ESMA proposes ‘coordinated’ EU move to T+1 by October 2027
18 November 2024 EU
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The European Securities and Markets Authority (ESMA) has published its final report assessing the move to a shorter settlement cycle in the EU.
The report highlights that the increased efficiency and resilience of post-trade processes, prompted by a move to T+1, would facilitate achieving the objective of further promoting settlement efficiency in the EU, contributing to market integration and the Savings and Investment Union’s objectives.
ESMA recommends that the migration to T+1 should occur simultaneously across all relevant instruments in Q4 2027.
The EU’s financial markets regulator and supervisor also suggests a coordinated approach with other jurisdictions across Europe for the transition.
In a potential roadmap, the authority proposes industry implementation of T+1 by the end of 2026, followed by a testing period, with the optimal go-live date set for 11 October 2027.
“Shortening the settlement cycle in the EU will undoubtedly change the way in which markets function today,” says ESMA, “affecting all entities along the transaction and settlement chains, with different impacts depending on the type of stakeholder, the category of transaction and the type of financial instrument.”
Regarding the quantification of costs and opportunities, the authority suggests that the impact of T+1 will represent important benefits for the EU capital markets.
This includes an overall reduction of risks and the reduction of costs stemming from the misalignment with the US and other economies, which adopted T+1 in May.
However, there are also certain challenges, including amending the Central Securities Depositories Regulation (CSDR) and the settlement discipline framework to ensure legal certainty and the necessary improvements in post-trading processes for a successful migration.
Additionally, all actors in the financial system will need to work on harmonisation, standardisation, and modernisation to improve settlement efficiency, says ESMA, which will require a certain level of investment.
The authority adds that the complexity of a trading and post-trading environment such as the EU capital markets means that this project will require specific governance to be put in place.
ESMA will now continue its regulatory work related to the revision of rules on settlement efficiency, and it will address T+1 governance together with the European Commission and the European Central Bank.
The report highlights that the increased efficiency and resilience of post-trade processes, prompted by a move to T+1, would facilitate achieving the objective of further promoting settlement efficiency in the EU, contributing to market integration and the Savings and Investment Union’s objectives.
ESMA recommends that the migration to T+1 should occur simultaneously across all relevant instruments in Q4 2027.
The EU’s financial markets regulator and supervisor also suggests a coordinated approach with other jurisdictions across Europe for the transition.
In a potential roadmap, the authority proposes industry implementation of T+1 by the end of 2026, followed by a testing period, with the optimal go-live date set for 11 October 2027.
“Shortening the settlement cycle in the EU will undoubtedly change the way in which markets function today,” says ESMA, “affecting all entities along the transaction and settlement chains, with different impacts depending on the type of stakeholder, the category of transaction and the type of financial instrument.”
Regarding the quantification of costs and opportunities, the authority suggests that the impact of T+1 will represent important benefits for the EU capital markets.
This includes an overall reduction of risks and the reduction of costs stemming from the misalignment with the US and other economies, which adopted T+1 in May.
However, there are also certain challenges, including amending the Central Securities Depositories Regulation (CSDR) and the settlement discipline framework to ensure legal certainty and the necessary improvements in post-trading processes for a successful migration.
Additionally, all actors in the financial system will need to work on harmonisation, standardisation, and modernisation to improve settlement efficiency, says ESMA, which will require a certain level of investment.
The authority adds that the complexity of a trading and post-trading environment such as the EU capital markets means that this project will require specific governance to be put in place.
ESMA will now continue its regulatory work related to the revision of rules on settlement efficiency, and it will address T+1 governance together with the European Commission and the European Central Bank.
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