DTCC’s Val Wotton discusses how Asia-based firms will be impacted by the transition to T+1 in the UK and Europe.
The US successfully transitioned to a T+1 settlement cycle for securities in May this year, with both the UK and Europe now targeting implementation in 2027.
However, given the complexity of the EU and UK region, a move to T+1 comes with its challenges, including a pressing need for regulatory clarity and an implementation plan for technological and operational changes.
To address some of these challenges, the UK Accelerated Settlement Taskforce (UKAST) recently published a report identifying 57 recommendations covering areas such as automation, settlement processes, financial market infrastructure, static data, corporate actions, securities financing, and FX. The report proposed that implementation in the UK should begin in late 2025, to enable full adoption of a T+1 settlement cycle by 11 October 2027.
On the EU side, the European Securities and Markets Authority (ESMA) recently published a report setting a clear path toward T+1 adoption across the region, emphasising the urgency to act to avoid negative impacts from misalignment with other major jurisdictions.
The report highlighted that increased automation, harmonisation, standardisation and modernisation will be needed across the ecosystem to achieve a shorter cycle and that these changes will require investments, though they would promote increased settlement efficiency and resilience across the EU.
Similar to the UKAST’s report, ESMA has identified 11 October 2027 as the optimal date for T+1 implementation, recommending that EU market participants achieve same-day confirmation as a best practice by January 2026.
The EU and UK are now aligned, and industry bodies like the European Fund and Asset Management Association (EFAMA), the Bundesverband Investment und Asset Management (BVI) and The Investment Association continue to advocate for alignment with Switzerland on implementation.
Drivers for change
According to Val Wotton, Managing Director and General Manager of NSCC’s Equity Clearing, DTCC’s Settlement Service and DTCC’s Institutional Trade Processing, the asset management industry in particular had been calling for the EU and UK to align on the adoption of a T+1 settlement cycle.
A coalition of 21 European trade associations led by the Association for Financial Markets in Europe (AFME) issued a letter in October calling on the European Commission to firmly commit to aligning implementation across the region, serving as a driver for this change.
In an interview with Regulation Asia, Wotton said the asset management community made a “strong push for global alignment of settlement cycles” across jurisdictions, with the broker dealer community also becoming increasingly vocal on the need for consistency and standardisation across markets.
For instance, for exchange-traded funds (ETFs) and other index-based funds with multiple underlyings – or individual equities transactions which form part of the overall basket – misaligned settlement times have the potential to “increase complexity and costs and create additional funding challenges.”
Wotton noted that T+1 settlement can bring potential clearing benefits to the UK and EU region, likely similar to what was seen in the US.
Process automation
A key challenge for the market, however, is the longstanding lack of investment in pre- and post-trade securities processes, Wotton said, though noting that the shift to T+1 would help to drive automation, similar to trends in the US and elsewhere.
The UKAST recommends that allocation and confirmation processes should be completed on the same day that the trade is executed, and that electronic standing settlement instructions (SSIs) be used, among other measures to ensure process automation throughout the post trade lifecycle through to asset servicing. ESMA has also suggested that EU market participants adopt same day confirmation as a best practice by January 2026.
A Citi white paper published last year ahead of the US transition also highlighted that investments in technology and automation would be needed to make T+1 a success.
Large global firms are generally seen as better prepared for T+1 settlement, while smaller, domestic firms are expected to face challenges due to lower investment in technology and automation over the years.
Asia’s readiness
According to Wotton, with respect to the European transition, foreign exchange and funding challenges in Asia are not likely to be major challenges, given that trade execution takes place on trade date and settlement would occur on T+1, while Asian markets are still open.
However, time zone differences may still create challenges in areas such as exception resolution and resolving breaks. Asia will need to think about how they’re going to support these issues, Wotton said.
The UKAST report proposed different settlement cut-off times for UK and non-UK domiciled firms. For UK firms the cut-off is 9pm local time on the trade date, whereas for non-UK firms it is 6am UK time on T+1.
“This would mean Asia-based firms will need to finalise their instructions taking into account custodian cut-off times and different time zones,” Wotton said. “They may need to potentially run shifts during non-Asia market hours or have FX desks or operations teams in Europe.”
He noted that Asia-based asset managers are already establishing teams globally to manage timing and settlement challenges associated with T+1 settlement in the US.
Feedback from Asian firms suggests that the US implementation proceeded smoothly, with some saying the 12-hour time difference allowed Asia-based teams to resolve any breaks early in their business day.
ESMA’s report highlighted discussions on the topic taking place in the APAC region. The report acknowledged that the impact on APAC market participants would be similar to the impact experienced by EU market players following the T+1 transition in North America, especially related to the need for trade processing efficiency to work in shorter timeframes made more complicated by time zone differences, and the need to ensure the conclusion of FX transactions quicker or pre-fund.
“For the upcoming T+1 transitions in the EU and UK, the primary challenge for Asia-based firms will be around ensuring operational support during out-of-hours periods rather than funding, which posed a greater issue in the US transition,” Wotton said.
From a technology perspective, a key factor for Asian firms is whether they are operating with real-time or batch processing. “Those that still use batch processing will have to consider whether it is feasible, or whether they should move to real time processing,” Wotton noted.
For institutional trade processing, tools like DTCC’s ALERT platform are available to help maintain and communicate SSIs in a standard format, as well as DTCC’s CTM platform, which enables firms to allocate and centrally match transactions globally across multiple asset classes.
“The good thing is that, having gone through the US experience, the playbooks and tools to support automation already exist today,” Wotton said. “Firms shouldn’t really be waiting for UK or EU regulations to be implemented before they start optimising their processes and workflows.”
Asia’s move towards T+1
Multiple Asian jurisdictions have been considering their own moves to T+1 settlement, which is already the norm in both China and India.
For the rest of the region, there appears to be a staggered approach to T+1 adoption. In Australia, the proposed timelines are dependent on the implementation of ASX’s CHESS project, with an expected T+1 go-live around 2030.
In Japan, there have been initial discussions taking place on a potential transition to T+1. Hong Kong recently unveiled plans to explore such a move, with the stock exchange saying it will publish a white paper in the first half of 2025 to advance this discussion.
However, it is not yet clear whether any Asian jurisdictions will be looking to adopt T+1 before the UK and EU transitions are complete.
In Asia, one of the main concerns is that moving to T+1 at the domestic level may inadvertently align with something similar to a T+0 settlement cycle in the US due to time zone challenges, raising questions about the impact on investment flows in Asian markets.
At the same time, some firms in the region have already adopted or are exploring T+1 for select trades, especially in index-based and basket trading, where clients are demanding T+1 consistency across their portfolios, Wotton said.
Given the US move to T+1 settlement and its global impact, however, Asian firms should be relatively well-prepared for the transitions in the UK, EU and in their own markets.
“The process for moving forward is clear, with the lessons learned from the US implementation available to everyone,” Wotton said. “Firms should focus on automation and stay closely engaged with all relevant consultations to help shape the transition.”