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Accelerating Settlements Beyond T+1 with Process Orchestration

Banks must strategically optimize processes beyond T+1 to achieve a high degree of straight-through processing. Process orchestration can help.
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As the financial industry gears up for the move to T+1 settlement in early 2024, banks and financial services firms will need to take several key considerations into account to ensure a smooth transition.

Although T+1 is seen as an interim step, top banks are looking to modernize their systems and streamline processes in anticipation of real-time T+0 settlement. According to a study by Accenture, 86% of respondents said their organization is already considering T+0 in their current T+1 efforts.

However, updating such a highly regulated and complex process comes with challenges. For many, a trade settlement process relies on a variety of endpoints that could include legacy systems right along with next-generation microservices and human workflows. Because the settlement process spans a number of different departments within the business, updating one part of an end-to-end process can have unknown consequences if there’s a lack of overall visibility—which can lead to heavy fines and mistrust from customers.

This is where process orchestration platforms such as Camunda excel. The platform is able to weave together a diverse set of endpoints, so you can continue using the technology that is working and iteratively redesign what is causing a bottleneck. Additionally, a standards-based notation like BPMN helps bring visibility to a complete process so everyone involved can understand both the business—and technical aspects—of implementation before work even begins. These features give organizations a way to reduce the risk of change while also scaling their automation efforts to future-proof their most important workflows.

In this post, we’ll discuss why banks must optimize processes beyond recent regulatory changes so they can achieve a high degree of straight-through processing in trading operation workflows.

Benefits of T+1 Settlements

Arguably, the shift to T+1 will have a bigger impact on institutions than the requirement to move from T+3 days to T+2 ruling that occurred in 2017. However, the change offers a range of benefits for financial institutions, including:

  • Reduced risk across the market
  • Greater operational and capital efficiency
  • Improved liquidity

Reducing exposure and risk

Faster settlement times reduce exposure over the settlement period, leading to lower margin and margin and collateral requirements.

On an average trading day, $13.4 billion is held in margin daily to manage counterparty default risk across the National Securities Clearing Corporation (NSCC) system. Shortening settlement times improves operations across the settlement ecosystem, lowering the risk from unsettled trades during periods of high market volatility.

Capital and operational efficiencies

The migration to T+1 provides opportunities to rethink operations to achieve straight-through processing. This will require a certain investment to reengineer processes, optimize margin calculations, and reduce margin requirements among all parties.

These changes will also help to synchronize processes across the securities industry to facilitate greater transparency and real-time/near-time access to critical data.

Improved liquidity and capital

Reduced exposure will allow broker-dealers to better manage their capital and liquidity risks and better utilize their available capital and improve customer experiences. For investment funds, T+1 will align mutual fund shares and portfolio settlement cycles, which will also improve a financial institution’s ability to manage cash and improve liquidity.

1,754,119,426 shares failed to deliver in the final two weeks of 2022, resulting in significant costs for consumers and financial institutions

Source: SEC Fails-To-Deliver Data: https://catalog.data.gov/dataset/fails-to-deliver-data (cnsfails202212b)

However, firms will need to adopt technology that enables them to weave together a variety of endpoints from end to end to achieve a high degree of automation. Trade processes such as matching and confirmation, FX operations, and corporate actions processing will all need to be reexamined in light of the new ruling.

Achieving this level of straight-through processing will require a significant investment in redesigning process flows, training employees, and managing change internally and with outside parties.

Considerations to Meet T+1 Cycles (and Beyond)

The shift towards T+1 settlement times requires significant changes to existing settlement processes, including changes to legacy systems and workflows. These issues compound with higher trade volumes and will require a high degree of automation and scalable architecture to meet demand.

While T+1 settlement brings many benefits, it also presents significant challenges for banks to meet the new regulatory ruling, including:

  • Redesigning processes and procedures to meet T+1 cycle times, especially for handling fails, exceptions, and documentation requirements
  • Higher volumes of data in a shorter time period will increase the workload for the systems and employees involved in the process
  • Training employees on new policies, procedures, and technologies as part of the end-to-end process
  • Developing a comprehensive testing and migration plan
  • Validating counter-party readiness, including trading parties and third-party vendors

Thinking about your path to T+1? 🔽Check out our infographic with the key benefits and best practices you should keep in mind as you map out your path to T+1.

Redesigning post-trade processes and procedures

Creating a cross-functional team is necessary when redesigning processes with this level of complexity and value. As trade operations involve a diverse set of departments, from risk and compliance teams to back-office and IT teams, aligning these groups upfront is essential. This will be especially challenging for banks with integrated back offices or legacy technologies and manual processes that must be replaced.

Post-trade processing teams must adjust their workflows to handle the increased volume and speed of transactions, including real-time trade matching, confirmation, and settlement. They may also need to implement new tools and systems to facilitate these processes. For example, AI and ML can be used to analyze trade data and predict the likelihood of a settlement failure, allowing banks and financial services to take proactive actions.

Upskilling and updating employees

The new settlement will require changes in staff roles, responsibilities, and skills. Without a high degree of financial automation, many may need to hire additional staff to manage the increased volume of transactions, and existing staff may need to be retrained to handle the new processes and systems. Process orchestration enables organizations to integrate with their existing user interfaces or design new ones to meet their needs.

Human workflows, which are often needed to handle fails and exceptions, also present a challenge under the new ruling. Settlement processes are incredibly complex, and there may be exceptions that require human intervention. Financial institutions must ensure that their settlement processes can handle exceptions effectively without causing delays or errors under a very tight turnaround time.

The best way to address these is to design a process that can leverage technology to improve trade matching and affirmation to achieve straight-through processing, however, there always needs to be a way for knowledge workers to efficiently handle these exceptions manually.

Reducing the risk of disruption

The level of heightened scrutiny banks face requires a careful approach to managing change. The goal is to minimize the risk of disruption and ensure that all systems and processes are working as intended. Developing a comprehensive testing and migration plan requires a diverse group of stakeholders to test the new settlement process from end to end.

Without proper testing and validation, there is a high risk of disruption to settlement processes, which can result in significant financial losses for all parties involved. It’s also important to ensure compliance with regulatory requirements during these tests to avoid penalties, fines, and bad press coverage.

Aligning with counterparties and third parties

Validation of counterparty readiness, including trading parties and third-party vendors, is crucial to ensure a smooth transition.

To validate readiness, it’s important to engage with counterparties early in the process and communicate the changes and timelines clearly. It’s also essential to conduct testing with counterparties to ensure that the new settlement process works seamlessly between different organizations from end to end.

Testing should also include third-party vendors who provide services such as post-trade processing or connectivity. Without this level of collaboration, banks risk being technically ready yet unable to move forward on full adoption of the new settlement rules.

The Depository Trust & Clearing Corporation (DTCC) has provided an excellent playbook that offers suggestions, but ultimately each relationship will need careful consideration and review from legal and compliance teams.

Process orchestration prepares you for the future

Leading banks will need to think beyond the T+1 ruling to real-time gross settlements. It requires investing in innovative technologies that can create an agile foundation to not only handle this latest regulatory change, but set up an organization to adapt to any changes in market demands, regulations, and technology.

Move Beyond T+1 with Camunda

See why leading banks and financial institutions transform their operations to maintain a competitive edge with Camunda.


DTCC: https://www.dtcc.com/dtcc-connection/articles/2021/november/04/building-the-settlement-system-of-the-future

DTCC: https://www.dtcc.com/dtcc-connection/articles/2021/november/09/the-road-to-t0-and-the-future-of-settlement

SIFMA Playbook: https://www.sifma.org/resources/general/t1-playbook/

Accenture: https://capitalmarketsblog.accenture.com/ensure-t1-paves-way-t0

Source: SEC Fails-To-Deliver Data: https://catalog.data.gov/dataset/fails-to-deliver-data

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