How and Why Trade Settlement Cycles Gets Shorter and Shorter

Securities settlement is the settlement process through which the buyer receives the security and the seller receives the cash. Currently, it takes two business days (known in the industry as T+2) to complete trade settlement.

The shortening of the settlement cycle to just one business day (T+1 settlement) aims to speed up how trades are finalized and reduce risk in the system. This, in turn, strengthens the efficiency and competitiveness of securities services and other post-trade financial services in the European Union (EU).

In the early days of modern financial markets (mid-20th century and earlier), settlement periods were quite long – often five business days (T+5) or more. This was due to the manual, paper-based nature of trading. Physical stock certificates had to be delivered. Payments were processed via checks. Settlement systems and processes in back-office operations were coordinated by mail or phone.

With the advancement of electronic trading, back-office automation, and centralized clearing through organizations like the Depository Trust & Clearing Corporation (DTCC), the US and many other markets transitioned to a T+3 cycle in the 1990s. This three-day period was seen as a balance between operational feasibility and reducing credit and counterparty risk.

The European Union (EU) moved to T+2 in 2014 as part of regulatory reforms after the 2008 financial crisis (e.g., the European settlement regulation, CSD Regulation). The US followed in September 2017, citing benefits like reduced risk exposure and greater harmonization with global financial markets. Other jurisdictions, such as Australia, Hong Kong, and Canada, also adopted T+2, making it the new global standard.

From then on, the consensus was that a T+2 cycle was appropriate. From a risk perspective, the two-day gap between trading and financial transaction settlement was not an obstacle because of the role of clearing houses. The two-day window also allowed middle and back-office settlement systems and processes to be completed in time, including cross-border securities settlement.

In 2020, during the pandemic, financial markets faced moments of high volatility. The GameStop crisis in February 2021 triggered an industry debate in the US, led by DTCC and supported by the US Securities and Exchange Commission (SEC). They argued that shortening the settlement cycle could reduce market risk and capital requirements during sharp price movements.

Over the following months and throughout 2022, the debate grew in the US and eventually reached Europe, although with less enthusiasm. On February 15, 2023, the SEC published final rules for the transition to settlement cycle T+1. The migration date in the US was set for May 28, 2024.

Markets within the US sphere of influence, such as Canada and several Latin American markets, also agreed to shorten their settlement period that same year. China and India, which already operated on T+1 settlement, remained aligned.

Europe had to react. Authorities needed to evaluate the pros and cons of moving to T+1 and consider the effects of having different settlement cycles across the Atlantic.

On February 12, 2025, the European Commission published a proposal to shorten the T+1 settlement cycle for EU securities from two days to one. This would be done through a targeted amendment to the European settlement regulation (CSDR). The proposed transition date is October 11, 2027.

From that date, most securities will settle one day after the trade instead of two. This change sounds simple, but it requires a fundamental rethink of post-trade operations across borders, time zones, and institutions.

This timeline gives market participants time to develop, test, and agree on settlement systems and processes. The goal is an orderly and successful introduction of T+1 settlement in EU financial markets.

The European Commission’s proposal aims to make EU financial markets more competitive, efficient, resilient, faster, and safer. Settling trades in one day instead of two reduces risk, frees up capital sooner, and can increase market activity. It also promotes greater automation in post-trade settlement processes, making operations smoother across the region. This impacts everything from internal processes and system cut-off times to how companies work with clients and counterparties.

The shift will also align the EU with global markets such as the US, Canada, and India. This alignment helps lower costs, avoid market fragmentation, and keep the European Union (EU) competitive.

On June 30, 2025, the EU T+1 Industry Committee released a High-Level Report. It was prepared with ESMA, the European Commission, and the European Central Bank. The report gives non-binding recommendations on key operational areas such as settlement systems and processes automation, trade matching, cut-off time harmonization, and governance structures.

It stresses the need for pan-European coordination to tackle technical, legal, and cross-border challenges. While not regulatory, the document is meant to guide industry readiness and support future legislative action related to European settlement regulation changes.

The report’s release was followed by a launch event on July 3, 2025, in Brussels, hosted by the EU T+1 Industry Committee with key EU institutions.