On the road: EU maps out transition to T+1
08 July 2025
Carmella Haswell speaks to the market following the release of the EU T+1 Industry Committee鈥檚 high-level roadmap to transition to a shorter settlement cycle
Image: stock.adobe.com/kiatipol
Following five months of dedicated work, the EU T+1 Industry Committee has published its 鈥楬igh-Level Road Map鈥� which provides guidance to firms facing the transition to a shorter settlement cycle for securities in Europe.
With market participants across the continent expecting to move to a T+1 settlement cycle on 11 October 2027, association representatives, workstream leads from various industry segments, and technical workstreams, have collaborated to form this new report.
The Committee鈥檚 roadmap lays out a set of non-legally binding recommendations that are designed to serve as a practical, expert-led framework to assist in identifying and addressing the most critical operational considerations, as well as to support firms鈥� preparations and budget allocations.
Commenting on the release, Giovanni Sabatini, independent chair of the EU T+1 Industry Committee, says: 鈥淸The] publication of the High-Level Road Map and the recommendations included therein marks the kick-off of a complex process to move EU and EEA markets to T+1 on the agreed date of 11 October 2027, in coordination with the UK and Swiss markets.鈥�
Sabatini urges all market participants to review the recommendations, assess the impact on their systems and procedures, and to start planning preparation for the transition to T+1. He notes that the key theme throughout this report is the imperative to enhance automation and eliminate manual interventions across all stages of the post-trade lifecycle.
Commenting on the new roadmap, Pirum's Duncan Carpenter, director of product management, says: "There might be a temptation to read the roadmap鈥檚 'recommendations' as 鈥榥ice to haves鈥�. However, the wording 'adhere or explain' makes the recommendations 鈥榤andatory鈥� 鈥� and few will want to be left in a position of having to explain why they didn鈥檛 adhere to their regulator."
He continues: "Whatever way you read the report, whatever way you break down the lifecycle, the recommendations are clear: it is full automation of the post-trade lifecycle. The report makes this clear: 'The imperative to enhance automation and standardisation across all stages of the post-trade lifecycle'."
Within the 60-page report are around 30 recommendations which were considered critical from a securities financing transactions (SFTs) perspective. As most of these points are not specific to SFTs, these are captured in other sections of the report, including trading, matching and confirmation, and settlement.
On the topic of SFTs, Roy Zimmerhansl, partner at WTS Hansuke Consulting, spoke at a recent event hosted by the EU T+1 Industry Committee on 3 July, where participants discussed the recommendations.
He remarked: 鈥淭he key thing we have learned is that there are trade-offs that are required throughout here. If you look at SFT transactions, they are active during the trading day. For example, at 17:00 on a trading day, securities finance transactions have to have cutoffs while the rest of the market is still trading, and that throws up challenges.鈥�
Zimmerhansl went on to explain that the markets already operate in a T+1 or T+0 world, and the reason it operates that way is because the instruction flow from the buy side in the cash markets, through to the end users of the borrowed securities, is typically already late 鈥� it already often does not meet the cut-off times.
鈥淏ut in a T+2 world, there is enough extra 鈥榝at鈥� that you can use to your advantage,鈥� he added. 鈥淭his has required a whole rethink of how the business needs to operate, and automation is a fundamental part of that, it doesn鈥檛 work without it.鈥�
It was made clear during the meeting that all of the recommendations apply irrespective of the proposed SFT exemptions 鈥� which were approved by the European Commission in May 鈥� as these are required for market efficiency and liquidity, and operational readiness.
The report also mentions settlement efficiency tool recommendations including auto-borrow, auto-collateralisation, shaping, and use of transaction type identifiers; intraday liquidity and additional batch requirements; as well as notifications from buy side to lending intermediaries of sales.
According to the report, the transition to T+1 in the cash market means that a significant share of the repo market is expected to move to same-day settlement (T+0). The Committee warns that this presents significant risks and challenges in terms of intraday liquidity consumption and settlement efficiency.
To mitigate these impacts, further measures are needed ahead of the T+1 implementation date to optimise SFT settlement. While this is subject to further discussion and analysis, the Committee鈥檚 SFT workstream has identified the introduction of a batch settlement cycle 鈥� in T2S and, where appropriate, non-T2S central securities depositories (CSDs) 鈥� during the day as a possible effective mitigating measure, ideally at 12:00.
Speaking to 麻豆传媒 Finance Times, Dirk Loscher, head of custody and investor solutions at Clearstream, says: 鈥淭he benefits of an additional settlement batch are under evaluation by the relevant technical workstreams.
鈥淎lready today, a significant number of same-day transactions are managed efficiently by existing real-time settlement capabilities. The key question will be whether these functionalities suffice or whether investment into additional system capabilities is needed.鈥�
The International 麻豆传媒 Lending Association (ISLA) says it is unclear what proportion of T+2 traded repos will move to either T+1 or T+0 and, with some estimations suggesting 20 per cent of current values could be moving to T+0, meaning that as of today 20 per cent of settlement values would need to settle in the RTGS gross settlement cycle.
If a batch or Net Transfer System (NTS) style settlement optimisation netting cycle was introduced for circa 12:00 on T+0 this would give the netting effect requirements to allow settlement efficiency and maintain liquidity.
If a batch or NTS is not introduced, ISLA says there could be potential unintended consequences to settle repo within the RTGS gross settlement cycle window which could potentially lead to increased settlement fails.
A temporary suspension
Another important aspect of the roadmap includes the EU T+1 Committee鈥檚 response to cash penalties in relation to the Central 麻豆传媒 Depositories Regulation (CSDR).
The Committee has considered the need to create a 鈥渞egulatory mechanism鈥� to allow for a temporary suspension of the CSDR cash penalties 鈥渟hould it be deemed necessary鈥� 鈥� while ensuring that a CSD level, IT process is kept; data is still collected; and settlement efficiency is monitored.
Head of CSD Francisco B茅jar says SIX will work with market participants to ensure they are ready and deliver high trade settlement rates so this step is not necessary 鈥� but suggests that it is a 鈥渟ensible backup option鈥� if the market needs it.
A recital on a possible suspension of cash penalties empowers the European Commission to consider adjusting Delegated Regulation (EU) 2017/389 or to take an appropriate measure to temporarily suspend cash penalties where a material risk in settlement fails is identified.
According to Loscher, the provisional agreement between the European Council and the EU Parliament to suspend settlement penalties during the T+1 cutover period is a 鈥渟ensible precaution鈥�. He believes the flexibility addresses potential issues arising during implementation, ensuring minimal market disruption.
鈥淚mportantly, the agreement maintains the established timelines, IT processes, data collection, and ongoing monitoring of settlement efficiency,鈥� he highlights. 鈥淭his approach helps to minimise disruptions while maximising long-term settlement efficiency for all stakeholders.鈥�
For James Pike, chief revenue officer at Taskize, the 鈥渞eal question鈥� market participants will seek clarity on is: how long is temporary when it comes to removing the penalties? Without this clarity, he believes firms could lose urgency around fixing settlement issues. He adds: 鈥淭+1 only works if everyone tightens up their operations. Without accountability, we could see a rise in settlement failures instead of a drop.鈥�
The European Commission will keep track of the market developments including the volumes of settlement fails and the readiness of the industry to comply with T+1 settlement, and consider whether there is a significant risk that the move from a T+2 to a T+1 settlement cycle could lead to a material increase in settlement fails.
Similarly, Daniel Carpenter, CEO of Meritsoft, a Cognizant company, suggests that cash penalties can serve to incentivise firms to be ready for October 2027, but it can also adversely affect a trader鈥檚 ability to source liquidity if counterparties believe the penalty of a trade fail is too costly.
He states: 鈥淐SDR penalties are costing the industry around 鈧�70 million a month and could well increase under T+1 timelines, especially as the EU moves to reinvigorate its capital markets through the Savings and Investment Union.鈥�
Improving matching and confirmation of trades to enable straight-through processing and the elimination of manual solutions, is a 鈥渉igh priority to head off this problem鈥�, says Carpenter. He pinpoints that trade instructions built on high-quality data 鈥渋s a must鈥� as is rapid issue resolution and fault attribution.
鈥淎s the report outlines, this can only be accomplished through a centralised data system that can produce automatic message protocols that can send updates to counterparties in near real-time,鈥� he highlights.
鈥淐lear messaging standards will also help to improve securities lending and recall rates which are the main cause of settlement fails. Stock borrowing and lending activities can incur substantial costs, such as interest claims from trade counterparties.鈥�
For further development and discussion, the Industry Committee will look to establish an industry taskforce to develop partial settlement market practice. The market will be keeping an eye on how this may impact lending intermediaries or if they remain exempt.
In addition, according to ISLA, the Industry Committee will explore the establishment of a delivery-versus-payment (DvP) cutoff of 17:00 moving this from the current 16:00. The Association says this could aid SFTs by using more free-of-payment (FoP) receipts satisfying more DvP deliveries over the additional one hour extension.
ISLA states: 鈥淔rom our perspective, ISLA remains an active participant on the SFT EU T+1 Technical Workstream with Tony Holland acting as Secretariat alongside Alexander Westphal. We recommend market participants take the time to review the full report as the interconnectedness of the recommendations may have nuanced impacts on their business.鈥�
While questions remain, the EU is firmly on its way to preparing for a shorter settlement cycle, roadmap in hand. It appears that, as stated during the 3 July event, the 鈥渉ard work starts now鈥�.
With market participants across the continent expecting to move to a T+1 settlement cycle on 11 October 2027, association representatives, workstream leads from various industry segments, and technical workstreams, have collaborated to form this new report.
The Committee鈥檚 roadmap lays out a set of non-legally binding recommendations that are designed to serve as a practical, expert-led framework to assist in identifying and addressing the most critical operational considerations, as well as to support firms鈥� preparations and budget allocations.
Commenting on the release, Giovanni Sabatini, independent chair of the EU T+1 Industry Committee, says: 鈥淸The] publication of the High-Level Road Map and the recommendations included therein marks the kick-off of a complex process to move EU and EEA markets to T+1 on the agreed date of 11 October 2027, in coordination with the UK and Swiss markets.鈥�
Sabatini urges all market participants to review the recommendations, assess the impact on their systems and procedures, and to start planning preparation for the transition to T+1. He notes that the key theme throughout this report is the imperative to enhance automation and eliminate manual interventions across all stages of the post-trade lifecycle.
Commenting on the new roadmap, Pirum's Duncan Carpenter, director of product management, says: "There might be a temptation to read the roadmap鈥檚 'recommendations' as 鈥榥ice to haves鈥�. However, the wording 'adhere or explain' makes the recommendations 鈥榤andatory鈥� 鈥� and few will want to be left in a position of having to explain why they didn鈥檛 adhere to their regulator."
He continues: "Whatever way you read the report, whatever way you break down the lifecycle, the recommendations are clear: it is full automation of the post-trade lifecycle. The report makes this clear: 'The imperative to enhance automation and standardisation across all stages of the post-trade lifecycle'."
Within the 60-page report are around 30 recommendations which were considered critical from a securities financing transactions (SFTs) perspective. As most of these points are not specific to SFTs, these are captured in other sections of the report, including trading, matching and confirmation, and settlement.
On the topic of SFTs, Roy Zimmerhansl, partner at WTS Hansuke Consulting, spoke at a recent event hosted by the EU T+1 Industry Committee on 3 July, where participants discussed the recommendations.
He remarked: 鈥淭he key thing we have learned is that there are trade-offs that are required throughout here. If you look at SFT transactions, they are active during the trading day. For example, at 17:00 on a trading day, securities finance transactions have to have cutoffs while the rest of the market is still trading, and that throws up challenges.鈥�
Zimmerhansl went on to explain that the markets already operate in a T+1 or T+0 world, and the reason it operates that way is because the instruction flow from the buy side in the cash markets, through to the end users of the borrowed securities, is typically already late 鈥� it already often does not meet the cut-off times.
鈥淏ut in a T+2 world, there is enough extra 鈥榝at鈥� that you can use to your advantage,鈥� he added. 鈥淭his has required a whole rethink of how the business needs to operate, and automation is a fundamental part of that, it doesn鈥檛 work without it.鈥�
It was made clear during the meeting that all of the recommendations apply irrespective of the proposed SFT exemptions 鈥� which were approved by the European Commission in May 鈥� as these are required for market efficiency and liquidity, and operational readiness.
The report also mentions settlement efficiency tool recommendations including auto-borrow, auto-collateralisation, shaping, and use of transaction type identifiers; intraday liquidity and additional batch requirements; as well as notifications from buy side to lending intermediaries of sales.
According to the report, the transition to T+1 in the cash market means that a significant share of the repo market is expected to move to same-day settlement (T+0). The Committee warns that this presents significant risks and challenges in terms of intraday liquidity consumption and settlement efficiency.
To mitigate these impacts, further measures are needed ahead of the T+1 implementation date to optimise SFT settlement. While this is subject to further discussion and analysis, the Committee鈥檚 SFT workstream has identified the introduction of a batch settlement cycle 鈥� in T2S and, where appropriate, non-T2S central securities depositories (CSDs) 鈥� during the day as a possible effective mitigating measure, ideally at 12:00.
Speaking to 麻豆传媒 Finance Times, Dirk Loscher, head of custody and investor solutions at Clearstream, says: 鈥淭he benefits of an additional settlement batch are under evaluation by the relevant technical workstreams.
鈥淎lready today, a significant number of same-day transactions are managed efficiently by existing real-time settlement capabilities. The key question will be whether these functionalities suffice or whether investment into additional system capabilities is needed.鈥�
The International 麻豆传媒 Lending Association (ISLA) says it is unclear what proportion of T+2 traded repos will move to either T+1 or T+0 and, with some estimations suggesting 20 per cent of current values could be moving to T+0, meaning that as of today 20 per cent of settlement values would need to settle in the RTGS gross settlement cycle.
If a batch or Net Transfer System (NTS) style settlement optimisation netting cycle was introduced for circa 12:00 on T+0 this would give the netting effect requirements to allow settlement efficiency and maintain liquidity.
If a batch or NTS is not introduced, ISLA says there could be potential unintended consequences to settle repo within the RTGS gross settlement cycle window which could potentially lead to increased settlement fails.
A temporary suspension
Another important aspect of the roadmap includes the EU T+1 Committee鈥檚 response to cash penalties in relation to the Central 麻豆传媒 Depositories Regulation (CSDR).
The Committee has considered the need to create a 鈥渞egulatory mechanism鈥� to allow for a temporary suspension of the CSDR cash penalties 鈥渟hould it be deemed necessary鈥� 鈥� while ensuring that a CSD level, IT process is kept; data is still collected; and settlement efficiency is monitored.
Head of CSD Francisco B茅jar says SIX will work with market participants to ensure they are ready and deliver high trade settlement rates so this step is not necessary 鈥� but suggests that it is a 鈥渟ensible backup option鈥� if the market needs it.
A recital on a possible suspension of cash penalties empowers the European Commission to consider adjusting Delegated Regulation (EU) 2017/389 or to take an appropriate measure to temporarily suspend cash penalties where a material risk in settlement fails is identified.
According to Loscher, the provisional agreement between the European Council and the EU Parliament to suspend settlement penalties during the T+1 cutover period is a 鈥渟ensible precaution鈥�. He believes the flexibility addresses potential issues arising during implementation, ensuring minimal market disruption.
鈥淚mportantly, the agreement maintains the established timelines, IT processes, data collection, and ongoing monitoring of settlement efficiency,鈥� he highlights. 鈥淭his approach helps to minimise disruptions while maximising long-term settlement efficiency for all stakeholders.鈥�
For James Pike, chief revenue officer at Taskize, the 鈥渞eal question鈥� market participants will seek clarity on is: how long is temporary when it comes to removing the penalties? Without this clarity, he believes firms could lose urgency around fixing settlement issues. He adds: 鈥淭+1 only works if everyone tightens up their operations. Without accountability, we could see a rise in settlement failures instead of a drop.鈥�
The European Commission will keep track of the market developments including the volumes of settlement fails and the readiness of the industry to comply with T+1 settlement, and consider whether there is a significant risk that the move from a T+2 to a T+1 settlement cycle could lead to a material increase in settlement fails.
Similarly, Daniel Carpenter, CEO of Meritsoft, a Cognizant company, suggests that cash penalties can serve to incentivise firms to be ready for October 2027, but it can also adversely affect a trader鈥檚 ability to source liquidity if counterparties believe the penalty of a trade fail is too costly.
He states: 鈥淐SDR penalties are costing the industry around 鈧�70 million a month and could well increase under T+1 timelines, especially as the EU moves to reinvigorate its capital markets through the Savings and Investment Union.鈥�
Improving matching and confirmation of trades to enable straight-through processing and the elimination of manual solutions, is a 鈥渉igh priority to head off this problem鈥�, says Carpenter. He pinpoints that trade instructions built on high-quality data 鈥渋s a must鈥� as is rapid issue resolution and fault attribution.
鈥淎s the report outlines, this can only be accomplished through a centralised data system that can produce automatic message protocols that can send updates to counterparties in near real-time,鈥� he highlights.
鈥淐lear messaging standards will also help to improve securities lending and recall rates which are the main cause of settlement fails. Stock borrowing and lending activities can incur substantial costs, such as interest claims from trade counterparties.鈥�
For further development and discussion, the Industry Committee will look to establish an industry taskforce to develop partial settlement market practice. The market will be keeping an eye on how this may impact lending intermediaries or if they remain exempt.
In addition, according to ISLA, the Industry Committee will explore the establishment of a delivery-versus-payment (DvP) cutoff of 17:00 moving this from the current 16:00. The Association says this could aid SFTs by using more free-of-payment (FoP) receipts satisfying more DvP deliveries over the additional one hour extension.
ISLA states: 鈥淔rom our perspective, ISLA remains an active participant on the SFT EU T+1 Technical Workstream with Tony Holland acting as Secretariat alongside Alexander Westphal. We recommend market participants take the time to review the full report as the interconnectedness of the recommendations may have nuanced impacts on their business.鈥�
While questions remain, the EU is firmly on its way to preparing for a shorter settlement cycle, roadmap in hand. It appears that, as stated during the 3 July event, the 鈥渉ard work starts now鈥�.
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