From One to Zero: Lessons from the U.S. T+1 Migration

As SEC Chair Gary Gensler remarked soon after the transition, “cutting the clearance and settlement cycle in half also reduces the amount of margin, or collateral, that must be placed with the clearinghouse. The way the math works, it’s likely to average 29 percent savings over time. First indications reported by the clearinghouse show a savings of 25 percent, or more than $3 billion, resulting from the move to T+1.”

These improvements and savings came at an estimated total industry cost of $5 billion for implementation, highlighting an overall positive return on investment.

Unintended Consequences

Despite success in achieving the transition’s core objectives, the broader industry costs may be significantly higher. Globally, Bloomberg reporting estimated $24 billion in securities lending costs and $6.2 billion in added costs for investments in foreign-exchange markets. Costs of this nature expose unintended consequences of the transition for firms still operating on a T+2 timeline, e.g., in Europe and the U.K., where transition is not slated until October 2027.

Such consequences include:

• Increased foreign exchange (FX) settlement risk and funding challenges, per analysis from LSEG. Spot FX transactions typically settle T+2, so transaction funding that relies on FX may not occur on time. This mismatch forces market participants to pre-fund securities transactions or find alternative sources of financing for U.S. trades, which can increase costs or discourage participation. The systemic implications of this situation may not fully emerge until future periods of market stress.

• Trade processing windows for international participants undergo compression. As TD Securities points out, European firms see this window reduced from 12 to 2 hours. Asia-Pacific firms see processing times shrink from 13 - 15 to 3 - 5 hours.

• While little has changed yet, in the lead-up to transition, one industry commenter raised the prospect that higher financing costs and settlement fails could force broker-dealers to decrease or cease cross-border services and reduce liquidity for U.S. investors.

• The shorter settlement window exposed a deep technology divide. Manual confirmation processes using email, fax, and spreadsheets can no longer support compressed settlement. It also made the limitations of legacy technology that much more acute, according to SWIFT. Early in the process, Accenture found that 34% of firms still had 50% or more manual touchpoints in trade processing.

Understanding Success Factors

Successful market transition required careful choreography between firms, regulators, and industry bodies. SIFMA formed a Command Center to coordinate over 900 buy-side, sell-side, and infrastructure providers. DTCC provided a comprehensive testing framework with 21 bi-weekly tests to validate end-to-end processing across all major market participants.

However, individual firms also had a much smoother experience when they demonstrated operational and technical maturity. Those with modern technology and process automation navigated the transition with little disruption.

In particular, leading firms anticipated the impact of shortened settlement cycles on their liquidity strategies. They implemented continuous, real-time monitoring systems to track intra-day liquidity positions instead of outdated end-of-day reconciliation processes. They also built cash forecasting capabilities using predictive analytics to identify funding needs in advance rather than reacting to shortfalls. Most importantly, they stress-tested these new systems under peak volume scenarios, ensuring they could meet obligations even during market volatility without scrambling for last-minute funding solutions.

Successful firms also used strategic automation to transform operations. They invested heavily in Straight-Through Processing (STP) systems to eliminate manual touchpoints between trade execution and final settlement. They used real-time data reconciliation to flag and resolve discrepancies automatically. They also invested in open architectures that enabled seamless data flow between trading platforms, clearing systems, and settlement networks via real-time APIs.

Setting the Stage for T+0

Firms in the U.K. and Europe will likely see comparable benefits in modernizing their technology and operations as they prepare for their own T+1 transition. However, the industry conversation is now shifting to T+0 settlement, i.e., within the same trading day, and eventually, instant settlement.

The operational lessons from T+1 become even more critical as the industry looks toward T+0. Future transitions will involve a much higher level of transformation.

First, the industry has not developed a working definition of T+0. The settlement window could occur either throughout the day at certain times or at the end of each trading day. An “end of day T+0” model would arguably be less disruptive, preserving benefits like cost efficiencies and risk mitigation when clearing through a Central Counterparty (CCP).

Second, multiple intra-day windows would be difficult to coordinate. In a request for comment, SIFMA stated that T+0 “would require the redesign of many securities processing functions, including institutional trade processing, ETF processing, options, margin investing, securities lending, FX markets, and global settlements across jurisdictions to meet the regulatory, operational, and contractual requirements.” In short, it would completely upend the current clearing and settlement infrastructure as well as supporting banking, custodian, and money market systems.

While these innovations could increase liquidity and reduce the likelihood of settlement failure in theory, in practice, they would fundamentally reinvent the trade and post-trade environments. They would likely require wide adoption of technologies such as Distributed Ledger Technology (DLT). Some post-trade processes, like the provision of allocations, exchange of settlement information, positioning of sufficient securities by the seller, and pre-funding by the buyer in the correct currency, would effectively need to occur before trading. This radical change would take time.

The Transformation Imperative

T+1 demonstrated that operational excellence creates lasting agility and competitive advantages. Firms with a strong approach to automation emerged with lower costs, lower risks, improved capital efficiency, and enhanced client capabilities.

With T+0 on the horizon, even more radical transformation is coming. Firms already running on modern, automated platforms have a head start. Everyone else faces a shrinking timeline. They can build operational capabilities now or risk being unable to operate when same-day and real-time settlement become the market standard.