The US and Canadian securities markets successfully moved to a T+1 settlement cycle in May 2024. Now Europe and the UK are set to follow in October 2027. What can we expect from this transition?
From an FX perspective, the European transition should be relatively straightforward.The biggest challenge in North America was the time zone difference. In Europe, custodians (CLS settlement members) managing payment instructions and funding for asset managers using CLSSettlement have cut-off times that closely align with CLS’s timeline. CLS’s initial pay-in schedule (IPIS) deadline for submitting FX payment instructions for settlement is midnight CET on T+0. This timeline provides European market participants time to process FX transactions for next-day settlement under T+1.
Can you explain the time zone issue in North America and how CLS responded?
The US shift to T+1 in the securities space impacted the wider FX ecosystem, as around 20% of securities and 17% of equities are held outside the US. The compressed settlement timeline meant that investors and asset managers had less time to mobilize currency to fund US or Canadian securities trades.
Some market participants questioned whether the shift to T+1 for securities settlement could push FX to T+0 for some parts of the market and raised concerns about the usability of CLSSettlement. In response, CLS engaged extensively with the industry and conducted a thorough impact assessment ahead of the May 2024 transition.
The findings suggested that only around 1% of CLSSettlement’s average daily settlement value (ADV) of approximately USD7 trillion could potentially be impacted by the transition, representing business that may be linked to non-US investment funds trading US securities and settling FX on a T+1 basis. Thus, the scope of potential impact was limited compared to the ADV of CLS. It was also noted that any changes to CLS’s operational timeline would be subject to any required approvals and a comprehensive risk assessment, and further would require significant modifications to systems and processes throughout the CLS ecosystem that likely could not be completed in a reasonable timeframe. In view of these factors, no changes were made.
CLS’s post-transition analysis found no negative impact of the T+1 transition on CLS’s business. In fact, CLSSettlement’s ADV increased from USD7.0 trillion to USD7.6 trillion. The data monitored for impact suggests that both the sell and buy sides of the market adjusted their behavior ahead of the move where needed.
Are there any unique challenges for Europe?
Yes, but the focus is more on market participants’ readiness rather than structural barriers. Some smaller European institutions haven’t been as involved in the industry working groups that supported the US and UK transitions.
To better equip the industry for T+1, we’ve had to clarify key distinctions — for example, the difference between CLS’s IPIS submission deadline and the cut-off times set by custodians, which can be as early as 17:00 CET. Our impact analysis suggests that the percentage of CLSSettlement ADV that could be impacted by this transition should not exceed 0.4% in the EU and 0.1% in the UK.
There are also some concerns around trade confirmation workflows. Some asset managers may not confirm the underlying security trade until midnight, which can delay the FX leg. This means they might need to settle FX same-day, which creates additional pressure in a T+1 world. We saw a similar pattern in the US, exacerbated by time zone differences.
While the issue is less acute in Europe, the key to addressing it lies in adapting execution practices.
Has the T+1 transition fostered greater industry engagement and collaboration to facilitate post-trade efficiency?
Definitely. The North American transition to T+1 highlighted the need to automate back-office processes across the market. The back office has historically been underfunded as it doesn’t drive revenue or investor returns. T+1 has driven a recognition that there’s a need to invest in these operations.
After the North American move, we saw more demand from asset managers for our post-trade monitoring and reporting tool, CLSTradeMonitor, that provides a single view of all trade instructions submitted to CLSSettlement and CLSNet.
The transition also gave CLS an opportunity to engage the market more deeply on how CLSSettlement works — its architecture, timelines and risk mitigation mechanisms.
CLS is co-leading the FX workstream of the EU’s T+1 working group. How is that progressing?
We held intensive discussions with the industry to understand the issues and have provided our findings to the broader working group. We were able to leverage work already done in the US and the UK, which was very helpful as it gave us a framework to reference.
The FX workstream will continue to meet, albeit less frequently, as the focus shifts to implementation.
Why will CLS’s role in maintaining the FX ecosystem become more important as the industry evolves?
As more markets move to T+1 — there’s now talk of Asian markets shortening their settlement cycles — CLS’s role in enabling safe and efficient FX settlement is only growing.
Asia is already somewhat accustomed to faster settlement time zone-related challenges. For instance, many asset managers typically pre-fund their FX transactions, and the volumes in CLSSettlement are comparatively lower.
As more regions explore same-day settlement, there will be increasing pressure on liquidity and post-trade infrastructure.
We already see same-day flows from the sell side in CLSNet, our bilateral payment netting calculation service. We are onboarding buy-side firms and expect same-day values to rise.
More generally, we have seen significant growth on the CLSNet platform, with eight of the top ten global banks having joined the platform.
The upcoming Bank for International Settlements Triennial Central Bank Survey of foreign exchange and over-the-counter (OTC) derivatives markets will provide further insights into FX trading volumes and other industry topics, such as settlement risk.
Do you believe that T+0 is the next logical step for securities?
T+0 may eventually become a reality, but it’s still far off. The FX market convention is T+2, and many participants — especially smaller corporates and smaller asset managers — are not equipped to handle same-day settlement.
Instant or “atomic” settlement is often discussed in the context of central bank digital currencies or tokenised assets. Although those ideas are gaining traction, they often overlook the liquidity and efficiency benefits of multilateral netting, such as those offered by CLSSettlement. Our netting efficiency is on average over 99%, meaning that for every USD100 in gross value, less than USD1 actually needs to be settled. In an atomic settlement model, everything must be funded in full, and without the benefit of multilateral netting, this approach is likely to be less efficient and more expensive for market participants.
For this reason, we believe CLS continues to play a crucial role at the centre of the FX market, not only addressing the systemic risk challenges within the FX industry but also delivering tangible business benefits in the process.
