NEW YORK, Sept 4 (Reuters) - A shift to shorter

settlement for U.S. securities transactions earlier this year

had a greater-than-anticipated impact on market participants

across the board, with Europe reporting the greatest hit, a

Citigroup ( C/PN ) survey showed.

The U.S. sped up its settlement cycle in May, requiring that

equities, corporate and municipal bonds and other securities

transactions settle one business day after the trade, instead of

two, or T+1.

The transition "was more impactful than expected" for 44% of

buy- and sell-side firms, the Securities Services Evolution

survey said.

Europe saw the most impact because of the challenges of

managing settlement and funding issues in the middle of the

night, it added. Overseas investors use currency trades to fund

their U.S. securities transactions.

The poll of nearly 500 institutions, conducted in June,

gives an insight into how the industry managed the transition

globally, and highlights how T+1 was felt across the trade

cycle.

"Every area appears to have been more impacted than

originally anticipated, from funding to headcounts, securities

lending and fail rates," the survey said.

Securities lending, the loan of stocks or other securities

to investors, saw the greatest impact across organizations,

rising to 50% from 33%. Funding or margin requirements,

headcounts and funding costs were also affected.

"Funding has also been at the center of this impact - albeit

with an imbalance across the sell-side and buy-sides," the

survey stated.

Some 56% of sell-side firms said their securities lending

and recalls activities were "significantly impacted" by the

move. That had been one of the major concerns voiced by market

participants ahead of T+1 being implemented.

Additionally, 52% of banks and brokers saw their headcounts

and staffing levels affected, indicating a preference for hiring

instead of using automation has left the sell-side "exposed to

large volumes of manual processing and exception handling

triggered by their clients", the survey stated.

Citi said more time is needed before the "true, deeper"

impact of the accelerated settlement cycle is understood.

The Depositary Trust and Clearing Corporation, the

Securities Industry and Financial Markets Association and the

Investment Company Institute led the move to T+1. They did not

immediately respond to a request for comment.