With the U.S. and Canadian securities markets set to adopt a shorter settlement cycle in May 2024, European regulators are considering their own move to T+1, or even T+0, settlement.
The European Securities and Markets Authority (ESMA) launched a consultation on reducing the securities settlement cycle in European markets. The regulator is seeking feedback on the expected costs and benefits of a shorter settlement period, and aims to assess whether any regulatory action is needed ahead of the North American markets’ planned shift to T+1 settlement next year.
ESMA said it is “looking to consider all the possibilities for a shortened settlement cycle, including both T+1 and T+0.”
The consultation paper noted there’s no legal or regulatory barrier to the industry reducing the settlement cycle on its own but that regulatory action would likely be needed to make the move in a harmonized way.
“At the same time, a decision to shorten the securities settlement cycle in the [European Union] 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,” it said.
In particular, ESMA is seeking input from market infrastructure firms, such as trading venues, clearing agencies and central counterparties, along with investment firms, fund managers, issuers, and retail and institutional investors. ESMA noted it’s also consulting with central banks on the issue.
The deadline for feedback is Dec. 15.
ESMA said it intends to submit a final report to the European Commission by the fourth quarter of 2024 at the latest, but it may also report on any urgent issues that arise in the consultation (such as the impact of the reduced settlement cycle in North America) at an earlier date.