What's Happening?
The UK, Switzerland, and the European Union have announced plans to transition to a T+1 settlement cycle by October 2027, following the lead of the U.S. and Canada, which moved to T+1 in May 2024. This change aims to shorten the time between trade execution and settlement, enhancing efficiency in financial markets. The transition is supported by industry task forces and working groups, emphasizing the need for increased automation and regulatory support. The move is expected to address post-trade friction and improve capital markets across the EU and EEA.
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Why It's Important?
The shift to a T+1 settlement cycle is significant for global financial markets, as it promises greater efficiency and reduced risk in trade settlements. This transition could lead to increased automation in financial processes, potentially lowering costs and improving accuracy. However, the fragmented post-trade landscape in Europe poses challenges, with different processing schedules and legal frameworks across jurisdictions. Successful implementation could enhance the competitiveness of European markets, benefiting investors and financial institutions by streamlining operations and reducing settlement failures.
What's Next?
The UK and EU have set a roadmap for the transition to T+1 by October 2027, with readiness testing scheduled for January 2027. Industry stakeholders are expected to begin strategy sessions and stakeholder meetings to prepare for the change. Firms will need to assess their current systems and processes to identify areas requiring improvement and automation. The transition will require coordinated efforts across jurisdictions, with potential industry-wide external testing to ensure a smooth implementation.
