Europe’s shift to T+1 settlement: Lessons, challenges, and the road ahead

Key Takeaways

• The timelines for migration to T+1 settlement in Europe have now been established, but questions remain for market participants.
• A recent panel discussion between key stakeholders revealed concerns across the industry.
• Shorter settlement cycles expose issues with current processes; participants need to invest in technology, processes, and partnerships to ensure they are prepared.

As the dust settles on the US transition to T+1 settlement, Europe stands at the threshold of its own transformation. The move to shorten the settlement cycle for equity trades from two days (T+2) to one (T+1) is more than a regulatory adjustment – it’s a fundamental shift in market operations, risk management, and investor behavior. But how prepared is Europe, and what lessons can be drawn from the US experience?

At the TradeTech Europe conference earlier this year, a panel session on the move to T+1 revealed some concerns among key stakeholders, and some polite clashing of heads between industry and regulators.

The US experience

The US transition to T+1 was, by most accounts, smoother than feared – but only for those who were ready.

While some firms reaped the benefits, including reduced margin requirements during volatile periods (such as the turbulence triggered by Trump-era tariff announcements), others scrambled. One participant on the panel claimed that up to 30% of US asset managers had done nothing to prepare just three months before go-live.

Poor planning came at a cost. Anecdotal evidence suggests staffing expenses rose by 16–18% as firms threw people – not automation – at the problem. FX exposure management was another concern, particularly in low-activity markets where waiting for trade confirmation before hedging became a tightrope walk. Fortunately, netting helped mitigate some of these risks.

In the end, the verdict was clear: “Was it as bad as we thought it was going to be? No.” But that doesn’t mean Europe can copy-paste the US playbook.

One of the most critical takeaways is that the operational landscape in Europe is fundamentally different. In the US, brokers bear the brunt of T+1 compliance. In the UK and EU, both buy-side and sell-side firms share the responsibility. This dual accountability adds layers of complexity and coordination that demand bespoke strategies.

Looking ahead: Is T+0 the endgame?

While T+1 is the immediate goal, regulators are already eyeing T+0 as the future. The idea of same-day settlement (T+0) is tantalizing for its efficiency – but it also raises concerns. Critics argue that making the stock market resemble an ATM could encourage impulsive behavior among retail investors. On the flip side, institutional investors – who drive most market activity – stand to benefit from faster, more automated processes.

The industry is at a crossroad: should firms build systems capable of T+0 now and run them in T+1 mode until the regulatory shift? Many believe that back-office processes need a complete overhaul to be future-proof. Behavioral change, too, must begin now to ensure a smooth transition when the time comes.

Operational risks and regulatory uncertainty

The move to T+1 is already exposing cracks in the system. Funds are finding themselves overdrawn because cash inflows still operate on T+2 or T+3 timelines. Pricing challenges also loom large – especially for EU funds priced off the US market close, which occurs at 22:00 EU time. By the time prices are updated the next morning, the EU is already in a T+1 environment.

There’s also a pressing need for regulatory clarity. What behaviors are permissible? How should firms handle short settlements and financing gaps? These unanswered questions are creating uncertainty at a time when confidence is crucial.

Is Europe ready?

At the TradeTech panel, an audience poll revealed a stark divide: 50% said they were ready for T+1 in Europe, while the other half said not. When asked about the biggest operational risks, responses were split, but included trade matching and confirmation deadlines, fund subscription issues and regulatory uncertainty.

At least some of these operational issues can be addressed through automation. Technological solutions, like the Fidessa Middle Office service, offer the prospect of streamlined post-trade workflows, with minimal manual intervention. When so much of the settlement cycle is outside of your control, it’s more important than ever to ensure that your own processes are as seamless as possible.

The momentum is building behind the transition to T+1 in Europe. Regulators like ESMA have set the timetable for change in 2027, and industry bodies like AFME are fully engaged with the process. For market participants of all kinds, the shift towards shorter settlement is a key strategic imperative. Firms that invest in automation, rethink their back-office processes, and engage proactively with regulators will be best positioned to thrive. Those who delay may find themselves repeating the mistakes of their US counterparts – only with higher stakes and fewer excuses.