For EU and UK treasurers, new T+1 settlement rules that will shorten the trade settlement cycle for trades in stocks, bonds and exchange traded funds from two days after the execution date, to just one day, are looming into view.

Already in place in some jurisdictions like the US, Canada and India, shorter settlement will impact corporate treasury operations particularly in the realms of cash forecasting and liquidity management and are seen as important for the future health of markets.

EU financial markets now look set to make the long-awaited move to reduce trade settlement times in 2027, moving in alignment with the UK’s timetable. Long sought after by regulators, faster settlement will lower trading costs and make the settlement of trades more efficient and reliable.

With the settlement process reduced from 48 to 24 hours, corporate treasuries face the challenge of more precise and timely cash forecasting, explains Paulo Da Costa, Head of Customer Success at cross-border payments solution company RTGS.global. This compressed timeline may necessitate the maintenance of higher liquidity buffers, potentially leading to opportunity costs.

Da Costa notes that despite initial concerns, we have seen evidence of US-based financial institutions preparing well for this transition, resulting in minimal disruption. “The successful implementation in the US market provides valuable insights and potentially a roadmap for other markets contemplating or preparing for the move to T+1 settlement,” he says.

For companies operating across multiple time zones, FX management strategies are likely to undergo substantial changes. This shortened timeframe for funding trades will require more proactive and diligent approach to FX management. He also flags that companies may need to develop more sophisticated FX hedging strategies to manage any increased short-term volatility and reassess their global treasury structures to ensure they can meet the demands of faster settlements worldwide.

Shortened settlement cycles might influence working capital optimisation and short-term investment decisions.

While faster settlements could potentially increase liquidity availability and reduce overall working capital needs, it may also necessitate adjustments to short-term investment strategies. Companies might shift towards more liquid, readily accessible investment vehicles to meet the demands of T+1 settlement. The challenge lies in balancing the benefits of reduced capital tie-up with the potential costs of maintaining higher liquidity buffers.

He also warns that the new settlement period will impact intraday liquidity management and the potential need for more real-time treasury operations.

Intraday liquidity management and real-time treasury operations are likely to become crucial in the T+1 environment. The condensed settlement timeline will require more robust intraday liquidity management capabilities and potentially real-time treasury operations. Investments in technology and automation will be key to handling the increased speed of transactions and settlements effectively. As the industry continues to evolve, with potential future moves towards even faster settlement cycles, companies will need to remain agile and prepared for ongoing transformation in treasury operations.