The European Securities and Markets Authority released a high-level roadmap for T+1 securities settlement in the EU. The EU T+1 Industry Committee (IC) was established to drive the transition to a T+1 settlement cycle across the securities markets of the European Union (EU) and the European Economic Area (EEA), with an implementation date of 11th October 2027 as agreed by EU co-legislators.
The IC has identified and has sought to address critical areas of focus, including standardization of processes, the enhancement of technology and infrastructure, and the need for regulatory support. By identifying barriers to implementation and proposing actionable recommendations, the IC aims to foster a proactive engagement among all market participants, ensuring a smooth transition to T+1 settlement.
Further challenging work lies ahead in terms of facilitating adherence with the recommendations, developing more detailed market practices where necessary, supporting the monitoring of implementation and preparing the testing phase.
Among the recommendations for securities financing are those related to: pre-matching; trade confirmations; same day returns; automation of recall and returns instruction flows; and adopting a standardized recall notification request deadline, of 17:00 on trade date.
“A key theme throughout this report is the imperative to enhance automation and standardization across all stages of the post-trade lifecycle…Improving automation in key processes (e.g., trade matching, securities lending, FX bookings, and corporate action handling) is essential,” ESMA wrote.
In addition, the EU regulator recommended a potential exemption of securities financing transactions from the scope of the Central Securities Depositories Regulation (CSDR) and a potential temporary suspension of cash penalties during the migration period.
James Pike, chief revenue officer at Taskize, said in emailed commentary: “The real question is how long is temporarily when it comes to removing the penalties? That’s the part that market participants will be seeking clarity on. Without it, firms may lose urgency around fixing settlement issues. T+1 only works if everyone tightens up their operations. Without accountability, we could see a rise in settlement failures instead of a drop.”
Governance structure
Given the complexity of implementing the changes needed to move to T+1 to the trading and post-trading environment in the EU, the European Securities and Markets Authority (ESMA), the European Commission and the European Central Bank (ECB) agreed to put in place a specific governance to help industry coordinate the shift.
The governance structure is composed of the T+1 Coordination Committee and an industry structure comprising the T+1 Industry Committee and a number of dedicated specialized workstreams operating under the guidance of the Industry Committee.
ESMA’s chair, Verena Ross, chairs the work of the T+1 Coordination Committee which is composed of representatives of ESMA, the European Commission, the ECB and of the chair of the Industry T+1 Committee, Giovanni Sabatini.
“ESMA is strongly supporting the shortening of the settlement cycle in the EU to T+1. The move to T+1 will support settlement efficiency in the EU, contribute to market integration and the objectives of the Savings and Investment Union,” the EU regulator wrote.