Europe's shift to T+1 settlement in 2027 presents unique challenges for APAC firms. Proactive automation, data harmonisation, and early preparation are crucial for successful adaptation.

In financial markets, the settlement cycle is a key component of the post-trade trade lifecycle to facilitate the smooth handover of securities and funds between counterparties.

Most major markets have traditionally operated on a T+2 settlement cycle, where trades are settled two days after execution. However, this settlement model is evolving as markets in Europe transition to a T+1 settlement cycle (Europe T+1) in October 2027 following the successful implementation of T+1 settlement in North America last year.

While a shortened settlement cycle offers enhanced efficiency and minimised risks, it also introduces distinctive operational challenges that APAC firms must address due to local nuances.

The European challenge

According to Firebrand Research’s recent report titled, “Tackling Post-Trade Friction: Supporting a Global Shortened Settlement Cycle”, which was produced in collaboration with Clearstream, DTCC, and Euroclear, planning and implementing Europe’s move to T+1 is expected to be far more complicated than the North American shift.

Drawing on in-depth feedback from operations and technology teams at 45 firms across asset management, custodian, banking, and brokerage sectors, the report identifies several complexities in moving to T+1 that stem from Europe’s diverse market structures, including handling multiple currencies, differing market practices across jurisdictions, and varied regulatory environments.

As documented in Firebrand Research’s research, the degree of preparation required varies depending on the specific challenges faced by each firm, including the firm’s type, their automation capabilities, and the level of cross-functional integration within the organisation.

However, several common themes are consistent with the North American transition: enhanced automation across the post-trade process, including the completion of trade allocation, confirmation and matching on the same day the trade is executed, is critical to achieving T+1 readiness.

These capabilities are particularly important during periods of market volatility and increased volumes, as witnessed in the first half of 2025. Increased post-trade automation will lead to fewer unsettled trades, enabling quicker resolution and reducing overall risk.

Automation and data harmonization are critical

A closer review of the report uncovered several concerns related to Europe T+1. Key concerns include potential misalignment across European markets (76%), followed by foreign exchange markets operating on a T+2 cycle (67%). Place of Settlement (PSET) matching is the third major concern (67%), while incorrect Standard Settlement Instructions (SSI) is listed fourth (63%).

To mitigate the risks of fragmented implementation across European markets, it is important for APAC firms to proactively participate in industry working groups to foster alignment and share best practices across jurisdictions. While broader industry dialogue on reforming the FX settlement cycle and FX financial markets infrastructure cut-off times will also be helpful, investments in automation and tighter integration of FX processing with post-trade systems is viewed as essential to reduce manual errors and delays as firms get ready for T+1.

At the same time, ensuring accurate PSET matching is crucial to prevent delays in the pre-settlement process and to achieve timely settlement finality at the designated central securities depository (CSD). Discrepancies may arise when a firm’s designated CSD or international central securities depository (ICSD) for settling specific trades does not align with the inventory records maintained by brokers and custodians, resulting in PSET matching issues that require prompt reconciliation.

This concern is also emphasised in ESMA’s “Regulatory Technical Standard proposal on Settlement Discipline”, which highlights that information on PSET and Place of Safe Keeping should be included in SSI data fields to mitigate settlement failures.

With other asset classes, like fixed income, now in-scope for Europe T+1 settlement and given the number of CSDs and ICSDs where firms can choose to clear and settle their trades, it is essential to have precise information attached to SSIs for downstream matching at the CSD or ICSD.

Firms may leverage central matching solutions with mandatory PSET fields to provide early visibility on the intended settlement location at the trade matching and confirmation stage, allowing for resolution of any mismatched data early in the post-trade processing process. These automated solutions also enable trades to be enriched with accurate SSIs retrieved from golden source databases, to ensure timely settlement.

The value of automation extends beyond matching and confirmation of trades. Automation is also needed for maintaining and sharing SSIs in a standardised electronic format. The industry’s continued reliance on manual storage and dissemination of SSI data remains an issue.

Given that inaccurate or incomplete SSIs are a primary cause of settlement failures, T+1 essentially limits the timeframe available to address trade exceptions. It is imperative for APAC firms to eliminate manual processing and callbacks, by ensuring the accuracy of SSIs as well as the proper transfer of securities to the correct account.

This industry pain point aligns with Firebrand Research’s findings, which indicate that 21% of settlement failures among interviewees in 2024 were attributed to data issues, such as incorrect or stale SSIs. This data insight reinforces the operational risk associated with using outdated SSI data.

Minimising penalty exposure

At the same time, under the Central Securities Depositories Regulation (CSDR) governing EU trading, firms incur financial penalties for failing to settle trades by the intended settlement date. The European Central Bank’s “TARGET2-Securities Annual Report 2023” revealed that an average of EUR 70.43 million cash penalties is incurred monthly for late matching and settlement fails.

The EU T+1 Industry Committee, in its “High-level Roadmap to T+1 Securities Settlement in the EU” published on 30 June 2025, indicated the need for a regulatory mechanism to temporarily suspend CSDR cash penalties. If the current penalty structure remains under T+1, penalty costs may rise unless APAC firms address the root causes of matching delays and failures. Automation is key to reducing human error and managing the operational load from penalty payouts.

The fundamental requirement to enhance automation and standardisation throughout all stages of the post-trade processing is also echoed in the EU T+1 Industry Committee High-Level Road Map. The document highlights that the time frame between trade execution and settlement is significantly reduced under a T+1 framework, putting considerable pressure on operational times. Improving automation in key processes is essential.

Learnings from North America’s playbook

While there are specific complexities pertaining to Europe T+1, it is important to consider several critical factors that contributed to North America's success with T+1, including robust leadership and governance to coordinate and align implementation across markets. For APAC and global firms facing resource constraints, external consultants can provide support with the migration to T+1. Early preparation and testing are also essential to provide ample time for firms directly participating in domestic CSDs or ICSDs to conduct tests with various markets.

Planning for Europe T+1 in October 2027 had not started for 28% of respondent firms at the time of the survey, but with time zone differences leaving even fewer hours to allocate, match and confirm trades, it is advisable for APAC firms to get a head start on preparations. Advance planning, resource allocation, increased automation and information sharing are crucial for successful implementation of T+1. These steps will assist APAC firms and the industry to better anticipate and manage unpredictable events and issues during the transition.

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By Val Wotton, Managing Director and Global Head of Equities Solutions, DTCC