The European Securities and Markets Authority (ESMA) has invited market participants to provide feedback on the shortening of the settlement cycle in the European Union.
The call to evidence asks for stakeholders’ views as well as quantitative evidence “to form a better understanding of the issue and help ESMA produce an assessment of the costs and benefits linked to the potential reduction of the securities settlement cycle in the EU”.
With the US making the switch to T+1 in May next year, talk of a similar switch in the EU and the UK has been rife in industry circles – with varying levels of hospitality. Some participants hail the reduced risk that a shortened cycle would bring, while a mandate for T+1 in Europe was recently described as “absolutely wrong” by Euroclear CEO, Lieve Mostrey.
ESMA acknowledges that unlike other jurisdictions, the EU has “a complex post-trade landscape with a high number of market infrastructures (CSDs, CCPs and trading venues), several currencies, matching model, and a common settlement platform which does not support all currency denominations of the instruments traded and settled in the EU and in which not all EU CSDs participate”.
With the feedback received, ESMA said it will consider all possibilities for a shortened settlement cycle – including both T+1 and T+0. The regulator notes that any subsequent decision “needs to be based on a proper assessment of the costs and benefits that such a change would bring to all users of financial markets in the EU”.
Commenting on the opening of the call for evidence, Pete Tomlison, director of post-trade at the Association for Financial Markets in Europe (AFME), said it’s an important step in moving forward the debate on T+1 settlement.
“Moving to T+1 should not only be a question of “when”, but also “why” and “how”. It is important to ensure that any decision to shorten the settlement cycle is underpinned by a robust qualitative and quantitative analysis of the potential benefits, risks and costs, and also takes account of the unique complexities of EU capital markets.
“Any potential move to T+1 will require collaboration from a broad range of industry stakeholders, with the ultimate objective of making EU securities markets safer and more efficient.”
The watchdog will consider the feedback during the first quarter of 2024, with the intention to publish a final report in Q4 2024 at the latest.