Why getting it right now matters
The transition to T+1 trade settlement isn’t just a regulatory requirement: it’s a reckoning for post-trade lifecycle management and operations. Budgets are being allocated and deployed. Timelines are contracting. For banks, asset managers, and financial
market infrastructures (FMIs), the margin for error is vanishing fast. The time to act is now.
At the centre of this challenge? Exception management.
Understanding T+1 settlement
T+1 means settlement, which is when the ownership of the asset is transferred from seller to buyer and the corresponding payment is made, must occur one business day after the trade date. It cuts the existing T+2 settlement window
in half; compressing everything from trade confirmation to delivery into a matter of hours.
By the morning of T+1:
- Trades must be affirmed
- Allocations must be accurate
- Standing Settlement Instructions (SSIs) must be correct
- Exceptions must be identified and resolved
A single misstep in the settlement process triggers failed trades, causing costly financial, operational, and reputational ripple effects. If the trade fails then exception management, which refers to the process of identifying, investigating, and resolving
discrepancies or issues that arise during the settlement process, kicks in.
Efficient exception management matters. For investors, the T+1 shift enables faster access to funds and securities, which subsequently can be put to better use. For institutions, it demands precise coordination, flawless data, and real-time exception management
handling.
Lessons from the U.S. T+1 transition
When the U.S. transitioned to T+1 in May 2024, many financial firms struggled despite significant lead time. Key issues included:
- Rising trade fail rates, especially across cross-border and FX-linked transactions
- Intensified post-trade pressure, as exception windows shrank to 2–5 hours
- Breaks caused by manual SSI processes, including reliance on spreadsheets
- Coordination issues, especially with counterparties using outsourced back offices
It’s estimated that the industry-wide T+1 compliance cost topped $30bn, and that smaller firms were disproportionately impacted due to legacy post-trade infrastructure systems and reliance on manual processes.
The firms that performed best had one thing in common: they automated early. They proactively automated data pipelines, exception workflows, and settlement instructions, leading to reduced fail rates and enhanced operational resilience
within weeks. This early automation enabled them to effectively manage exceptions and contributed to their overall success in the transition.
The lesson for the UK is clear: Start early. Prioritise intelligently. Automate strategically.
T+1: a global movement
The transition to a T+1 settlement cycle is part of a broader global movement, with several jurisdictions adopting or planning similar changes. Canada has already implemented a T+1 settlement cycle, while the UK Government is actively preparing for the shift
due to happen in October 2027 through the work of its Accelerated Settlement Taskforce, which has published draft recommendations and is expected to release a final
report soon.
In the European Union (EU), the European Commission and the European Securities and Markets Authority (ESMA) are collaborating with trade associations and market participants to explore the next phase of settlement cycle reform, aiming for a successful transition
to T+1.
While the timeline and approach may vary across regions, the anticipated benefits, such as reduced settlement risk, increased market efficiency, and enhanced investor confidence, are consistent. Regulatory bodies, industry groups, and financial market firms
are working together to ensure that the implementation of T+1 settlement cycles is smooth and effective. As more financial markets move to a one business day settlement cycle, the global securities industry is poised for a new era of faster settlement and
improved operational resilience.
Why exception management is the battleground
Exception management is the ‘invisible infrastructure of post-trade’, until it breaks that is. Then it’s truly painful. Managing exceptions efficiently is thus essential to maintain operational performance and mitigate risk.
Common break causes include:
- Mismatched or incomplete trade details
- Missing trade affirmations
- Incorrect allocations
- Invalid or outdated SSIs
- Delivery failures due to insufficient holdings
Exception management is a complex process, requiring coordination across multiple teams, often using different systems, to resolve issues quickly and prevent settlement failures. The various tasks involved in resolving exceptions include identifying the
root cause, communicating with counterparties, updating trade records, and ensuring compliance with quality standards and regulatory obligations.
Under T+2, exceptions could be handled overnight. Under T+1, firms have a 2–5 hour window. If an exception isn’t resolved in that time, the trade fails and so does the firm’s obligation.
These failures aren’t isolated operational issues; they ripple across departments:
- CFOs see the immediate P&L impact from settlement fails and collateral inefficiencies, with responsibilities including financial oversight and reporting.
- Treasury feels the pain through trapped liquidity, misallocated capital, and the accelerated movement of money, which directly impacts liquidity management. Their responsibilities include managing cash flow and ensuring funds are available
for settlements. - Risk & Compliance, ensuring oversight and auditability in near real-time, with responsibilities for monitoring regulatory compliance and managing operational risk.
- IT, tasked with integrating and scaling systems quickly, and modernising fractured workflows. Their responsibilities include maintaining system reliability and supporting exception management tools.
Without a coordinated, real-time strategy for exception management, firms will struggle to meet T+1 settlement obligations and investors will ultimately bear the consequences.
Source:
https://www.tokenovate.com/insights/blog/exception-management-at-the-speed-of-t1/
