As the UK market prepares to shift to a T+1 settlement cycle on 11 October 2027, implementing strong data standards and automation are key to ensuring a successful transition, according to experts at Euroclear’s Modernising Securities Markets conference.
Across the board, all panellists agreed that automation was critical for a T+1 shift, highlighting that settlement efficiency can be achieved in 10 seconds with proper automation, however this is often hindered by industry-wide challenges of adoption and enforcement.
Highlighting the consequences that poor settlement rates could have on the market, Tim Mcleod, global head of lending and liquidity operations at BlackRock, said: “On average in Europe market participants pay €70 million in cash penalties for failed trades. If you add that to a full year and round up, its €850 million that we’re paying in penalties.
“If we don’t transition to T+1 in a way that improves our settlement rates, I would say even standing still is going to see us past a billion. And are we really comfortable with a billion euros?”
Specifically, issues such as a lack of standardisation in settlement instructions can pose obstacles for adoption, however challenges of shifting to T+1 is not an industry-wide challenge for all firms.
According to Gary O’Brien, global head of bank and broker segment strategy at BNP Paribas, his firm currently settles approximately between 10 and 15% of trades on a T+1 or T+0 basis daily, yet the wider issue lies in ensuring preparation is widespread, rather than individual.
He said: “The reality is, of course, that the market is much wider than ourselves. What we need to do as an industry, and particularly what individual firms need to do as part of this, is not just question are they ready to do T1 in the framework that they did T2 in, but is the framework that they used for T2 the right framework for them in T1?”
Ensuring that firms have strong data standards was also at the forefront of conversations around how to achieve strong automation.
Speaking on this, Andrew Douglas, chair of the UK Accelerated Settlement Taskforce, highlighted that firms should start working towards achieving these automation goals now, rather than waiting for the transition deadline.
He said: “We have made no bones about it from day one of the project that one of the secret recipes for success in meeting T+1 is automation, and automation is predicated on having good data standards. There’s no point automating stuff if its garbage in garbage in, garbage out. And so good data standards will enable good technology implementations.
“We also want people to think about how you re-engineer your system so that you don’t necessarily need to automate what you’ve got today, not tomorrow, not the end of this year, but actually how do you want your business to run in five years from now and automate with that in mind.”
Panellists were also quick to underline that there is no acceptable trade-off between speed and operational resilience when implementing T+1 standards, as halving settlement times should not lead to increased associated risks.
“If operational risk can be managed adequately, so successfully, automating, testing, post-trade processes, adhering to the operational resilience policies, then the markets can be faster and more resilient and there’s no trade off,” said Sasha Mills, executive director, financial market infrastructure, Bank of England.
Additionally, panellists looked to emphasise that that firms should aim to comply with T+1 standards before the official settlement cycle comes into play.
Douglas added: “People used to say to me what do you expect to happen on the eleventh of October 2027? And my honest answer is I’d love there to be nothing happening on because everybody’s already compliant.”