In the delivery of shares after listed options are exercised, in arranging funds to buy foreign-currency securities, and in creating and redeeming exchange-traded funds (ETFs), the number of business days between the trade and settlement sets the processing deadlines and the point at which funds must be ready. Shortening the settlement cycle is a move to cut that number from two business days to one.

Where the move to T+1 stands

T+1 is the standard settlement cycle in which a trade settles one business day after the trade date (T). As of October 2026, the United States and Canada have moved to T+1. In the United States, the Securities and Exchange Commission (SEC) adopted its final rule in February 2023, and the standard settlement cycle moved to T+1 in May 20241. Canada moved in the same month2.

The EU, under Regulation (EU) 2025/2075, and the UK, under legislation the government will use to mandate it, are both scheduled to move to T+1 in 202734. In its final report of November 2024, the European Securities and Markets Authority (ESMA) recommended that all relevant instruments move together5. The dates and national rules are covered in Securities Settlement and CSDs: DvP, JASDEC and T+1.

Why shorten the cycle

Between the trade and settlement, the parties to a trade bear the risk that the other side cannot pay and the risk that prices move. In markets with a central counterparty (CCP), the CCP takes on these risks and asks its clearing members for initial and variation margin6.

A shorter cycle reduces both the total value of unsettled trades and the time during which counterparties bear market and credit risk. With trading volume held constant, the market value of trades awaiting settlement at any time under T+1 is about half that under T+2. At the National Securities Clearing Corporation (NSCC), the DTCC subsidiary that clears US equity trades, the SEC estimated the value of unsettled trades would fall from about USD 88 billion to about USD 44 billion. The estimate is based on statistics for the second quarter of 202278.

The collateral a CCP requires depends on the value and price volatility of unsettled trades, so it can become smaller if the period during which the CCP bears risk falls from two business days to one910.

After the move, the average NSCC clearing fund (the resources clearing members post with NSCC) fell from USD 12.8 billion, the average of the three months before the move under T+2, to USD 9.8 billion under T+1. That is a decrease of USD 3.0 billion, or 23%11. Sellers also receive sale proceeds sooner, which reduces the liquidity risk of waiting for payment12.

On the other hand, a shorter time from trade to settlement also leaves less time to complete post-trade processing.

Time for post-trade processing

In institutional trades, the broker-dealer and its customer must complete allocation, confirmation of the trade details and affirmation to obtain an affirmed confirmation. Affirmation by the end of the trade date was already considered an industry best practice under T+2, but when the SEC adopted its final rule, only about 68% of trades were affirmed on the trade date13.

After the move, about 95% of trades were affirmed by the 9:00 p.m. Eastern Time trade-date cutoff set by The Depository Trust Company (DTC), another DTCC subsidiary. The rates by segment are as follows14.

Segment January 2024 July 31, 2024
Prime brokers 81% 98%
Investment manager auto-affirmation (central match) 92% 96%
Affirmation by the custodian or investment manager itself 51% 88%

The average settlement fail rate in July 2024 was 2.12% for Continuous Net Settlement (CNS) and 3.31% for DTC non-CNS, both in line with the averages under T+215.

Funding and FX

When the payment for securities is arranged through an FX transaction, a later FX settlement than the securities settlement forces the buyer to find another source of funds. Funding the payment for US securities that settle on T+1 with an FX transaction that settles on T+2 may be harder and costlier than before. Responses include extending the closing time of FX trading desks, pre-funding what the FX transaction would have provided, and redeeming money market positions16.

Consider a hypothetical example in which an investor buys US shares worth USD 1 million (the equivalent of 150 million yen) at 150 yen per dollar, and on the same trade date enters a spot FX transaction to sell yen and buy dollars. Assume the spot FX transaction settles two business days after the trade date.

Standard settlement cycle Day the securities are paid for Day the dollars arrive from FX Funding shortfall
T+2 Two business days after the trade date Two business days after the trade date None
T+1 One business day after the trade date Two business days after the trade date One business day

Under T+1, the dollars have not yet arrived on the day the securities are paid for, so the buyer must arrange one business day of dollars separately. Assuming dollars can be borrowed at 4% a year on a 360-day basis, carrying USD 1 million for one day costs about USD 111, or about 16,700 yen at 150 yen per dollar (USD 1 million × 4% ÷ 360 ≈ USD 111). An investor who can prepare the dollar funds in advance does not bear this borrowing cost.

The same problem exists for European currencies. Normally the FX transaction is executed after the securities trade is confirmed and settles on T+2 with the securities, but under T+1 the FX must be executed earlier. Investors in other time zones, such as Asia, can use pre-funding, executing FX before confirmation, bilateral FX trading, or automatic FX, which can add cost and widen spreads. ESMA sees practices evolving after the US move so that FX is executed in time, and sees no sign of a negative impact on FX markets17.

A change to the settlement system of CLS Bank International (CLS Bank), which settles the two currency payments of an FX trade on a PvP basis, was not possible before the transition date, but market participants and custodians adapted their operations. There are also early indications that CLS Bank's FX volumes remained consistent with historical trends18.

Recalls of lent securities and time zones

To sell a security that is on loan and settle on time, the lender must recall it and receive it back. Under T+2, several broker-dealers had securities lending agreements that set the delivery period for recalled securities at two settlement days after the recall, and under T+1 a recall may have to start on the trade date19. The legally binding recall deadline is set by the agreement, and the industry recommended recalls by 11:59 p.m. Eastern Time on the trade date as a "leading practice"20.

Market makers borrow the securities they sell through securities lending or repo. ESMA expects securities lending liquidity to fall if lenders doubt they can get securities back in time. Without investment in automation and better practices, it says, lending and repo liquidity could decline21.

Processing on the trade date falls at night for investors in other time zones. Comments on the US final rule raised the concern that for investors several hours ahead of the US, the new cutoffs would fall late into the night22.

The settlement cycle of derivatives themselves does not change. The US T+1 provisions exclude security-based swaps23. The links arise where a derivatives trade leads to the settlement of a security such as a share.

Exercise of listed options

The CCP for standardized equity options in the US is the Options Clearing Corporation (OCC). The exercise and assignment of options that call for physical delivery of shares create share settlement obligations that NSCC clears24. On January 10, 2024, OCC filed rule changes with the SEC to fit T+1. The changes move the delivery date for broker-to-broker settlement from the second to the first business day after exercise, and end the process for accepting late exercise notices. Under T+1, the settlement of a late exercise would have to be sent to NSCC on the same day, which would be inconsistent with the agreement between OCC and NSCC. Corrections of errors are still allowed up to the daily processing deadlines. OCC planned to implement the changes on May 28, 2024, and the SEC approved them in an order dated March 8, 202425.

ETF creation and redemption

ETF shares are created when an authorized participant (AP) deposits a creation basket of shares or cash with the ETF26. For ETFs whose baskets include foreign securities, a mismatch with overseas settlement cycles may require APs to post collateral or set up credit lines, but the SEC did not exempt ETFs from T+127. NSCC made end-of-day pricing available earlier so that creation and redemption trades can be reported in near real time28.

Hedging settlement and time zone mismatches

In cross-border trades, mismatched settlement cycles and time zones may require trades to hedge the resulting risks, which adds cost29. As in the FX example above, when the FX settlement date is later than the securities settlement date, arranging funds for the gap is the core of that cost.

The position of Japanese equities

The status below is as of the July 2025 interim summary. Japanese equities moved from T+3 to T+2 in July 2019 and settle two business days after the trade date. In its report of July 2, 2024, the Market System Working Group of the Financial System Council said that market participants need to begin practical study of how to move to T+1 and what issues arise. A study group on T+1, with the Financial Services Agency, the Japan Securities Dealers Association, the Japan Securities Clearing Corporation and the Tokyo Stock Exchange as its secretariat, was then set up30.

In the interim summary the Financial Services Agency published on July 15, 2025, the benefits of a shorter cycle are less settlement risk, greater funding efficiency with a lighter collateral burden, and more streamlined settlement operations. The issues are more failures to deliver securities by the settlement deadline, more operational errors from a heavier workload per hour, and cases in which non-residents east of Japan must match and settle trades at night31.

In the study group, many participants said it was still unclear whether the benefits justified the cost. The interim summary said the group would watch developments in countries in the same time zone, such as Hong Kong, Singapore and Australia, and continue to study the matter through follow-up meetings. The move to T+2 took about five years from the start of study to the transition32.

Notes

  1. SEC, "Shortening the Securities Transaction Settlement Cycle" (external site), 88 FR 13872, at 13872 (Summary) and 13916–13918 (Part VII.A). The adoption date is "Dated: February 15, 2023," at the end of the document (page 13954). ↩

  2. CDS, "T+1 Is Here: Transforming Canadian Capital Markets" (external site), "Seamless Transition to T+1" and "Global Alignment." ↩

  3. European Parliament, "Securities settlement in the EU and central securities depositories (CSDs)" (external site) (2025/0022(COD)), "APPLICATION." ↩

  4. HM Treasury, "Policy note – Mandating T+1 settlement in the UK" (external site) (updated November 20, 2025), "Introduction" and "Next steps." ↩

  5. ESMA, "Report on the assessment of the shortening of the settlement cycle in the European Union" (external site) (November 18, 2024), summary (PDF page 6). ↩

  6. ESMA final report (external site), paragraphs 91–92 (PDF page 32). ↩

  7. SEC, "Shortening the Securities Transaction Settlement Cycle" (external site), 88 FR 13872, at 13926 (Part VIII.C.1, "Benefits"). ↩

  8. SEC final rule (external site), 88 FR 13872, footnote 324 (the description of DTCC ITP Matching). It states that DTCC is the parent of DTC, NSCC and FICC, and that those three are registered with the SEC as clearing agencies. ↩

  9. SEC final rule (external site), 88 FR 13872, at 13927 (Part VIII.C.1, "Benefits"). It states that a CCP "may require less collateral." ↩

  10. ESMA final report (external site), paragraphs 93–94 (PDF page 32). ↩

  11. SIFMA, ICI and DTCC, "T+1 After Action Report" (external site) (September 12, 2024), page 6, "Impact on Clearing Fund in a T+1 Environment." On posting by clearing members, see page 13927 of the SEC final rule (external site). ↩

  12. SEC final rule (external site), 88 FR 13872, at 13926. ↩

  13. SEC final rule (external site), 88 FR 13872, at 13922 (Part VIII.B.2). It states "only about 68% of trades achieve affirmation on trade date." ↩

  14. "T+1 After Action Report" (external site), page 6, "Affirmation Rates Analysis." The rates by segment are as of July 31, compared with January. ↩

  15. "T+1 After Action Report" (external site), page 7, "Fail Rates Overview." ↩

  16. SEC final rule (external site), 88 FR 13872, at 13881 (Part II.C.1, the SEC's response). ↩

  17. ESMA final report (external site), paragraphs 100–106 (PDF pages 33–34). ↩

  18. "T+1 After Action Report" (external site), pages 3–4, "International Considerations." ↩

  19. SEC final rule (external site), 88 FR 13872, at 13922 (Part VIII.B.2) and 13912 (Part VI.A, the Rule 200(g) discussion). ↩

  20. "T+1 After Action Report" (external site), page 4, "Securities Lending." ↩

  21. ESMA final report (external site), paragraphs 97–99 (PDF page 33). ↩

  22. SEC final rule (external site), 88 FR 13872, at 13888–13889 (Part III.B.6). ↩

  23. SEC final rule (external site), 88 FR 13872, at 13883 (Part II.C.3). ↩

  24. SEC, "Self-Regulatory Organizations; The Options Clearing Corporation; Order Granting Approval of a Proposed Rule Change" (external site) (File No. SR-OCC-2024-002, Release No. 34-99701, March 8, 2024), 89 FR 18685, at 18685–18686, II. Background and II.B. ↩

  25. SEC order approving the OCC rule change (external site), 89 FR 18685, at 18685–18686, I. Introduction, II.A and II.B. ↩

  26. SEC final rule (external site), 88 FR 13872, at 13879 (Part II.B, summary of comments). ↩

  27. SEC final rule (external site), 88 FR 13872, at 13886 (Part II.C.6, the SEC's response). ↩

  28. "T+1 After Action Report" (external site), page 3, "Exchange Traded Funds." ↩

  29. SEC final rule (external site), 88 FR 13872, at 13930 (Part VIII.C.2, "Costs"). ↩

  30. Financial Services Agency, "T+1化に関する勉強会 中間整理（概要）" (external site) (Interim summary of the study group on T+1, overview; in Japanese), July 15, 2025, pages 1 and 3. ↩

  31. Financial Services Agency, "T+1化に関する勉強会 中間整理（概要）" (external site) (Interim summary of the study group on T+1, overview; in Japanese), page 1 (the working group report summary) and page 3. ↩

  32. Financial Services Agency, "T+1化に関する勉強会 中間整理（概要）" (external site) (Interim summary of the study group on T+1, overview; in Japanese), page 3. ↩