EU seeks Alignment on T+1 Settlement Deadline
EU T+1 alignment with other major capital markets an inevitability
Global alignment to a T+1 trade settlement period is materialising, with the UK, and now the EU, following in the footsteps of the US and establishing concrete plans to achieve a shortened settlement period.
The EU has hinted that it will move to a T+1 trade settlement period by the end of 2027 as it looks to align with the UK’s timetable. The US implemented a T+1 trade settlement period in May 2024.
In a consultation held by the EU financial regulator ESMA, on 10 July, 2024, 70 per cent of participants noted they would like to see a shortened settlement cycle by the end of 2027. The start and end of 2028 is also being considered by officials.
In addition, according to financial publication, The Banker, EU officials stated that the move would be ‘feasible’ and that there are ‘no roadblocks’ to it.
The UK government previously stated it would look to coordinate its move to T+1 with the EU, noting the benefits of a harmonised approach for market participants. As stated in our recent post, misalignment in the US market is causing some early difficulties for global market players, with global trading volumes on Thursdays dropping off significantly thanks to funding requirements that require brokers to fund a position for an additional three days on Friday, Saturday and Sunday given the slightly longer settlement cycle in Europe, the UK, and most of Asia Pacific.
However, fears that the EU would not move in time for the UK’s deadline have surfaced in recent months, with the fragmented nature of the European market and a new European Commission likely to cause technical difficulties and delay the project. For example, the EU has four major stock exchanges (Euronext, Deutsche Boerse, SIX Swiss Exchange and Nasdaq Nordic) whereas the UK only has one.
Nevertheless, the dialogue from EU officials suggests that the UK and EU will achieve some unity in their transition to T+1 trade settlement.
In the meantime, the UK Accelerated Settlement Taskforce, which is overseeing the UK’s prospective transition to T+1 trade settlement, released its second quarterly review this month, which summarises the progress made towards a T+1 settlement period.
As a reminder, the process for the transition to T+1 settlement is being managed by five workstreams, which are Operations, Alignment, Trading & Liquidity, Lessons from North America and Legal & Regulatory. Specifically, the workstreams are defining the challenges presented by migration to T+1 and to draft recommendations to mitigate these challenges.
In the latest report, chair of the UK Accelerated Settlement Taskforce, Andrew Douglas, noted the current ‘diligence’ of each workstream in their progress towards identifying accelerated settlement challenges.
In addition, Douglas noted that across July and August 2024, the UK Accelerated Settlement Taskforce will be preparing a critical report for publication in September, which will contain a draft of the industry action plan for 2025 (i.e., the things that the taskforce and the market will need to do in 2025 to prepare for the implementation of T+1). We will be keeping a close eye on this, and look forward to seeing how the UK’s journey to T+1 trade settlement will materialise.