European regulators are proposing reforms to enable the transition to a shorter settlement cycle, which is currently planned for late 2027.
In a new report, the European Securities and Markets Authority (ESMA) set out a series of recommendations for “significant amendments” to the regulatory settlement standards that aim to prepare the industry for the move to T+1 settlement over the next two years.
Canadian and U.S. markets moved to T+1 in May 2024.
Among other things, the proposals include mandating certain critical functionality — such as auto-collateralization and auto-partial settlement — adopting new deadlines for trade allocations, requiring machine-readable formats for trade allocations and confirmations, and updating the requirements for monitoring and reporting failed trades.
“These changes aim to enhance settlement efficiency across the EU, facilitate the transition to a shorter settlement cycle (T+1) by [Oct. 11 2027] and reduce the administrative burden on central securities depositories and market participants,” ESMA said in a release.
The regulator is proposing to phase-in the reforms, starting in December 2026 and finishing in October 2027, in an effort to “ensure a smooth transition to the new regime.”
ESMA also called on industry firms, market infrastructures (clearing and settlement firms) and investors, “to treat these regulatory changes as a central element of their T+1 transition strategy.”
The proposed reforms have been submitted to the European Commission, which has three months to decide whether to adopt them.