EU T+1 Roadmap Revealed
EU proposes October 2027 for T+1 transition
It is no secret that the world’s most critical capital markets are undergoing major structural changes, with T+1 security trade settlement becoming the new normal. In the developed world, the US was a first mover to T+1 in May 2024, with the UK announcing plans to move to T+1 from 2027 in September this year.
Now, The European Securities and Markets Authority (ESMA) has proposed a move to a T+1 security trade settlement period in the EU by Q4 2027, in line with the UK’s plans. ESMA has also recommended that the migration to T+1 occurs simultaneously across all relevant instruments, with a coordinated approach across the continent desirable.
In its final report, ESMA outlined the increased efficiency and resilience of post-trade processes that a move to T+1 would facilitate, “achieving the objective of further promoting settlement efficiency in the EU, contributing to market integration and to the Savings and Investment Union objectives.”
In terms of potential dates, ESMA recommends 11 October 2027 as the go-live date.
ESMA has noted that it will continue to work with the European Commission and the European Central Bank on building a framework for ensuring settlement efficiency, advocating automation, standardisation and automation among EU market participants. It is expected that existing CSDR and settlement discipline regulation will need to be amended, in order to allow for the necessary improvements in post-trading processes.
Ultimately, T+1 will allow EU capital markets to keep up with the evolution of other markets, putting an end to costs linked to the current misalignment of settlement cycles. For example, managers of ETFs invested in US securities but which trade in Europe are subject to a ‘funding gap’, where they must purchase the securities on T+1 but do not receive the necessary funds until T+2, leading to trade settlement challenges. Investing in US securities has also become more expensive on a Thursday for ETF managers given the need to cover a funding gap over the weekend, leading to investments made at this time experiencing significant reductions in inflows.
Following the announcement from ESMA, EU-based financial firms are advised to start giving early consideration to how their future operational and technological processes may look in a T+1 environment. Leaning on experience from financial firms in the US in this regard could prove invaluable.
Andrew Douglas, chair of the T+1 Taskforce Technical Group, welcomed the decision:
“The UK Taskforce has always promoted a combined migration with UK, EU and CH moving together as our preferred solution and so on behalf of the UK Taskforce, I welcome this announcement of the European migration date for 11 October 2027.
We have worked closely with ESMA over the past 12 months sharing our progress and I am confident that this relationship will continue to develop as we look at how we can develop joint migration plans.”
To support with the technical elements of transitioning to a shorter settlement cycle, ESMA recently announced plans to form a governance structure, with more advice and recommendations on this set to be rolled out in due course.
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