Actualités

Settlement T+1

I. Introduction

First of all, we need to establish a clear definition of settlement:

Settlement is the final stage of a financial transaction.

It aims to finalize a negotiated transaction by implementing the simultaneous exchange of securities and cash between the counterparties, via the settlement systems and service providers dedicated to this circuit.
This operation results in the transfer of ownership being recorded in the accounts held by the buyer’s and seller’s respective custodians, in accordance with the rules and deadlines in force on the market.

If there is no exchange of securities, cash flows are processed via a payment system (such as TARGET2), outside the framework of settlement-delivery.

In Europe today, settlement takes place according to the T+2 cycle, which means that it takes two working days for the securities/money transfer to be completed.

To better understand how settlement works, it is necessary toillustrate the role of the various players in concrete terms, using the diagram below, which shows, step by step, the journey of a transaction between two counterparties through to its final settlement.

Here are the respective roles of the players mentioned in the previous diagram:

Key Stakeholders	Primary Role	Key Actions & Responsibilities
1. Asset Manager (asset manager, insurer, etc.)	Makes investment decisions on behalf of the investor.	Defines the investment strategy, conducts market analysis, and issues buy or sell instructions.
2. Broker	Executes transactions on financial markets.	Executes orders received from clients. Acts as a trading intermediary. May be bypassed when counterparties trade directly on an over-the-counter (OTC) basis.
3. Stock Exchange / Regulated Market / Trading Platform	Provides the infrastructure for matching supply and demand.	Ensures price transparency and market liquidity. Executes transactions by matching buy and sell orders.
4. Custodian Bank	Safekeeps securities and cash on behalf of investors or funds.	Maintains securities accounts.
5. Buyer Agent / Seller Agent	Act on behalf of the custodian to carry out settlement instructions.	Their involvement may be required when the custodian does not have direct access to the relevant securities market. They transmit delivery (Seller) or payment (Buyer) instructions to the Central Securities Depository (CSD).
6. Central Securities Depository (CSD)	Maintains securities records and manages ownership transfers.	Ensures the dematerialisation of securities. Performs delivery of securities against payment of cash (Delivery versus Payment).

Front Office - Negotiation :

The seller transmits his sell order to the broker.
The orders are then executed on the Market, resulting in the conclusion of the transaction (Trade executed) between :
- The broker on behalf of the seller (not having access to the market)
- Buyers with direct access to the market
This is a fictitious case, presented for illustrative purposes, in order to highlight the possible intervention of a broker in the execution process.
A transaction confirmation is then sent, notifying both counterparties of the successful execution of the trade.

Middle Office - Pre-Matching :

Both counterparties send the transaction details to the CTM system (Central Trade Manager).
The CTM compares the information and matches the instructions to ensure that the data matches (quantity, price, ISIN, settlement date, SSIS, etc.).

Middle Office - Settlement :

Custodians receive settlement instructions from both parties, often communicated via Swift.
The Seller, via its Seller Agent, sends a delivery instruction for the securities to the Central Custodian (CSD) via a SWIFT message.
The Buyer, via its Buyer Agent, sends a payment instruction to the CSD via a SWIFT message.
However, the use of an agent is not systematic: the Seller can transmit his instruction directly when he has direct access to the market and the PSETs are identical. On the other hand, if he has indirect access or different PSETs → a local agent must be used.
The CSD (Central Depository ) then settles (Delivery versus Payment - DvP):
→ the securities are transferred to the buyer and the cash paid to the seller, simultaneously.

II. The transition from T+2 to T+1

Having defined the principles of settlement, it is appropriate to examine the transition from the T+2 cycle to the T+1 cycle:

The CSDR (Central Securities Depositories Regulation), adopted in 2014, aims to enhance the safety, discipline and efficiency of settlement in the European Union, without however setting a precise duration for the settlement cycle.
The project to transition to T+1 is therefore being driven by the European Commission and ESMA, in line with the principles established by the CSDR, in order toharmonize European markets with international standards and reduce counterparty risks and settlement failures.

Among the new rules imposed by these regulations :

The introduction of financial penalties for late or failed settlement, to encourage players to meet deadlines;
Obligatory buy-in by the defaulting counterparty when delivery has not been made within a certain period;
Reinforced reporting and transparency requirements for central depositories and supervisory authorities;

While these regulatory requirements are essential for strengthening market security, they also make the transition to T+1 more complex to implement, because of the greater rigor they impose on players in terms of deadlines and settlement quality.

This map illustrates the current state of settlement cycles around the world, showing countries that have remained on T+2, those that have already adopted T+1, and markets that are experimenting with T+0.

So the current state of the world’s settlement cycles:

🟧 T+0: expanded in India, with same-day settlement.

🟩 T+1: adopted by the United States, Canada, Mexico, Argentina, India, Singapore and Hong Kong, which have accelerated their cycle to one business day.

🟦 T+2: still in force in most countries, particularly in Europe, Africa, South America and the Middle East, pending transition to T+1 (planned in Europe for 2027).

⬛ No data available

We can see thatT+2 is still in the majority, T+1 is progressing rapidly, and T+0 prefigures the future of instant settlement.

From a chronological point of view, the transition to T+1 has not taken place simultaneously across the different market zones, but follows a progressive dynamic depending on the region. The timeline below traces the main stages of this transition, from India in 2023 to the coordinated switchover of Europe, the UK and Switzerland in 2027.

T+1 Timeline

2023

In January 2023, India became the first major market to fully implement T+1 settlement, following a phased transition that began in 2022.

2024

On May 28, 2024, the United States, followed by Canada and Mexico, officially transitioned to T+1 settlement, shortening the settlement cycle by one day to enhance market efficiency and resilience.

2025

India: extension of T+0 (same-day settlement) testing, aimed at exploring an even faster settlement model than T+1 and assessing its operational and technological feasibility.

2025

Europe, UK, Switzerland: publication of roadmaps outlining the transition to T+1, detailing key milestones as well as the required regulatory and technological adjustments.

2027

Europe, UK, Switzerland: coordinated implementation of T+1 settlement, scheduled for October, with the objective of aligning the region with international standards already adopted by India and the Americas.

To understand the rationale behind this change, it is worth presenting the main economic and operational arguments for moving from T+2 to T+1, which can be summarized in three main reasons:

T+1 Benefits

Enhancing operational efficiency (STP)

This transition promotes greater automation and standardisation of post-trade processes (same-day affirmation and matching), thereby reducing errors and manual reprocessing.

Faster access to cash and securities for investors

Investors benefit from quicker access to cash or securities following a transaction, enhancing market fluidity and responsiveness.

Market competitiveness and integration

In Europe, the move to T+1 is also viewed as a key driver of competitiveness. It aims to align market practices with other major financial centres, thereby strengthening the integration and attractiveness of capital markets.

III. Challenges and limits

However, this evolution also brings with it a number of constraints that need to be anticipated. So, over and above the expected benefits, the move to T+1 presents a number of challenges and limits, in operational, technological and regulatory terms:

T+1 Challenges

Operational
challenges

Shortened timelines: confirmations, matching and settlement must be completed faster, increasing operational pressure.
Time zones: adjustment of cut-off times to prevent delays.
Internal organisation: bringing deadlines forward, strengthening real-time monitoring, and minimising manual corrections.

Technological
challenges

Automation (STP): reducing manual input and accelerating information flows.
IT systems: processing larger volumes of data more rapidly, with reliability and resilience.
Real-time monitoring: immediate identification of exceptions.
Interoperability: ensuring system compatibility across brokers, custodians, CCPs and CSDs.

CSDR
(late settlement
penalties) and T+1

CSDR: mandatory cash penalties and mandatory buy-ins in the event of settlement failure.
T+1: reduced time to resolve issues, meaning that any delay becomes more costly.
CSDR enforces discipline, while T+1 accelerates the settlement cycle — together, they enhance market safety but require greater operational rigour.

IV. Conclusion

The move from T+2 to T+1 serves a dual purpose: to reduce risk and improve market efficiency. However, it requires major adjustments on the part of the various players, and raises operational and technological challenges that are reinforced by the CSDR framework.

The internal players have already anticipated this work to reduce settlement times by :

automation actions ;
simplification of matching processes by centralizing SWIFT transactions with CSDs, notably through platforms such as CTM.

Another aspect to consider is the delay in transmitting orders (posting trades) from traders to the middle and back office teams who manage settlement, with deadlines now in T+1 or even T+0, not to mention the referential issues that can impact the chain.

Here, it’s more a question of operational management in the transactional chain, at front-office level, than a simple move towards new T+1 regulations.

Command Strategy Advisory is accustomed to supporting its customers in this type of mission, helping them to adapt their processes and systems to comply with T+1 settlement requirements.

This transition marks a key step towards safer, faster markets, but the question remains: are we in Europe ready to go further with T+0?