Supporting a global shortened settlement cycle

The global trend for shorter settlement cycles is gathering pace with 60% of the global market trade volumes now settling on a T+1 basis, including many trades within the EU and the UK. T+1, or even T+0 settlement, is possible with existing processes and infrastructure for many market participants, but the transition for T+1 settlement universally will require fundamental changes to operational processes and a much higher degree of automation. It will also be an extremely complex task. The importance of strong leadership and governance, industry collaboration and coordination will be key to a successful transition. Much of the groundwork has been done already and industry support gained for a 3-year timeline with 2025 to develop and agree on standards and processes, 2026 for development of new processes and automation and testing and 2027 the year of implementation to ensure an orderly and successful transition.

The settlement journey through a Central Securities Depository (CSD) can only begin once trade instructions are received. The importance of confirming trades on trade date and sending instructions promptly is vital to starting the process as early as possible to maximise the time available to resolve any issues. Many firms currently only process confirmations on T+1, an operational process that will need to change. Settlement failures can be reduced by automating as many processes as possible to enable Straight-Through Processing (STP). A better understanding of the underlying cause of settlement failures and working to address persistent, avoidable causes will improve settlement efficiency. In 2024, 71% of settlement failures for survey respondents were caused by the counterparty lacking collateral and 21% caused by data issues preventing trade matching.

We recognised the challenges of improving settlement efficiency, both for the industry overall and also in anticipation of Europe’s transition to T+1. In 2023, we created a working group with members of the Euroclear Bank User Committee to focus on settlement efficiency and propose steps to take as a community, collectively to improve settlement efficiency. The working group analysed the huge amount of data Euroclear has on settlement efficiency throughout the settlement lifecycle, identifying the key pinch points in the process, but also the best practices employed by those organisations that outperform their peers and have minimal fails.

Starting in April 2024, the initiative launched a series of activities to raise market awareness of these drivers, their underlying causes and how they might be addressed. We also improved existing tools including EasyFocus, giving predictive matching prioritisation insights powered by artificial intelligence, enabling a greater focus on matching trades with the biggest impact on efficiency. In collaboration with Clearstream, we increased the number of partial runs for Bridge settlement to align with our internal settlement offering, having a direct positive impact on the intraday settlement velocity over the Bridge. Client Partial Release functionality was also introduced, a major improvement allowing clients to release portions of delivery instructions previously set ‘on hold’, facilitating partial settlement.

Euroclear is committed to playing its part in ensuring a smooth and seamless market transition to T+1 across Europe. We have committed expert resources to both the EU and the UK technical workstreams and already working on our own transition to T+1, investing in innovative new solutions and enhancing existing services.