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What are the lessons the UK and Europe can learn from the US move to T + 1? Speaking from the buy-side perspective, many of the fundamental principles that drove a successful transition to T + 1 in the US( plus Canada, Mexico, and Argentina) will be relevant to the planning for the UK, EU, and Switzerland migration in October 2027. The critical objective is, that once a trade is ready for the post-trade, economics are agreed, allocations provided to the broker, and the settlement messages sent to the custodian( and in some cases other interested third parties) in the shortest possible timeframe. There is no practical way to do this manually at scale, so if you had developed an easily maintainable source of SSIs, an automated allocation process, matching utility, and built the right systems and expertise, then you have the building blocks in place. Should you be in the position that none( or only some) of these are in place then the time to start down this road is now.
Nevertheless, what happens after the allocation process illustrates why it is important to understand the nuances of each market. In the US( and only in the US) there is a downstream process within the DTCC called‘ affirmation’. If you are familiar with the US market you will know what this means; if you are not, consider yourself lucky and I will not burden you with all its detail, but you can think of it as the next layer of trade agreement between transacting parties( usually broker and custodian). The SEC rule change that paved the way for T + 1 dictated that affirmation should happen no later than the end of the day on trade date. For this to happen the DTCC set a cut off of 9pm EST for practical and efficiency reasons and 7pm was widely considered as the time all allocations should be processed. Canada, on the other hand, does not have an affirmation process and imposed a 03:59am on T + 1 deadline for matching. Wildly differing deadlines that could cause headaches but overall helped by the fact there were a limited number of countries, currencies, and a single CSD in each jurisdiction
On 11 October 2027, 29 countries( 27 EU states, UK, and Switzerland) are committed to moving to T + 1. Unlike in the America’ s there are multiple CSDs( 30 +) and a wider scope of currencies which, therefore, opens a broader set of complexities that need to be considered. Personally, I do not think these are in any way insurmountable, but care should be taken to take each individual market on its own merit.
What is the impact of partial regional adoption? When the US unilaterally decided to move to T + 1( ultimately dragging Canada and others in the region with them) there were warnings about the unintended impact from fragmentation of global settlement cycles.
Europe’ s T + 1 Countdown: Insights from the US
As the UK, EU and Switzerland prepare for a multi-market transition to T + 1, automation, market nuance, and crossregional coordination will be critical to navigating tighter timelines and global fragmentation, Mark Austin, principal head of trade support at Connor Clark & Lunn tells The TRADE.
Simply put, this standalone act broke the global harmony of near ubiquitous T + 2 settlement introducing friction into the portfolio management process( particularly into global funds), funding problems and liquidity challenges, and not to mention a new set of FX problems. For the most part, managers have adapted and, in my experience, only the very largest regional rebalances, or client flows have required creative management to avoid leverage, dilution, and overdrafts. The silver lining to the UK and EU transition to T + 1 is that( three years later) harmony is being restored.
What about when it comes to the Asia Pacific perspective? It’ s important to note that there will remain a slew of APAC markets remaining with a T + 2 cycle and no certainty yet if and when they will shorten. Depending on regional weighting, large global mandates will experience less friction when more of the world aligns their settlement cycles. However, the problem will remain acute for portfolios exposed to APAC with dependencies on funding from those markets with different settlement cycles.
I should also mention that APAC investors into the UK and EU will experience severe time compression on the ability to resolve exceptions and failed trades. When the market closes in the EU / UK it is well into the night or early the next day in APAC. By the time your UK or EU based custodian or broker rolls in on T + 1 it is approaching then end of the working day in APAC. How investors in the region plan to adapt remains to be seen.
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