Europe’s asset managers face brunt of T+1 workload

DEEP LOOK. As 80 per cent or more of the time for post-trade processing is lost, with Europe’s upcoming move from the T+2 settlement cycle, asset managers must make sure they have processes automated, trade preparation perfected – and still, in many cases, office hours extended. Aaron Woolner speaks with industry experts about the scene shift they are bracing for.

The European Commission’s February proposal to move the trading bloc’s financial markets onto a T+1 settlement cycle on 11 October 2027 brings it into lockstep with authorities in the UK and Switzerland and sets a putative start date for a radical overhaul of industry working practices.

According to Britta Woernle, a Director in Deutsche Bank’s Market Advocacy team, the burden of making these changes won’t fall evenly across the industry. 

“If you look through the value chain from the asset manager to the global custodian, then to the CSD, and to the issuer on the other side, you can see that most work for T+1 needs to be done on the asset manager side. 

The further the entity is away from the CSD, the more manual processes are in place. With T+1, even though the entire industry must do something, it’s mainly work for the asset managers and entities which are close to them,” says Woernle. 

According to AFME, the European capital markets association, the change from T+2 to T+1 means a reduction of post-trade operations time from 12 to two hours, an 83% decrease. 

Busy afternoons

As with the headline move to T+1, this change won’t impact all elements of the settlement cycle equally, according to Bill Meenaghan, Founder and CEO of tech firm SSImple.  

Meenaghan says the burden of this shorter time frame will fall mainly on the pre-trade segment, particularly considering European equity trading patterns, which are heavily weighted to the end of the day.

A 2020 joint research report by AFME and the Investment Association said higher levels of trading later in the day meant that trades cost up to three times more in the last 30 minutes of the day compared with the first 30 minutes.  

Meenaghan says meeting the T+1 settlement cycle means ensuring that all clients’ basic details are correct and the relevant asset class specific compliance procedures have been followed. 

“With T+1 it’s all about making sure being ready for the trade – knowing who the client is, having the account details, and completing the onboarding process. 

If it’s just standard securities, this process can be straightforward. If it’s foreign exchange or derivatives, then you may need more information. 

If the onboarding is not complete, or the SSIs are incorrect, there will be a much bigger scramble to get things done under T+1 simply because so much trading is done later in the day,” Meenaghan says. 

No time for unclarity

Thibaud de Luze, Global Head of Cash, Clearing and Settlement at Société Générale Securities Services, is clear that T+1’s shorter timeframe will herald a natural end to clients’ use of manual processes to manage for securities settlement.

“T+1 means that asset managers must send instructions on time and the data contained within them must be crystal clear. This will be complex as full straight-through processing (STP) – that is, processing where human intervention isn’t required in any step – is currently a challenge for a number of managers. But from tomorrow it will be mandatory, because sending manual instructions or managing repairs is by definition a more time-consuming process,” de Luze says.

Asset managers may need to overhaul their systems to automatically send trading and settlement data via STP but Camille Papillard, Head of Financial Intermediaries & Corporates EMEA for Securities Services for BNP Paribas says that the bank’s systems already have this capability.

“For BNP Paribas’ Securities Services, in our role as a settlement agent, we already support a lot of T+0 and T+1 settlement — it’s up to 30% of our volumes on certain days,” she says. 

No red flags, though

Despite the custodian banks’ concerns, Susan Yavari, Deputy Director, Capital Markets and Digital at EFAMA, the European Asset Owners Association, said that issues such as automation and changes to operational timetables are being considered by the workstreams set by ESMA to manage T+1 implementation. 

So far, according to Yavari, no major problems for asset managers have emerged.

“We haven’t seen any red flags yet and certainly not on the automation side. I don’t feel like asset owners are going to be unfairly penalised under T+1. That can of course change, but so far nothing has come through,” Yavari says. 

Drawing on the experience of the US switch to T+1 in May 2024, Papillard says there was an increased focus on liquidity management by asset owners, despite improved liquidity being one of T+1’s intended benefits. 

She says that Securities Services at BNP Paribas saw a noticeable increase in their clients’ dollar balances after May 2024 as asset owners responded to the shortened settlement timeframe by increasing their use of pre-funding.

Have you got the money?

Gerard Walsh, Global Head of Client Solutions for Banking and Market at Northern Trust, said the firm had also seen an increased focus by asset owners on their cash positioning and trade related FX, in the pre-trade phase as they looked to manage the liquidity pressures from US T+1 implementation.  

London-based Walsh said Northern Trust received requests for services such as extended credit, and that this was part of a broader industry trend for these requests to spike at the end of the working week. 

These requests are likely to be greater in Europe due to the more fragmented nature of its financial markets compared with the US. 

The decision by European authorities to coordinate the move to T+1 means a total of 14 currencies, including two of the G4 and the Bulgarian lev, will be involved in Europe’s move to T+1 in October 2027. 

Expect longer office hours

Walsh says that in addition to greater complexity of funding positions across multiple currencies, Europe’s more diffuse financial markets brings operational problems – such as how to alter working hours to meet the change to settlement times across multiple time zones. 

While the US market settled on a 9pm ET deadline for trade affirmation when it moved to T+1, this still had a knock-on effect on several firms which supported their US business out of Asia. 

Walsh says one Kuala Lumpur back office operation switched to a Tuesday–Saturday working week, while several European asset managers went public about relocating staff to the US to deal with time zone challenges when America brought in T+1. 

Europe (ex-Russia) is divided along three time zones compared with one effective time zone in the US, says Fiona Neville, Head of Securities Services Europe for Deutsche Bank. As a result, it is inevitable that hours for European back and middle office employees will also have to change for T+1. 

“There can be no getting away from the fact that even with all this automation, there will be earlier start time and extended working hours. But I still think the only way to truly manage the switch to T+1 is through technology and improving the quality of STP data. Extended opening hours will compliment that,” Neville says.