Navigating the SEC’s T+1 Rule: What It Means for Cybersecurity and IT Leaders in Financial Services

The financial sector is no stranger to digital transformation. Whether it’s adopting blockchain technology, integrating AI, or implementing real-time payments, financial service institutions (FSIs) continually adapt to ensure efficiency, security, and global competitiveness. The most recent challenge, however, is the SEC’s T+1 settlement rule that took effect in May 2024, in the U.S., Canada, and Mexico. This rule reduces the settlement cycle for securities trades from two business days (T+2) to one (T+1), fundamentally altering the operational, technological, and security landscape of the financial industry.

Understanding T+1 Settlement

The T+1 settlement represents a significant acceleration in the securities transaction timeline. Traditionally, financial trades involved a two-day window to settle payments and transfer ownership. With T+1, these transactions must be finalized within a single business day. While this shift promises reduced counterparty risk, increased liquidity, and alignment with global market standards, it also demands substantial upgrades to trading platforms, back-office operations, and, most critically, cybersecurity frameworks.

Why T+1 Matters to Security and IT Leaders

The faster settlement cycle intensifies the need for robust cybersecurity measures. Accelerated timelines mean data moves more quickly across systems, increasing the potential for vulnerabilities and cyberattacks. Below are some of the key challenges and opportunities that security and IT leaders will face:

• Increased Transaction Volume and Data Management
  With faster settlements, trading platforms will experience a surge in transaction volume and data flow. This necessitates scalable, high-performance IT systems capable of processing, storing, and protecting vast amounts of sensitive financial information.
• Continuous Security Testing & Monitoring
  The reduced timeline eliminates delays in identifying and mitigating threats. Continuous, real-time security testing and monitoring tools are essential to identify vulnerabilities and anomalies and remediate potential breaches as transactions occur.
• Risk Mitigation and Compliance
  Shortened settlement cycles heighten counterparty, or direct participant(s) in a transaction, and operational risks requiring proactive security and management tools. Compliance with the T+1 mandate also means meeting stringent SEC regulations and ensuring that robust controls are in place to secure trading environments.
• Third Party Risk Management
  Third parties refer to external entities providing services or products to the financial sector and whom are also at risk as FSIs outsource its IT infrastructure management to a technology firm such as a MSSP. Third parties can introduce vulnerabilities including security lapses, data breaches, service failures, or compliance issues. Therefore, it is imperative that ongoing security testing and monitoring include these third-party partners.
• Automation and Innovation
  Automated security testing offers the speed and scalability essential for monitoring the threat landscape and managing the rapid pace of T+1 settlements. As FSIs adopt technologies like blockchain for enhance transparency and efficiency, these innovations must also undergo proactive security assessment to identify vulnerabilities and mitigate risks before incidents occur.

Challenges for IT Leaders In T+1 Era

To comply with this ruling, FSIs need better resilience strategies throughout the trade settlement process. That starts with integrated visibility into the digital world of trade settlement. Companies may also need updates to infrastructure, security testing processes such as pentesting (both manual and automated) for networks, applications and APIs. If anything fails in the process and endangers the 24-hour settlement requirement, organizations might not just face penalties for failing compliance—they could also suffer reputational damage. No one wants to hear their trade didn’t settle because of security or technical issues.

This regulation affects everyone, from consumers to site reliability engineers to FSI managing directors. Managing the resilience of digital infrastructures of trade settlement platforms, whether hosted on-prem or in hybrid clouds, becomes even more critical as companies now have half the time to resolve any issues in the process. Infrastructure must support upgrades and fixes in half the time. To speed up trade settlements, FISs may need to modify certain system components. For instance, some may choose to re-architect their processes using faster microservices for compliance responses instead of single-threaded legacy applications.

These T+1 cybersecurity challenges that FSIs face must be addressed proactively and may include:

1. System Hardening

Challenge: Faster settlement cycles leave minimal room for error or downtime, making system resilience a priority.

Solutions:

• Network Intrusion Detection Systems (NIDS): Hardening systems with advanced intrusion detection may include:
  
  • Network Security: The testing, assessment, and continuous monitoring of networks in real-time to address malicious activity or policy violations.
  • Signature-based Detection: Signature-based detection (matching known threat patterns) is anomaly-based threat identification and the flagging of unusual traffic patterns.
  • Leveraging AI/ML Models: Identifies deviations from normal user or network behavior to identify potential threats.
  • Zero Day Attacks: Identifies zero-day attacks and sophisticated threats that traditional methods might miss through automated security testing and red teaming.
• Threat Analytics: Proactive or offensive security approaches generate actionable threat data by simulating or anticipating attacker behavior.
  
  • Red Teaming: These exercises use ethical hacking teams to simulate real-world attacks and uncover vulnerabilities in systems.
  • Continuous Pentesting: Automated pentesting and scanning tools, supplemented by human-expertise, to test environments on an ongoing basis for new vulnerabilities and map emerging threats and trends.
  • Unified Security Platforms: These modern platforms integrate security tools and aggregate testing results via one common data model to identify, correlate, and remediate potential threats or adversaries across security solutions.
• API Endpoint Security: Securing APIs at the endpoint level is critical due to their increasing role in modern application architectures.

  • API Security: API endpoint security can be automated or led by human experts for pentesting focused on securing APIs exposed by IoT devices, mobile applications, and software organizations with robust identity verification and encryption protocols.
  • Machine-Learning: Using Machine Learning-based API threat detection to identify unusual patterns such as credential stuffing, token misuse, or malformed requests.
  • Runtime API Monitoring & Protection: These tools assess live APIs during development and after deployment to identify and mitigate malicious requests in real time.

2. Data Protection

Challenge: Safeguarding sensitive financial data moving through systems at high speeds creating vulnerabilities.

Solutions:

• Robust Encryption: Encryption ensures data remains secure by converting it into an unreadable format that can only be decrypted with the correct key. It protects data at rest (stored) and in transit (during transfer).
• Security Testing for APIs & API Gateways: APIs facilitate communication between systems, but continuous security testing can expose vulnerabilities such as authentication/authorization issues, data validation, and rate limiting.
• Rigorous Access Controls: Access controls enforce policies that restrict unauthorized access to systems and networks. Proactive security testing to ensure these policies are working include continuous penetration testing and vulnerability scanning to monitor and address unauthorized access attempts and suspicious activities.

3. Automation and Incident Response

Challenge: Rapid transactions require equally rapid threat identification and remediation.

Solutions: Automate security testing and processes including a comprehensive incident response plan, all of which can minimize downtime and incident impact. Proactive security tools can be used to identify and mitigate threats quickly and efficiently, which is critical to rapid trade settlements like T+1.

• Red Teaming: Red team exercises through deliberate ethical hacking can improve security readiness within the organization should an attack occur.
• Automation: Automated vulnerability scanning and security tools that continuous identify and scan systems for known vulnerabilities in applications, APIs, networks and databases, provide actionable insights for remediation before exploitation.
• Unified security platforms: These modern platforms aggregate data analytics via one common data model to identify patterns or potential vulnerabilities or activity in financial transactions, preventing fraud in real-time by analyzing emerging threats and behaviors.

What Security and IT Leaders Can Do to Prepare

The shift to the T+1 settlement cycle introduces new operational, technological and cybersecurity challenges. For security and IT leaders, the key to navigating this transition is proactive preparation and strategic investments in proactive solutions that strengthen cyber resiliency within the organization. Below are some actionable steps leaders can take with detailed insights into solutions aligned with the security demands of T+1 compliance.

1. Conduct Comprehensive Risk Assessments

The accelerated pace of T+1 settlements significantly reduces the time available to address vulnerabilities, making a thorough risk assessment an essential first step.

• Assess Vulnerabilities: Security practitioners must perform detailed assessments of current systems, focusing on areas like trading platforms, settlement systems, and third-party integrations.
• Prioritize Critical Assets: Identify mission-critical systems and prioritize their protection with Attack Surface Management (ASM) tools that identify vulnerable assets and prioritize vulnerabilities quickly for mitigation. These include applications handling high transaction volumes and sensitive customer data.
• Scenario Planning: Develop risk scenarios to understand potential failure points under T+1 conditions, such as delayed settlements due to system outages or cyberattacks.

Why It Matters: Risk assessments help organizations pinpoint weaknesses and allocate resources effectively, reducing the likelihood of threats, operational disruptions, or non-compliance under the new settlement timeline.

2. Invest in Proactive Security Tools

Faster settlements amplify the need for real-time vulnerability identification and remediation capabilities. Deploying proactive security tools such as pentesting, continuous security testing, attack surface management, and red teaming exercises, can help to mitigate risks while ensuring the operational demands of T+1 remain active and functional.

• AI-Driven Vulnerability Identification: Security tools and platforms that embed AI-powered models can identify anomalies, predict potential threats, and respond to potential incidents in real-time.
• Blockchain Security Testing: Tools like pentesting can simulate attacks targeting blockchain nodes to evaluate resilience against DDoS, man-in-the-middle (MITM), and other network-based threats. It can also assess the security of APIs used for node communication.
• Network Security: Combine pentesting and automated scanning to identify complex, context-specific vulnerabilities in the network, while automated scanning ensures continuous monitoring for common flaws. Continuous scanning will also pick up misconfigurations, outdated software, and exploitable vulnerabilities in the node environment.

Why It Matters: Proactive security tools are scalable and enable faster threat identification and remediation, ensuring a secure trading ecosystems without uninterrupted operations.

3. Enhance Network Visibility

T+1 compliance demands seamless performance across highly interconnected networks, making end-to-end visibility of the attack surface a cornerstone of cybersecurity strategy.

• Unified Platform with Centralized Analytics: These unified platforms integrate security technologies and aggregate analytics via one common data model to provide end-to-end visibility of the attack surface for networks, applications, and API endpoints.
• Data Analysis: Unified security platforms can analyze and correlate findings, identify common vulnerabilities and potential threats, and prioritize remediation to safeguard data related to trade settlements.
• Proactive Alerts: Unified security platforms often implement automated alerts to immediately flag potential issues, such as high to critical vulnerabilities findings, before they impact trading or settlement processes.

Why It Matters: End-to-end network visibility provides detailed analytics and remediation recommendations to ensures that security teams can quickly identify and resolve issues, maintaining compliance and operational efficiency under tight timelines.

4. Collaborate Across Teams

The T+1 transition is not solely a technical challenge—it’s an organizational one for FSIs. Cross-functional collaboration ensures that security strategies align with business goals and operational needs.

• Integrate Security and Business Objectives: Engage with business leaders to understand the operational priorities and integrate security measures that support them.
• Joint Incident Response Plans: Develop incident response plans that involve DevSecOps, legal, compliance, and business teams to ensure a coordinated response to threats.
• Regular Communication: Unified security platforms can help to establish clear real-time communication channels for sharing updates, risks, and progress on T+1-related security initiatives across teams.

Why It Matters: Collaboration features and processes embedded into unified platforms foster a holistic approach to T+1 security and incident preparedness, ensuring that security solutions safeguard sensitive transactions, data, and operations while supporting business objectives.

How BreachLock Can Help

BreachLock’s products and services are ideal to meet the unique demands of the T+1 settlement environment. Combining Offensive Security Technologies, a Unified Platform, and a Common Data Model, this trifecta approach supports FSIs addresses the evolving threat landscape, managing exposure affectively while strengthening their security posture.

• Offensive Security Solutions: From pentesting, attack surface management, to automated security testing and red teaming, BreachLock’s offensive security solutions provide proactive measures to uncover weaknesses and simulate real-world attacks. This enables FSIs to strengthen their defenses against emerging threats in the fast-paced T+1 environment.
• Network Security: The BreachLock Unified Platform enables network analytics to identify and address vulnerabilities to ensure seamless operations under the increased demands of T+1. BreachLock’s proactive security tools provide comprehensive visibility into network weaknesses, helping FSIs stay ahead of potential threats before they occur.
• Application Security (AppSec): Under the SEC’s T+1 ruling, the need for robust application security ensures seamless and secure operations. BreachLock’s AppSec solution leverages pentesting and automated tools to identify and address vulnerabilities in trading platforms and back-office applications. By securing these essential systems, FSIs can safeguard sensitive data, maintain compliance, and ensure uninterrupted functionality throughout the short settlement process.
• API Endpoint Security: Securing APIs at the endpoint is critical due to their central role in enabling the rapid and seamless data exchanges required for accelerated trade settlements. API security includes automated and manual testing used by trading platforms. Runtime API monitoring and continuous testing evaluates live APIs to identify and mitigate malicious activity in real-time, ensuring compliance and resilience under the demands of T+1.

Closing

The SEC’s T+1 settlement rule marks a pivotal moment for the financial sector by investing in innovative security solutions today so that organizations can thrive in tomorrow’s faster, more efficient markets. As the financial industry adapts to the demands of the T+1 ruling, robust security solutions are more critical than ever. By adopting a proactive approach to cybersecurity, FSIs can confidently navigate this transition and position themselves for long-term success. Addressing cybersecurity challenges head-on by leveraging offensive security technologies, modern unified platforms, and a common data model to harness data analytics, financial institutions can align security objectives to drive business critical decision making.

Author



Ann Chesbrough

Vice President of Product Marketing, BreachLock