The Association for Financial Markets in Europe (AFME) is to launch an industry taskforce for T+1 settlement in Europe.
It will assess whether Europe should move to a shorter settlement cycle, following the lead of other jurisdictions around the world.
The trade group will also look at the changes that would be required for a T+1 cycle as well as timeframe and action plan.
It has issued a call for interest to the market for participation in the taskforce..
“AFME is convening this industry task force to ensure all aspects of T+1 adoption in Europe are considered including direct economic costs and savings to the industry as well as less tangible factors such as global alignment and market attractiveness,” said Pete Tomlinson, director of post trade at AFME.
He added, “A rushed approach is likely to result in increased risks, costs and inefficiencies, particularly given the unique nature of European markets which have multiple different market infrastructures and legal frameworks.”
Last year, US regulators announced plans to transition to T+1 settlement from T+2 by May 2024 which is currently in place across the majority of jurisdictions.
The US is set to complete the move to T+1 settlement by May 2024 with Europe yet to announce similar proposals.
The objective is to drive more efficient use of capital across markets by reducing credit, market and liquidity risks.
“With the US having announced its intention to move to T+1 settlement by May 2024, the discussion on whether Europe should follow suit has become more pressing,” said Adarm Farkas, CEO of AFME.
He added, “Addressing this important topic will require a collaborative approach, and therefore all impacted stakeholders are encouraged to join the industry taskforce.”
However, challenges remain given the fragmented nature of the European market and the disproportionally high settlement fails in exchange traded funds (ETFs) since the introduction of the Central Securities Depositary Regime (CSDR) in February 2022.
“The steps taken in North America to shorter the settlement cycle to T+1 has raised important questions as to when Europe will follow suit,” said Javier Hernani, head of SIX Securities Services:
He added, “Of course, with 14 currencies, 31 central securities depositories (CSDs) and distinctive regulatory and market features in the different countries of Europe, it’s a much more complicated picture as to how T+1 can be achieved.
Any decision to move to shorter settlement times in Europe must be made after considering what technological innovations are necessary to facilitate T+1, the role of market infrastructure providers – such as exchanges, clearing houses and CSDs – and, most importantly, how this will impact market participants.”
©Markets Media Europe 2023
