After many years of anticipation, October heralds the arrival of a T+2 settlement regime in Europe. Nearly all European markets (with the exception of Spain which will move at a later date) will be under an obligation to settle trades within two days.

In many ways, the thorny preparation for this has fallen on the buyside community, who have had to re-examine operational procedures and processes from front to back office to ensure that they are in a position to comply with the new rules. Beyond the smallest of volumes, delivering T+2 is impossible without automated processes in place – faxes and manual protocols are simply too resource intensive, slow and error prone, lacking reliable authorisation and authentication, thus making them susceptible to missed contractual obligations or even fraud. In addition, it is a step in preparing for the implementation of T2S, the pan-European settlement platform, in 2015.

This imperative is underlined by the fact that the shift towards shortened settlements cycles fits part of a longer trend towards more efficient post-trade processes. Three decades ago, the conversation taking place in securities markets centred around a mooted move from T+5 to T+3. Granted, the status quo has remained unchallenged for many years until regulators began pushing for the imminent T+2, but the subsequent push to T+1 or even T+0 is likely to arrive sooner than you might expect given today’s pace of technological change.

As a result, the best placed buyside firms seeking to accommodate T+2 from an operational perspective will have one eye on being technologically prepared for yet shorter settlement. This means reducing exceptions through automating as much of the trade processing flow as possible, but also means much more efficient resolution of exceptions. Tools that automatically alert operations staff to exceptions and then help them find and resolve problems, will become crucial. Improved efficiency isn’t just a nice-to-have for the distant future though: Central Securities Depository Regulation (CSD-R) will bring new, higher settlement failure penalties, which will really test firms who haven’t adapted their processes.

What’s more, achieving shortened settlement cycles from an operational perspective is just a narrow slice of the overall picture for buyside firms. A raft of new regulations, increased occurrences of market volatility and growing reporting demands from clients are all creating an impetus for greater automation across the business, whatever the operating model. Undoubtedly, Monday will mark the beginning of a transition period, when the shift to shortened settlement cycles acts as a litmus test on operational preparedness among the buyside.