How KBC Helps Clients Navigate Europe’s Move to T+1
Europe is preparing for T+1, which means securities transactions will settle one business day after they are concluded instead of two. Koen Mertens, Network Manager at KBC Securities Services, explains why one day less can make a big difference, and how KBC’s broker-custody model helps keep much of that operational complexity away from clients.
Koen, why is Europe moving to T+1 now?
“Shortening settlement cycles is not entirely new. Europe already moved from T+3 to T+2 in 2014, and before that the market even worked with so-called ‘quinzaines’, where settlement could take up to 15 days. The transition towards T+1 accelerated after the US, Canada and Mexico switched to a one-day settlement cycle in 2024. Once they did that, Europe couldn’t really stay behind.
That’s because financial markets are globally interconnected. Some securities are traded on both European and American markets. If those markets operate on different settlement cycles, the same security can settle on different dates depending on where it is traded. That becomes especially important when, for example, dividends are paid out, because the settlement date helps determine who is entitled to receive the dividend.
Europe is therefore preparing for a coordinated transition together with the UK and Switzerland by 11 October 2027. But unlike the US, Europe is not one single market. Around thirty different markets need to move together, each with their own local practices and infrastructures. That is what makes this transition such a significant milestone for the European financial markets.”
“The longer the settlement cycle remains open, the more collateral is tied up in the system.”
Koen Mertens, Network Manager at KBC Securities Services
What actually happens between trade and settlement?
“That’s a good question. Settlement is often perceived as a purely administrative step after a trade. However, there is still risk in the market between the moment a transaction is executed and the moment the cash and securities are actually exchanged.
Imagine that one party has committed to deliver securities while the other side still has to provide the cash. If one of those parties fails in the meantime, the transaction may no longer settle correctly. That creates exposure for the counterparties involved, but also for the clearing houses standing between them.
That is why clearing houses require financial institutions, like KBC, to place collateral during the settlement process. That collateral acts as a financial buffer covering the risk that remains open until the transaction is fully settled. The longer the settlement cycle remains open, the larger that exposure becomes and the more collateral is typically required. So, by moving from T+2 to T+1, we reduce both counterparty exposure and the amount of collateral tied up in the system.”
But all of that work now has to happen in one day?
“That’s the tricky part, indeed. Under T+2, firms still have some time to organise funding, verify positions, resolve exceptions and intervene when issues occur. Under T+1, the market effectively loses an entire day. All that work suddenly needs to happen much faster and with far less room for delay.
That becomes even more challenging when foreign currencies are involved. Take a transaction in New Zealand dollars, for example. If it is traded on a European trading venue and settles through a European infrastructure, it can still fall within the scope of T+1. But by the time Europe is still trading, New Zealand’s operational day is already largely over. That leaves very little room to organise the necessary cash in time.
That’s why automation becomes so important. Under T+1, there simply is less time to correct things manually. The more processes can run automatically, the better firms can cope with the tighter settlement window. The industry is also looking more closely at existing mechanisms that can improve settlement efficiency, such as partial settlement.”
“Partial settlement allows the available part of a transaction to settle immediately instead of blocking the full trade.”
Koen Mertens, Network Manager at KBC Securities Services
What does partial settlement entail?
“Traditionally, if part of a transaction could not settle on time, the entire transaction often remained blocked. Under T+1, that becomes increasingly problematic because every settlement delay immediately creates additional pressure. Partial settlement allows the available part of a transaction to settle immediately, even if the remaining part is still pending.
For example: if 10,000 securities need to be delivered but only 5,000 are available, those 5,000 can already settle instead of blocking the full transaction. In a T+1 environment, that can make a real difference, because every delay immediately puts more pressure on the next step in the chain.”
How is KBC Securities Services helping clients prepare for T+1?
“Our broker-custody model makes a real difference in this transition. Because KBC acts both as broker and custodian for many clients, we can offer contractual settlement. That means clients often see the cash or securities in their account immediately after a trade, while KBC manages the actual settlement process behind the scenes.
That is different from many other parties in the market, who work mainly on an actual settlement basis. In that model, the client only sees the final result once the underlying market settlement has effectively taken place. If settlement is delayed, the client may therefore feel that delay more directly.
With contractual settlement, KBC absorbs much of that follow-up. That is the core advantage of our model: clients can continue focusing on their own business, while we take care of a large part of the operational burden. We already rolled out this approach successfully in the US and Canada. It now helps us prepare clients for Europe’s more fragmented market.”
“Clients already see the cash and securities in their account, while KBC takes on the underlying settlement risk.”
Koen Mertens, Network Manager at KBC Securities Services
