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05/06/2024

As the US, Canada, and Mexico transitioned to T+1 on 28th May 2024, attention is being focused on the vast technological overhaul, 15 months in the making, taking place among financial institutions around the world because of this change to settlement cycles. 

T+1 also marks the start of a global race to shorten the time it takes for trades to clear, which will not stop at T+1. 

This was the focus of the discussion at TSAM London last month on the panel ‘T+1 settlement transition – What is the operational impact in the UK of optimising post-trade processing capabilities?’. 

Speakers from Capital Group, Pictet Asset Management and Connor, Clark & Lunn Financial Group addressed the vast operational changes happening in the UK, despite the shift notionally only impacting the Americas. 

Mapping the Operational Impact 

The likely day-one impact of these changes have rippled through firms worldwide that deal with the US, Canadian or Mexican markets, meaning many European firms needed to meet this new time frame. 

Crucially, the time now available for each stage of the settlement process, trade allocation, trade affirmation, FX conversion, etc., is estimated to have been reduced by up to 80%. 

FTSE Russell predicted that trade allocation—which would have previously taken up to 14.5 hours to settle under T+2 (from US market close on trade date)—will now have to be completed in just 3 hours under the new regime. 

Those firms operating across multiple settlement time scales will also face additional complexities. Employees and processes must deliver T+1 and T+2 in a mixed environment, and seamless real-time data access is critical to achieving both. 

Speakers on the panel raised the clear need for industry collaboration during the shift to T+1, with streamlined counterparty relationships key to achieving ever-shorter settlement cycles. 

What’s Next? 

There was also consensus among speakers that the shortening of settlement cycles will only continue.  

The European Securities and Markets Authority is expected to deliver its report on the costs and benefits of introducing T+1 in Europe by January 2025. In March 2024, the UK Government’s Accelerated Settlement Task Force recommended that the UK commit to moving to a T+1 settlement cycle by no later than 31st December 2027

Globally T+0, or T0, is already being adopted or planned by countries looking to leapfrog T+1 and move straight to same-day settlement. 

India completed shortening its settlement cycle to T+1 in January 2023 and began introducing T+0 for a select few cash segment stocks in March 2024. 

China has also moved to T+0 for the stock settlement of A Shares but continues to operate at T+1 for cash settlement. 

However, the speakers were sceptical of the number of firms worldwide that would be able to move directly from the existing standard of T+2 to T+0. 

What Does This Mean for Technology? 

Ultimately T+1, and any future transition to T+0, is as much a technological shift as a regulatory change. 

The panel called for firms to review and reassess their technology, whether by pushing to maximise existing internal systems or looking for external innovation. A shift to cloud-based technology for better cost control and transparency across an organisation is critical to ensuring that tech stacks have the scalability and efficiency needed to fuel growth. 

With increasing layers of global regulatory complexity, including this new two-step settlement landscape, firms will only be able to keep up with the right technology. 

Meet FINBOURNE Technology 

At FINBOURNE, we combine extensive technical expertise in financial services data management with a best-in-class, open, cloud-based investment management and servicing product ecosystem.  

Interested in the technology required for T+1? Speak to one of our experts today by clicking here

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FINBOURNE

05/06/2024

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