Preparing for T+1 Settlement

The T+1 industry guidance published will be a basis for regulatory requirement.
 

• In the UK, the Government had accepted all recommendations made by the Accelerated Settlement Technical Group – confirming that the UK will move to a ‘T+1’ standard for settling in-scope securities trades from 11 October 2027.
  
• In the EU, the European Parliament committee on Economic and Monetary Affairs adopted the EU Commissions’ proposal to amend EU CSDR from a two-day settlement cycle to one-day. The European Parliament and European Council would need to adopt the proposal to publish in the EU Official Journal.

Securities that are traded and settled in the below EEA countries are in scope for EU T+1:

• Official regulation has not yet been published in the UK to mandate T+1 – only a commitment to transition to T+1 from HM Treasury, Bank of England and Financial Conduct Authority (FCA).
  
• Official regulation has not yet been published in the EU. EU Commission proposed to shorten the settlement period for EU transactions in transferable securities from two days to one on 12 February 2025. The proposal has been submitted to the European Parliament and the Council for their consideration and adoption. The changes will enter into force once the co-legislators have reached an agreement on the proposal and after publication in the EU Official Journal.

• In the UK, the final implementation plan published – section 1.4 recommendations for the implementation of scope identifies the scope for T+1 implementation. It highlights the general scope of Article 5(2) UK CSDR should stay the same as it is today.
  
• In the EU, similarly to the UK, it is anticipated that Article 5 CSDR (Regulation (EU) No 909/2014) will be amended from “T+2” to “T+1” settlement cycle. However, this would be more formalised after the ESMA Regulatory Technical Standard (RTS) consultation.

Clients will be expected to agree, instruct, and settle cash flows within the T+1 timeframe by market convention for new trades on all relevant OTC equity derivatives and swaps on UK/EU/Switzerland cash equities, UK/EU/Switzerland custom baskets, UK/EU/Switzerland indices (together ‘eligible swaps’) and global indices/baskets where UK/EU/Switzerland are a majority component. All accruals and settlements will be set up as T+1 settlement for new trades going forward on these products as of the relevant market transition date.

On 23 January 2025, Switzerland exchange (SIX) confirmed its transition to T+1 to align with UK and EU.

Non-UK/EU/Switzerland clients trading in eligible products in UK / EU trading venues and central securities depositories (CSDs) will be subject to the changes.
Non-UK/EU/Switzerland clients trading in eligible products off venue may also be in scope due to market convention.

Yes, there is alignment on when UK, EU, and Switzerland is expected to transition to a T+1 settlement cycle. The expected transition date is 11 October 2027.

In the UK, all transactions will be subject to the same rules regardless of the origin of the instructions.

• All allocation and confirmation processing, where carried out, will be completed as soon as reasonably practicable and prior to any deadline set by any relevant intermediary, and no later than 23.59 UK time on T+0.
• All settlement instruction submissions to the CSD will be completed as soon as is reasonably practicable and prior to any deadline set by any relevant intermediary, and no later than 05.59 UK time on T+1.
   

In the EU, T+1 rules are still pending confirmation.

In Switzerland, T+1 rules are still pending confirmation.

There has been no official announcement whether Certificateless Registry for Electronic Share Transfer (CREST) fines and EU CSDR settlement penalties would be suspended during the T+1 transition period.

We recommend that clients review the industry resources from various trade associations to best understand how the change will affect them. Some of the challenges raised across the industry include securities lending, foreign exchange, cross-border transactions (exchange traded funds, global baskets, et al.) and dual-listed securities.

We recommend that allocations and confirmation processing, where carried out, to be completed electronically using a recognised industry standard and corresponding data dictionary, including as part of ‘trade matching’ on a platform that supports an electronic trade confirmation (ETC) process, or via other automated services. A front to back automated solution would be beneficial to meet the T+1 deadlines.

We have concluded a thorough impact assessment of all potentially affected business processes and identified the high-level changes required to meet regulatory and industry-imposed operational deadlines and technical requirements necessary for a shortened settlement. Work is now underway to make the necessary changes to bring our processes into compliance and effect a smooth transition to T+1 for our affected clients.

Bank of America is actively engaged with industry working groups and forums and continues to review the mandatory recommendations to adapt and implement the necessary automation where possible. Please contact your dedicated client service representative or sales contact if you have specific questions.

Bank of America’s settlement instructions remain unchanged – subject to mandatory requirements in the UK, EU, and Switzerland regulation. We encourage clients to provide us with settlement instructions for allocations at the time of trading, or prior to placing an order, to avoid any delays in trade date confirmation or allocation.

Bank of America will require clients to adhere to the T+1 settlement cycle for in scope instruments and transactions subject to CSDR article 5(2). For out-of-scope activities requiring extended settlement transactions (T+2 or greater) may be requested on an as needed basis and will be subject to approval dependent on known market practice. Please speak to your trading or sales coverage prior to submitting extended settlement securities transactions. Bank of America will not approve or execute extended settlement on a continuous or permanent basis.

We recommend that all market participants do the following:

• Familiarize yourself with industry timelines, expectations and considerations outlined in the most recent published documentation below:
  
• UK: UK AST Technical Group draft report and recommendations and UK AST Technical Group final implementation plan
  
• EU: ESMA74-2119945925-1969 Report on ESMA assessment of the shortening of the settlement cycle in the European Union. Please note that the consultation paper deadline was 14 April 2025 and the final recommendations are expected in Q3 2025.
  
• Create your own plan to comply with the change.
  
• Discuss your focus areas or areas of concerns with your dedicated client service representative or sales contact.
  
• Notify your dedicated client service representative or sales contact if you want to perform testing with Bank of America.

We recommend automating settlement processes by adopting available post-trade solution technology to reduce the risk of settlement failure. If automating settlement process is not possible, it is recommended to implement the core principles and templates contained in the Financial Markets Standard Board (FMSB)’s Standard for Sharing of SSIs.

We also recommend automating post trade operations / activities for allocations and confirmation processing.