Understanding T+1 settlement

Markets are shortening the settlement cycle from settling two days after the execution date, to just one day after execution as a T+1 settlement cycle.  This is born out of the need for faster, more efficient settlements and is expected to be the global norm soon.

Moving from T+2 to T+1 does not merely mean you have 50% less time to carry out post-trade processing. In fact, Swift Institute research found banks and brokers face roughly 80% less time to manage cross-border settlements under T+1 due to added complexity of time-zone and FX challenges.

This is something you need to pay close attention to, as more markets move to T+1 settlement.

In May 2024, the US, Canada, Mexico and Argentina each went live with T+1 settlement. 

Just as the EU’s transition to T+2 a decade ago triggered a wave of other markets to follow suit, the same thing is happening today with T+1 settlement. 

In the Americas, Chile, Colombia and Peru have now confirmed they will transition to T+1 settlement in Q2 2025. The EU and UK are currently assessing T+1 settlement, although both markets are expected to introduce shorter settlement cycles in the next 2- 3 years. 

India, which phased in T+1 in early 2023, introduced a voluntary T+0 settlement cycle in March 2024, with instant settlement potentially following in 2025.  

Although T+1 settlement helps reduce counterparty risk, it does present challenges, especially for those still using legacy technology.

If you’re trading T+1 securities out of a different time-zone, this could lead to complications with FX management, for example.

Securities lending could come under pressure too, as firms have less time to recall on-loan securities, leading to more fails, a problem also made worse if you’re based in a different time-zone. 

Other activities – including allocations and confirmations – together with asset servicing (e.g. corporate actions) could be impacted by T+1 settlement. Exchange traded fund processing could face disruption too, especially if their underlying portfolios contain a blend of T+1 and T+2 securities.

Settlements involving American Depository Receipts and dual listed securities are also affected.

If you, or your counterparty rely on manual processes, then the move to T+1 settlement poses potential difficulties and risks.  With less time to complete post-trade operations under T+1, back and middle offices can no longer rely on email or fax to get things done.

T+1 settlement in North America has the biggest impact on Asia-Pacific (APAC) firms due to the time zone differences between the two regions.

For instance, if you’re trading US equities out of Singapore or Sydney, then you need to execute your FX transactions on T or T+1,  which may require some sort of pre-funding arrangement to be in place.

Around 50% of equity instructions by APAC customers are to settle equities listed in North America. And according to data on the Swift network from 2023, approximately 90% of Swift messages sent by APAC customers to settle equities listed in North America are initiated after trade date.

Late settlements in APAC could potentially increase significantly under a T+1 settlement model if the industry does not act.

Although the time-zone difference between Europe and North America is less acute, similar problems could emerge.

Automation is key if you’re to navigate the move to T+1 settlement and ensure the timely and accurate provision of data between counterparties.

This is why more firms are adopting the Unique Transaction Identifier (UTI). 

The UTI is an ISO message standard and is used by services like Swift Securities View enabling firms to track transactions end to end throughout their lifecycle.

And with end-to-end tracking, firms can proactively detect and manage settlement discrepancies so that problems can be resolved before they occur , thereby avoiding costly settlement fails.

Although existing technologies can support processes in a T+1 context, this will only work if there’s automation throughout the chain.