The European Union is accelerating efforts to reduce
the securities settlement cycle from two days (T+2) to one day (T+1), which is in line
with international trends. ESMA has highlighted several hurdles, including the
need for harmonization, standardization, and modernization of systems across
the EU.
According to the regulator, the upgrade will require
significant investments, and market participants are advocating for amendments
to the Central Securities Depositories Regulation to ensure a smooth
transition.
Transition to T+1
As global financial markets increasingly adopt the
shorter cycle, the EU is taking steps to catch up. One of the central challenges facing the EU is ensuring that all stakeholders across sectors and regions are on the same page.
With the highly interconnected nature of European
capital markets, a coordinated approach is essential. To achieve this, ESMA is
working with the European Central Bank (ECB) and the Directorate-General for
Financial Stability to lay the groundwork for a seamless transition
to T+1.
Given the experience of other regions, close
collaboration between regulators and market participants is crucial.
Authorities are setting up a governance structure to oversee the technical
preparations, ensuring that the process remains inclusive and represents all
sectors and regions in the EU.
1/3 Next steps to support a transition to T+1?
▪️ the impacts in terms of risk reduction, margin savings and 📉 of costs linked to the misalignment with major jurisdictions globally, bring along benefits for the Savings and Investments Unionhttps://t.co/Set1y9jfdP pic.twitter.com/QZB025yopR— ESMA – EU Securities Markets Regulator 🇪🇺 (@ESMAComms) October 15, 2024
T+2 has been the standard for settling securities
transactions for over a decade, meaning trades are settled two business days
after execution . However, countries like the US, Canada, and Mexico have
already adopted a T+1 standard, speeding up settlements to the next business
day.
This has prompted the EU to assess its readiness for
such a shift, aiming to remain competitive in the global financial landscape. The ESMA
has been tasked with studying the potential impact of T+1 on EU markets.
Preliminary findings suggest the move will reduce risk, lower costs, and align
the EU with other major financial hubs.
Coordination Across Europe
Adopting T+1 would bring multiple benefits. It would
lower the risk associated with unsettled transactions, potentially saving
margin costs and reducing exposure to market volatility . However, implementing this change will require
significantly modernizing the EU’s post-trade infrastructure.
Additionally, harmonizing the EU with other regions
following the T+1 model could streamline cross-border transactions, reducing
misalignment costs. Improving efficiency could also help strengthen the EU’s
Savings and Investment Union, boosting economic resilience.
The EU is under pressure to avoid falling behind other
global financial centers, particularly as more regions embrace T+1. Failure to
act quickly could prolong the misalignment with major jurisdictions,
potentially amplifying negative impacts on the European market.
The European Union is accelerating efforts to reduce
the securities settlement cycle from two days (T+2) to one day (T+1), which is in line
with international trends. ESMA has highlighted several hurdles, including the
need for harmonization, standardization, and modernization of systems across
the EU.
According to the regulator, the upgrade will require
significant investments, and market participants are advocating for amendments
to the Central Securities Depositories Regulation to ensure a smooth
transition.
Transition to T+1
As global financial markets increasingly adopt the
shorter cycle, the EU is taking steps to catch up. One of the central challenges facing the EU is ensuring that all stakeholders across sectors and regions are on the same page.
With the highly interconnected nature of European
capital markets, a coordinated approach is essential. To achieve this, ESMA is
working with the European Central Bank (ECB) and the Directorate-General for
Financial Stability to lay the groundwork for a seamless transition
to T+1.
Given the experience of other regions, close
collaboration between regulators and market participants is crucial.
Authorities are setting up a governance structure to oversee the technical
preparations, ensuring that the process remains inclusive and represents all
sectors and regions in the EU.
1/3 Next steps to support a transition to T+1?
▪️ the impacts in terms of risk reduction, margin savings and 📉 of costs linked to the misalignment with major jurisdictions globally, bring along benefits for the Savings and Investments Unionhttps://t.co/Set1y9jfdP pic.twitter.com/QZB025yopR— ESMA – EU Securities Markets Regulator 🇪🇺 (@ESMAComms) October 15, 2024
T+2 has been the standard for settling securities
transactions for over a decade, meaning trades are settled two business days
after execution . However, countries like the US, Canada, and Mexico have
already adopted a T+1 standard, speeding up settlements to the next business
day.
This has prompted the EU to assess its readiness for
such a shift, aiming to remain competitive in the global financial landscape. The ESMA
has been tasked with studying the potential impact of T+1 on EU markets.
Preliminary findings suggest the move will reduce risk, lower costs, and align
the EU with other major financial hubs.
Coordination Across Europe
Adopting T+1 would bring multiple benefits. It would
lower the risk associated with unsettled transactions, potentially saving
margin costs and reducing exposure to market volatility . However, implementing this change will require
significantly modernizing the EU’s post-trade infrastructure.
Additionally, harmonizing the EU with other regions
following the T+1 model could streamline cross-border transactions, reducing
misalignment costs. Improving efficiency could also help strengthen the EU’s
Savings and Investment Union, boosting economic resilience.
The EU is under pressure to avoid falling behind other
global financial centers, particularly as more regions embrace T+1. Failure to
act quickly could prolong the misalignment with major jurisdictions,
potentially amplifying negative impacts on the European market.
This post is originally published on FINANCEMAGNATES.
