The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator, has published its Final Report assessing the implications of transitioning to a T+1 settlement cycle within the European Union (EU). The proposed move is aimed at improving settlement efficiency, reducing risks, and aligning EU practices with other major jurisdictions globally.
The report highlights significant benefits of the shift, including enhanced market integration, cost savings through risk reduction and margin efficiency, and the promotion of the EU’s Savings and Investment Union objectives. ESMA has recommended a synchronised migration to T+1 for all relevant financial instruments, with 11 October 2027 identified as the optimal transition date. This timing considers the challenges of implementing such a major change during peak trading periods or at quarter-end.
However, the report notes the complexity of the transition, particularly in the context of the EU’s diverse trading and post-trading infrastructure. Legal amendments to the Central Securities Depositories Regulation (CSDR) and settlement discipline framework will be required to provide legal clarity and support the necessary upgrades to post-trade processes. Harmonisation, standardisation, and modernisation across market participants will also necessitate significant investment.
ESMA emphasises the importance of coordinated action across the EU and with other jurisdictions to ensure a smooth transition. The implementation of a robust governance framework will be critical to managing this complex project effectively.
Commenting on the report, Daniel Carpenter, CEO of post-trade automation solutions provider Meritsoft, a Cognizant company, said: “We’ve learned over the years, with CSDR in the EU and T+1 in the US, that the implementation of tactical workarounds to manage settlement operations leads to higher costs and inefficiencies over the long term. For example, with CSDR in the EU, we’ve observed that some banks are willing to treat tens of millions of euros in penalties on failed trades as a cost of doing business rather than invest in systems to better manage their settlement fails. This is not sustainable. With a move to T+1 in 2027, participants in Europe should be using time in the next two years to proactively put in place solutions that enable them to not only better handle the operational activity for failed trades but reduce the total volume of fails.”
James Pike, Interim CEO at Taskize, adds: “ESMA’s proposal to achieve T+1 in the EU by October 2027 will present its challenges, though can be met. One of the tallest hurdles we must surmount is the communications challenge to resolving settlement issues, unearthed by Europe’s intricate network of asset managers, broker-dealers, custodians and sub-custodians – a system unrivalled in complexity anywhere else in the world. The solution? Slicker communication and more efficient processes. Market participants must streamline the way trades are settled and exceptions resolved, from agreeing more of the post trade components at the point of trade, to enhancing much faster dispute resolution mechanisms to ensure clearer communication between broker-dealers, asset managers and custodians. Only then can T+1 in Europe seem an achievable feat to this deadline.”
Next steps include ESMA’s ongoing collaboration with the European Commission (EC) and the European Central Bank (ECB) to revise settlement efficiency rules and address governance issues tied to the transition. The regulator will also continue its regulatory efforts to support the successful adoption of T+1 in the EU by the proposed timeline.
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