Countdown to T+1: practical action steps for adapting to the new settlement timeline

What will it take to be ready for T+1?

BNP Paribas’ recent New Frontiers event, Countdown to T+1: Strategies for a Seamless Transition, brought together leaders from across the industry to explore the road to T+1. In the first panel, heads of the UK, EU and Switzerland T+1 committees discussed the latest developments taking place. Practical implementation will be the real test though. The second panel therefore focused on T+1 in action – with experts from the buy side, sell side and custodian communities revealing how market participants must adapt their ecosystems to meet the new settlement timeline.

Action priorities

October 2027 may be the official transition date, but the effective compliance deadline is really December this year. With time to transition running short, firms must act now. The question, said Jermaine Nooks, Investment Operations Lead with The Investment Association, is “what do we need to act on?”

Automation will be essential to making T+1 a success, Nooks noted, as we will not be able to staff our way there. “But what does automation actually mean and where does it come in?” His advice: look at manual touch points and try to eliminate them as early in the chain as possible.

Nooks pointed to securities lending. “Some firms are recording their stocks at the point of trade matching. It’s been automated but could be done earlier,” he said. “Others are doing it at the stage the trade is being agreed with the broker. That gives you more chance to recall and settle the stock in the time you have.”

Mandatory PSET

Place of settlement (PSET) is emerging as a key factor in enabling smooth, streamlined settlement, noted James Maher, T+1 EMEA Operations Project Lead, BNP Paribas, Global Markets.

Today’s multi-central securities depository (CSD) environment means asset owners are often not 100% sure where their assets are held at any given moment. In a T+2 world, place of settlement information is managed at back-office level on the day after trade date, with teams scrambling to find the other side of the transaction, explained Maher.

For T+1 settlement, PSET management will have to move up the stack. “If you’re using electronic allocations, the [PSET] field is there to use,” said Maher. “If you’re not using electronic allocations, that information must be communicated at order level in the front office. It’s going to become extremely important for firms to be able to identify the place of settlement in their systems.”

Completing the PSET field at the point of allocation/confirmation will not be an adhere or explain concept anymore either, warned Silvia Sancin, Senior Custody Solutions Manager,  Securities Services, BNP Paribas. “[From December 2026] it will be a mandatory action at the very beginning of the chain. So, the sooner this is sorted out, the better it will be for the next steps in the process.”

Standardising realignment

Split positions are inevitable though, requiring work to standardise realignment. “If half your securities are in Italy, the other half in a central securities depository (CSD), how will that be repatriated to your preferred settlement location?” said Nooks.

Realignment of securities from one place to another is not standardised at present, with different custodians using different means with a different set of requirements. Work between the buy and sell sides to standardise realignment is high on the agenda, but probably won’t happen before October 2027, he cautioned.

Static data quality

High quality Standard Settlement Instruction (SSI) data is critical. “We need to have the data right from the start, and shift the mindset of settlement being a back office topic to bringing the back office components as early on within the trading process as possible so trades flow properly,” noted panel moderator Marie-France Dessertenne, Global T+1 Programme Manager, Securities Services, BNP Paribas.

“When a trade hits the back office, the only two reasons it should fail is a lack of stock or lack of cash, because everything else is correct above it,” said Maher.

Test early

Testing will be a central focus for 2027. But it is imperative market participants start preparing now by examining their day-to-day activity and how they can enhance it, said Silvia Sancin. For example:

• How many instructions do you send today on T+0, T+1 or T+2?
  How the new NTS (nighttime settlement) of T2S will impact the timing you send instructions today?
• How many failing settlements do you have?
• With which counterparties do you fail the most?
• Are you leveraging all the possible off-the-shelf functionalities available today? This is in reference to partial settlement, partial release, hold and release, linkage, prioritisation, allegement which are already live in all T2S markets. We think it could be a great choice to implement them, if relevant for your settlement efficiency, before T1 live date and anticipate their testing as soon as possible.

The operational timetables published for the UK and Europe set out the revised timing required for matching and delivering settlement instructions to CSDs, highlighting how much firms’ operational processes will need to change in practice, said Silvia Sancin. The UK T+1 Testing Group in turn has come up with metrics participants can use to benchmark their operations and understand if they are T+1 ready, Maher added. “Typically these will be the percentage of current T+2 transactions received by a CSD before the start of the T+1 cut-off, the percentage of those that are matched and the settlement efficiency behind.”

In addition, financial market infrastructures have user acceptance testing (UAT) environments open today, so firms don’t need to wait for next year’s testing window calendar. “We are here to help you test the functionalities that are live and get ahead of what is coming so you can be prepared before October 2027,” said Silvia Sancin.

Testing will clearly be important for the buy side, but the most important is to have things to test, added Nooks. “Changes need to be made ASAP so firms can ensure their operations are up and running.”

A final point Nooks raised concerned the fund settlement cycle, and moving to T+2 to align better with the new T+1 environment. “If you’re at T+3 and above, moving to T+2 is a massive undertaking,” said Nooks. “It’s not just an internal project. You need to incorporate your transfer agent, your custodians, to think about faster payments, about prospectus changes. And while Transfer Agents (TAs) do have the capability to support a T+2 fund settlement cycle, they don’t have the capacity to change everybody on one day in October 2027. They are looking at moving tranches of firms, so if you’re at the back you could be in trouble.”