The move to T+1 trade settlement in North America had been a long time coming. Its implementation was spurred by two watershed moments – the increased market volatility at the outbreak of the Covid pandemic in 2020, and the surging interest in meme stocks, which infamously saw a community of retail traders squeeze hedge funds out of their GameStop short positions in 2021. Collectively, both incidents exposed investors to counterparty risks that could have been reduced by shortening the securities trading settlement period.
In the first of this series of articles, GreySpark Partners, in association with Vermiculus Financial Technology, explored the implications of T+1 trade settlement in North America for North American firms, including clearinghouses and Central Securities Depositories (CSDs). This second article presents the impacts of the same regulatory mandate in North America, but on global markets.
The impact of two US counterparties trading on a US exchange and settling the trade in a US clearinghouse is shown in Figure 1. Whereas for T+2 settlement, affirmations and allocations had to be completed before 11:30 the day after the trade, for T+1 Settlement, allocations had to be done by 19:00 on the day of the trade and affirmations by 21:00 on the day of the trade. The major implication of this is that after-hours work is needed by back-office staff to enable the trade to settle before the T+1 deadline. For counterparties in other parts of the world, T+1 settlement imposes a much tighter timeline.
The mandated settlement periods across the major securities trading jurisdictions of the world vary significantly, and this can result in some complexity, depending on the regional location of the counterparties. Figure 2 shows that some key jurisdictions including the EU, Hong Kong, most Latam jurisdictions, Singapore and UK are still operating on a T+2 trade settlement basis. This means that there is misalignment with the US markets in terms of settlement periods. Only North America, Argentina and India use a T+1 settlement period, with China operating on a T+1 to T+3 timeline depending on the asset class traded.
The trading of digital assets by institutional firms is small but quickly growing. Based on digital ledger technology, real-time settlement is possible. It is theoretically possible for those trading in traditional assets in financial markets to settle in real time, if DLT technology were to be used. This would reduce default risk as well as enable a closer integration with the crypto trading environments. Several major US exchanges are expanding their trading hours to accommodate the growing demand for digital assets and to align better with the 24/7 nature of cryptocurrency markets.
Nasdaq plans to introduce a 24/5 week, from the second half of 2026. This move aims to tap into the increasing global appetite for US equities, particularly from international investors accustomed to the continuous trading environment of digital assets. The extension will initially focus on large-cap stocks and ETFs, and there are discussions underway to address infrastructure and regulatory considerations. Intercontinental Exchange (ICE) is also moving towards extended trading hours.
The company plans to launch NYSE Texas, a fully electronic equities exchange, based in Dallas, pending regulatory approvals. This initiative aims to provide a modern trading platform that could potentially offer extended trading hours to better serve investors in different time zones.
Considerations for European Trading Houses
Intuitively, it could be imagined that the US T+1 settlement may halve the post-trade settlement time for financial firms overseas, but this is not necessarily the case when it comes to cross-regional trading. Due to time zone constraints, the European /UK firms’ settlement window has also reduced significantly since the switch to US T+1 settlement, as Figure 3 shows.
