A new research report from Firebrand Research, conducted in collaboration with Clearstream, DTCC, and Euroclear, paints a detailed picture of the operational and financial burden the European market faces as it prepares to shorten the settlement cycle to T+1 by October 2027.
Drawing on interviews with 45 firms across asset management, custody, banking, and brokerage, the report points to widespread concern over fragmented market structures, inconsistent operational practices, and insufficient automation, all of which could make the European T+1 shift significantly more complex than the North American move completed in May 2024.
Automation in place, but not enough
Most firms already process a large share of equity and fixed income trades through automated matching platforms, 83 per cent and 71 per cent respectively. However, many of the trade failures in 2024 were still linked to basic operational issues. According to the report, 71 per cent of settlement failures were due to counterparty shorts, and 21 per cent stemmed from incorrect or outdated standing settlement instructions (SSIs).
Interviewees highlighted the need for better integration between trade matching and pre-settlement processes at the CSD level. Mismatches in SSIs and place of settlement (PSET) remain a major cause of post-trade friction, particularly given inconsistent data handling between custodians and FMIs.
Costs rise with complexity
The European transition is expected to be significantly more expensive than the U.S. equivalent. A small buy-side firm could face T+1 implementation costs starting at US$223,000, while large custodians may be looking at budgets exceeding US$36 million. Much of this will go into staffing and upgrading infrastructure to handle the accelerated settlement cycle.
Unlike in North America, the European market must account for multiple currencies, FMIs, and regulators. This complexity requires larger implementation teams and more intensive coordination between counterparties. The report warns that 28 per cent of firms have not yet started planning for the shift, raising concerns about readiness across the region.
Misalignment
The potential for uneven implementation across European jurisdictions is a key risk flagged by respondents. Differences in market practices, regulatory timelines, and FX processing could lead to misalignment that undermines the benefits of a shorter cycle.
While lessons from the U.S., including early testing and stronger governance, may help, the report suggests that without a more harmonised approach and investment in automation, European markets may face a rougher path to T+1.
