Misturat AlausaThe adoption of the T+1 settlement cycle for equities and commodities processed by the Central Securities Clearing System (CSCS) has brought faster and more efficient trade settlement, a major change in the Nigerian capital market. This new framework states that eligible transactions must be settled by 5:00 p.m. on the business day after the trade date. This results in a shorter settlement window, meaning that market participants have less time to complete the processes required to ensure that trades are properly funded and settled.
This was implemented to support broader efforts to build a more efficient, resilient, and internationally aligned Nigerian capital market. However, while faster settlement offers benefits such as reduced counterparty risk and improved liquidity, it also increases the need to put robust risk and compliance controls in place.
Understanding Nigeria’s T+1 Settlement Cycle
‘T+1’ refers to Trade Date + 1 business day, meaning that eligible trades are settled one business day after the transaction takes place. For example, if a trade takes place on Monday, settlement is completed on Tuesday, provided Tuesday is a business day. This is a change from the previous T+2 cycle, which allowed two business days for settlement.
The Securities and Exchange Commission (SEC) stated that equities and commodities processed through the CSCS must be completed by 5:00 p.m. on T+1. Trades must also be fully funded at the time of settlement to maintain the Delivery versus Payment (DvP) process, which ensures that securities and payment occur together. The SEC has also clarified that foreign portfolio investors are not required to prefund their accounts. However, capital market operators handling these transactions must have appropriate controls and processes in place to ensure that funding and settlement obligations are fulfilled within the stipulated timeframe.
How Faster Settlement Changes Risk and Compliance
The move from T+2 to T+1 gives market participants less time to identify and resolve issues before settlement. As a result, this increases the need for strong risk and compliance processes to be put in place, as errors in customer data, inadequate verification, suspicious activity, or funding issues can become more difficult to address within a shorter settlement timeframe.
Also, due to the shorter timeline, operational resilience has become increasingly important. This is because relying heavily on manual processes or disconnected systems can lead to delays when transactions need to be completed quickly. Therefore, faster settlement should not reduce the need for strong controls. Instead, it requires controls that operate quickly, accurately, and consistently.
Building Stronger Infrastructure for a Faster Capital Market
Capital market participants need to implement systems that enable them to verify customers and counterparties, manage KYC and KYB requirements, identify potential fraud, and make informed risk decisions without creating unnecessary delays. This emphasizes the need for effective compliance infrastructure. When organizations integrate identity verification, business verification, fraud prevention, and risk controls into their operational workflows, they can meet compliance requirements more efficiently while keeping up with faster transactions.
Nigeria’s transition to T+1 is an important step toward building a more efficient capital market. However, as settlement speeds increase, the systems that support trust and risk management must also become faster and more robust.
Moving faster shouldn’t mean taking on more risk. Talk to an expert to strengthen your compliance and risk infrastructure.