Shorter Settlement Cycles for Securities Are Coming. Are you Prepared?

October 12, 2022
  • Investor Services
As the world watches the U.S. market plan for a T+1 cycle for securities settlement, others are assessing similar moves. BBH sets out the main process areas in the securities trade lifecycle that will be impacted by shorter settlement cycles and what you need to do now to prepare.

For more information on the seven areas that will be impacted by U.S. T+1 and how to prepare, read the article below

In 2024, all U.S. trades will need to settle on T+1, or one day after they have traded. The move from the current T+2 cycle will aim to reduce settlement risk, and reduce liquidity, margin and collateral requirements.1 Other countries across the world are assessing similar moves.2 In addition to enhancing custody and settlements, the move will have a ripple effect on specific processes in the securities trade lifecycle.

Given that the proposed transition to T+1 reduces current T+2 processing time by half, and is likely to spur wholesale market infrastructure, technology, and behavioral changes for market participants, asset managers and financial institutions should begin to review their trade processes and operating models now to be ready to meet the 2024 implementation and its wider reaching impacts.3

As part of this process, it will be critical to work closely with service partners, applying digital solutions and ensuring real time access to data through analytics and oversight tools, to optimize trade processes and help get ahead of the compressed timeframes. As a custodian, BBH has assessed which processes need to be optimized for the T+1 accelerated settlement plan and is investing in the necessary technology to facilitate the move and partnering with clients to share insights.

Practical Steps to Process Optimization

Trade allocations, affirmations and turnaround times: A move from T+2 to T+1 compresses the available post-trade processing time from 12 core business hours in a T+2 environment to two core business hours between the end of the trading window and the start of the settlement window.4

A compressed timeframe translates into operational considerations for all firms operating in European securities markets as well as for investors from other regions, for whom time zone differences will impact the possibility of same-day matching processes. In other words, the time to communicate and resolve any breaks or exceptions will reduce. One area that firms may wish to consider is whether pre-funding of liquidity and matching of instructions can be done ahead of trade settlement.

Foreign exchange pre-funding and other operational impacts: A shorter settlement cycle impacts cross-currency transactions which have an FX component. FX trades, which currently settle on T+2, would either need to be booked on the same day/T+1 or alternatively pre-funded, meaning all participants in the settlement chain will need to confirm the transactions on T0.

Securities lending and the compressed timeframes for loan recalls/reallocations: Settlements currently rely on bilateral processes between custodians and third-party lending agents, as well as between the borrowers and the vendors. Moving to a T+1 cycle compresses the timeline to identify and recall securities. A modification to existing loan recalls and reallocations processes, technology and overall behavioral changes are needed to avoid breaks in the process, and an increase in settlement fails and cash penalties that would result.

Corporate actions: There will be a shortened timeframe between ex-date and record date, meaning that firms will need to review market practices around corporate actions notifications and responses to events with their custodian and update the key dates. Failure to do this could result in a significant increase in reverse market claims.

Cash and liquidity management: Cash and liquidity management will be compressed into a shorter timeframe, to ensure that the correct funding is in place in time for settlement. For example, current liquidity for cross-currency transactions with an FX component will need to adapt from T+2 to T+1 to avoid settlement issues for the contingent securities transaction.  An important consideration for firms will be to work with brokers, dealers and other counterparties to agree how liquidity can be freed up sooner and work closer together on chains of transactions which can impact on T+1 settlement capability.

Batch processing/reporting: Firms can schedule this to happen on T0 to get ahead of T+1 requirements.

Asia trading/client impacts: Asia is likely to be the most impacted by the move to T+1 in the U.S. market due to time zone differences. All post-trade activity would need to be completed in two hours. While the Indian market adapts processes to T+1 on a specific fund/client basis, elements of optimization might be possible to set up in terms of process design. It is important to review which operational tasks can be done on T0, such as matching and confirmations, so that no further action is needed when Asian markets wake up on T+1.

In addition, asset managers and financial institutions may also need to consider the impact on these business areas:

ETFs: A shorter settlement cycle will have an impact on ETFs, whose current settlement rates are below market averages. As ETFs holds baskets of securities often across a number of markets, any shortening of the settlement cycle on those underlying holdings can impact the settlement of the ETF shares for certain order types. BBH sees ETF settlement delays currently in a T+2 environment as a result of time zone differences, market holidays and cross-border settlement complexity. These considerations would be even more pronounced in a T+1 environment, meaning that subscription to and redemption from ETFs will need to be scheduled differently with T+1 timing in mind.

Similar considerations will also exist for securities-based derivatives, for example where investors seek synthetic exposure to an underlying security through a swap arranged with a prime broker. To avoid basis risk, it would be expected that the swap also follows a T+1 settlement aligned with the underlying security. Further assessment is required to identify impacts to the swap lifecycle, such as margin calculation and collection.

Prime Brokerage: Executing brokers would need to communicate trades on T0 rather than T+1 as is now.

How BBH Can Help

BBH is undertaking its impact assessments of the main process areas and can partner with firms to share learnings and insights.

This becomes even more important given that other markets – Canada, India, the U.K. and those in Europe - are considering moves to shorten settlement cycles further to T+1.

It will be critical to streamline post-trade processes through automation and an optimized data management strategy. Real time access to data through analytics and oversight tools will help firms prepare for shorter settlement cycles and meet the overall goal of efficiency and reducing settlement fails.

For more information, contact your BBH representative and follow BBH Market Insights on LinkedIn where we will be sharing further learnings on this topic in the coming months.

Up Next
Up Next

T+1 Settlement and Beyond

As global markets continue evolving for T+1 settlement cycles, BBH is working with clients to help them optimize their operating models and support their readiness for this major industry shift.

3 The Depositary Trust and Clearing Corporation (DTCC) targets a proposed for go-live around Q1 2024, likely March 2024, with a possibility to extend the schedule to Q3 2024 if needed
4 BBH assumes settlement teams operate in core business hours of 08.00 to 18.00, and that the trading day concludes at 16.00

Brown Brothers Harriman & Co. (“BBH”) may be used to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2022. All rights reserved. IS-08443-2022-10-07

As of June 15, 2022 Internet Explorer 11 is not supported by

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction