T+1 settlement is reshaping the global financial markets. While releasing billions of dollars in clearing capital, it has also exposed operational gaps in the post-trading infrastructure on Wall Street. The transition in the United States has led to quantifiable improvements in efficiency, but securities lending, foreign exchange fund arrangements, and transaction processing continue to challenge institutions that must operate within tighter settlement windows. As Europe prepares to switch to T+1 settlement in October 2027, the increase in failed transactions and the uneven level of automation are making these challenges even more prominent.

This report examines the financial impact of T+1, how settlement delays continue to consume time and capital, and which aspects market participants must improve in order to make faster settlements more efficient in a large-scale environment.

T+1 releases $3.7 billion in liquidation capital

On May 28, 2024, the United States switched to T+1, shortening the standard settlement period for most securities transactions from two working days to one working day. This change resulted in a measurable improvement in settlement efficiency, with the required settlement funds estimated to have decreased by $3.7 billion compared to the average level of the previous quarter.

Faster settlement reduces the time that clearing institutions and market participants are exposed to unsettled transactions, can also lower counterparty risk, and decreases the amount of capital that companies need to hold to fulfill their obligations.

Operational performance also improved as settlement requirements were tightened. As of May 29, 2024, approximately 94.55% of transactions were confirmed before 9 p.m. Eastern Time on trading days, up from 73% at the end of January 2024. This improvement indicates that earlier transaction confirmation and a tighter processing window have helped companies adapt to the accelerated settlement cycle.

However, these data reflect the situation in the early stages of the transition in the United States, not the current performance in 2026. They indicate the financial and operational benefits achieved during the implementation process, rather than the current settlement efficiency level of the entire market today.

European failed transactions are growing faster than the settlement volume.

As companies prepare for the switch to 2027, Europe's post-trading infrastructure is facing more severe challenges. Settlement activities increased by 15% in 2025, but failed transactions increased by 21% during the same period, indicating that the growth rate of operational anomalies is faster than that of trading volume itself.

This gap indicates that there are still persistent weaknesses in transaction matching, settlement instructions, and data exchange after transactions. A recent industry assessment found that only 33% of European central banks have automated the storage and exchange of permanent settlement instructions (Standing Settlement Instructions, SSI), while 68% still rely to some extent on manual transaction matching processes.

In a T+1 environment, these processes will be more difficult to manage. Enterprises will have less time to identify mismatching instructions, resolve allocation discrepancies, and ensure that the securities or cash required for settlement are in place. The level of manual intervention that was manageable within a two-day cycle may significantly increase the risk of failed transactions when that processing window is halved.

The challenge is not just about processing transactions more quickly. Market participants also need to establish reliable data and automated workflows between brokers, custodian institutions, investment managers, and settlement infrastructure.

Securities lending and foreign exchange funds remain points of pressure.

Under shorter settlement cycles, securities lending and foreign exchange fund arrangements remain important sources of operational pressure. Cross-border investors typically need to convert currencies, arrange for the availability of securities, and coordinate deliveries across different time zones. Under a T+1 settlement cycle, any delay in any of these steps can reduce the time available for companies to complete settlements.

A 2024 industry survey covering nearly 500 institutions has highlighted the impact on securities lending. Half of the respondents stated that T+1 requirements have affected their securities lending business, a figure higher than the 33% reported in last year's survey. Among seller institutions, 56% indicated that lending and recall activities were significantly disrupted.

These findings are historical evidence from the transition period in the United States, rather than the latest situation as of 2026. However, they still point to a structural challenge: securities recalls and inventory reallocations must be coordinated earlier to prevent shortages during settlement.

Automated partial settlement aims to reduce failed transactions.

Partial settlement is one of the mechanisms being developed to reduce failed transactions. Rather than letting the entire delivery process stall due to insufficient securities from the seller, it is better to complete the settlement for the deliverable portion first, while leaving the remaining quantity to be processed later.

The Depository Trust Company ( DTC ) is developing an automated partial settlement solution aimed at identifying eligible deliveries and processing authorized partial settlements throughout the trading day. The goal is to reduce manual coordination among buyers, sellers, and custodian institutions, while allowing available securities to flow more quickly along the settlement chain.

The initial implementation includes automated processing and partial settlement authorization. Customer testing was scheduled to begin in the late third quarter of 2026, with the production environment target set for the third quarter of 2027, but this is subject to regulatory review and approval. The current project schedule does not indicate whether the testing has been completed yet.

If implemented as planned, the automated settlement process can reduce the amount of obligations not fulfilled, improve intraday liquidity, and decrease the number of transactions that fail due to insufficient availability of securities. The second phase will cover bilateral securities financing transactions settled through DTC, with a target timeline for the fourth quarter of 2028.

The T+1 switch in Europe will enter the implementation phase in October 2027.

Europe is transitioning to T+1, moving from the regulatory preparation phase into the implementation and industry testing phase. The target switch date for the European Union, the United Kingdom, and Switzerland is October 11, 2027, which requires companies to coordinate their operational systems across multiple markets.

On October 16, 2026, the European Securities and Markets Authority confirmed that the EU's regulatory framework has been completed. The first important compliance milestone will arrive on December 7, 2026, by which time the applicable allocation and confirmation processes must use standardized electronic communication channels and machine-readable methods.

Settlement data has also received more attention. The fields for settlement locations (Place, of, Settlement, PSET) are used to identify the predetermined locations where transactions should be settled, helping counterparties to detect potential differences in routing and settlement locations earlier on.

As of October 3, 2026, it has become mandatory to report CTM transactions in accordance with the requirements of PSET. In the first week, 99.98% of the CTM allocations had the required PSET information supplemented. This result is only applicable to allocations processed through the CTM platform and does not represent the adoption rate across the entire European market.

Infrastructure providers are also advancing with testing. The European Central Bank has also outlined adjustments to the TARGET2-Securities ( T2S ) overnight settlement process, which are planned to be implemented in June 2027. T2S already supports a large number of T+1 and T+0 settlement activities, but the proposed adjustments aim to help the infrastructure operate more efficiently under the new schedule.

What does Wall Street need to fix before the next settlement reform?

The transition to faster settlement is not just about changes in the clearing system. Enterprises also need to handle the operational processes that determine whether securities and cash can be available in a timely manner when transactions reach the settlement stage.

The following four areas require particular attention:

• Automated trading matching: Reduces manual processing in the management of allocation, confirmation, and settlement instructions, and identifies discrepancies earlier.
• Securities availability: Strengthening coordination among securities lending, recall, and inventory management enables companies to fulfill their delivery obligations within tighter time frames.
• Liquidity and foreign exchange funds: Aligning currency conversion, cash positions, and financing decisions with shorter settlement windows, especially in cross-border transactions.
• Partial Settlement and Interoperability: Expand the automated delivery capabilities and improve coordination between trading, clearing, custody, and settlement systems.

These improvements will determine whether companies can reap the benefits of T+1 without transforming operational pressures into a higher failure transaction rate or unexpected liquidity demands.

What will happen next?

The switch in the United States has proven the financial feasibility of T+1, with lower clearing fund requirements and better transaction confirmation providing quantifiable evidence for improved settlement efficiency. The task facing Europe is more complex, as it needs to achieve the same level of efficiency in a market where different operational practices, currencies, and post-trade infrastructures coexist.

The next milestone is approaching rapidly. On December 7, 2026, the European Union will introduce new requirements for allocation and confirmation; at the same time, infrastructure providers and market participants will further advance the implementation and testing of these requirements. By 2027, industry-wide testing will become crucial to verifying whether companies can complete the entire transaction-to-settlement process within a single working day.

The T2S adjustment scheduled for June 2027, as well as the automated partial settlement of the DTC goal to be launched in the third quarter of 2027, will also test the effectiveness of infrastructure changes in supporting the new operating environment.

Ultimately, the success of T+1 depends not only on how fast the transaction settlement is, but also on the efficiency of the financial system in transferring securities and capital from the execution phase to the final delivery phase.