Settlement timelines are the windows between when a securities transaction happens and when the trade is actually finalized. The trade date (T) shows when the order is executed, while the number after it shows how many business days it takes for the legal transfer of ownership to happen – so ‘T+1’ means one business day, ‘T+2’ means two business days, and so on.  

With the need for faster, more efficient settlements, markets are shortening the settlement cycle to just one day after execution – known as a T+1 settlement cycle. This is an important step to reduce counterparty risk, improve capital efficiency, and modernize infrastructure in financial services (FS).  

T+1 settlement has been active in the US since 2024, and the T+1 settlement timeline in the UK, EU, and Switzerland is leading up to a mandatory regulatory deadline of October 2027. This marks a global call for FS firms to prepare for the shift.  

Counterparty performance plays a key role in efficient post trade settlement. So, as financial firms gear up for T+1, counterparty performance management is becoming increasingly crucial. 

What is counterparty performance management?

It’s the measurement, analysis, and support of a party’s ability to its obligations efficiently and accurately to make sure a financial transaction is settled in a timely way. As this Capgemini article about counterparty performance management shows, when performance is strong, it goes a long way towards reducing the risk of settlement failures – which in turn improves the overall efficiency and stability of the settlement process. 

The trade lifecycle is typically facilitated by intermediaries like custodians, brokers, and clearing houses. Settlement failures happen when one of the parties involved can’t fulfil its obligations – either because of financial distress, operational errors, or other unforeseen circumstances. These failures can cause delays, additional costs, and even systemic risks to the broader financial system. In turn, this can bring financial, regulatory, and reputational consequences to the party at fault. In the future, this sets financial institutions up for a negative T+1 settlement impact.  

The operational risk of T+1settlement

T+1 settlement increases the need for real-time processing and enhanced risk management. While the reduced settlement cycle brings a range of benefits, experts agree that – without the right level of rigor – firms will incur operational risks. Automation and data-driven risk controls are central to managing the faster timelines of T+1 settlement.  

For firms, this can be a chance to address legacy issues that haven’t historically had the same level of regulatory or industry drive for change. It starts with firms assessing their current state to see how they can become more efficient.  

The first step should be to complete an impact assessment. The drive for post-trade efficiency isn’t a simple problem, it won’t be solved by simple solutions, and what worked in past transitions probably won’t work this time. Don’t be tempted to treat this is an exercise to add people and technology while ignoring wider issues. 

Six elements of your T+1 impact assessment

Let’s look at how the reduced T+1 settlement cycle affects the bigger picture. 

1. Process: Can your processes be scaled up? 

  • Challenge: how can you make your processes more efficient using the technology you already have? See this as an opportunity to eliminate unnecessary steps, manual inputs, and recurring pain points. 
  • Solution: use intelligent technology to automate your processes. Automating faltering processes rarely works, so – if you think a process can be automated – first see if it’s as smooth as it can be. Make sure your organization’s core daily tasks are set up to be captured effectively in the T+1 landscape. Remember, just because they work now, it doesn’t mean they will in future.  

2. Technology: Can your existing tech stack handle increased batch frequency? 

  • Challenge: is the user experience the best it can be? Would hard-coded data require manual overrides and therefore extra steps in the process? There’s a lot to consider.  
  • Solution: use technology and AI in your favor, speak to vendors, and review your in-house stack. Make sure your tech is being used to the best of its capabilities: enhancing decision making and processing in real time. Meanwhile, your vendors should always be updating their offering, creating secure, efficient cloud-based platforms and adding modules and dashboards to meet your evolving needs.  

3. Risk: Are your controls robust enough to survive T+1? 

  • Challenge: more frequent risk reporting and extra layers of checks mean your existing framework could flail under stress.  
  • Solution: assess the increased pressure on any vulnerable processes, and validate if your risk framework can handle it. 

4. Ancillary services: Who else will be impacted? 

  • Challenge: don’t assume that trade matching or settlements teams will be the only ones feeling the change – a shortened T+1 settlement cycle affects everyone. Consider the impact on functions like corporate action, cash, securities, and lending.  
  • Solution: broaden your focus and invest in cloud-based platforms and data-driven analysis, which let everyone collaborate and see the information they need.  

5. Operating model: How will the T+1 settlement impact your people?  

  • Challenge: the change to the T+1 settlement cycle has a broader impact on your people. So, assess your current operating model and see if it will still be fit for purpose.  
  • Solution: increasing headcount or changing working patterns might be tempting, but it’s rarely the answer. Before scaling up, consult with your people and get to know their current challenges in detail. In our article about the T+1 operating model, we show how the settlement impacts your workforce and how to map a path forward.  

6. Data: How can data drive your assessment? 

  • Challenge: if you don’t have the right management information in place, it’s difficult to accurately forecast the impact of T+1.  
  • Solution: data-driven analysis is a priority. Understand your metrics, identify where the volume is now, and predict where the pain points will increase. A truly effective impact assessment won’t just be complimented by accurate data: it will depend on it. 

Regardless of whether you are buy-side, sell-side, or a custodian, if you participate in the US or European securities market, you need to be prepared for T+1 settlement. Start assessing that impact now to give your firm the best chance of success. You can find our full article about T+1 impact assessments here. 

Looking beyond T+1: The case for T+0 settlement

While moving to T+1 settlement demands firms to invest in efficiency, technology, and change management, there’s yet another level on the horizon: T+0. It offers the same enhanced liquidity benefits as T+1, but with near-zero counterparty risk – making it a move that will be significantly more disruptive for FS. But institutions don’t need to wait until regulators mandate this change.  

Even though firms could successfully facilitate T+0 settlement on their current technology within limited scenarios, achieving same-day settlement at scale for the majority of securities transactions will stretch current infrastructure beyond its limits. That’s where newer technologies will be needed to bridge the gap.  

As with any change, moving to shorter settlement cycles also comes with challenges – in particular, operational risk. With less time to process transactions, there’s more room for error. Fortunately, there are plenty of opportunities to create operational efficiencies that mitigate errors while meeting the pace the industry is seeking – and even beyond.  

The importance of Distributed Ledger Technology in T+1 and T+0 settlements

Distributed Ledger Technology (DLT) is one settlement vehicle that could help larger industry players move to T+0 at scale. Same-day settlement via DLT gets rid of manual touchpoints, resulting in a far more efficient process with a faster turnaround. 

This decentralized, electronic recordkeeping system lets multiple parties control a shared database which is distributed amongst many nodes – essentially computers – that participate in the network. Each node has a copy of the ledger and can independently verify transactions. Once most of the nodes on the network have reached a consensus that a transaction is legitimate, it will be entered as the newest transaction on the database an immutable record that can’t be changed by an outside party. This makes it a compelling option for firms preparing for the future of T+1 and T+0 settlement.  

How Capgemini can help clients prepare for T+1 and beyond

Our global team has hands-on expertise conducting the impact assessment and establishing operational readiness for T+1 settlements. Since 2024, we’ve helped FS firms with their T+1 transition in the US and Canada as they navigate the compressed, 24-hour settlement timeline. 

We also have comprehensive, industrial-grade expertise in implementing automation, cloud-based platforms, and AI-driven risk management solutions. At the heart of our technical expertise is a focus on transitioning our customers to practical, value-driven, and trusted business operations and consulting to support real-time processing capabilities.  

FAQs 

The T+1 settlement is the financial industry standard where securities transactions – like buying or selling stocks or bonds – are finalized one business day after the date of trade.  

The T+1 settlement significantly reduces risk by cutting the timeframe for counterparty default. It also gives investors access to cash and securities faster, which lets them reinvest sooner. The T+1 settlement will force firms to modernize and automate to meet the needs of the digital age, which improves efficiency as a whole.  

T+1 settlement will significantly accelerate operations, reduce counterparty risk, and lower margin requirements. 

The difference between T+2, T+1, and T+0 settlements is the time between when the buyer receives the securities (also known as the ‘trade execution’), and the settlement date, which is when the seller is paid. The numbers refer to how many business days it takes for the settlement to be executed after the transaction is made. 

Firms must prepare by updating their systems and technology to enable real-time processing.   

Firms that aren’t ready for the T+1 settlement deadline face trade failures, financial costs, penalties, and regulatory action.ust prepare by updating their systems and technology to enable real-time processing.