IIAC: ESMA’s Verena Ross on EU resistance to accelerated settlement

Earlier this month, the European Securities and Markets Authority (ESMA) launched a consultation on shortening the securities settlement cycle in the EU from T+2 to T+1 or even T+0, writes the Investment Industry Association of Canada (IIAC) in a brief analysis of the regulatory backdrop.

In a speech delivered at OPTIC 2023 (Operations, Post-Trade, Technology & Innovation Conference) in Brussels on October 17, ESMA chair Verena Ross noted there has been some resistance and hesitancy to move towards T+1 and T+0 in Europe due to the unique characteristics of the EU market. Getting to T+1 will be complicated given the complex post-trade landscape in the EU with its multiple market infrastructures (i.e., central counterparties, central securities depositories, and trading venues), several currencies, and inconsistent national securities laws encompassing a plethora of rules and operating nuances. The question is, however, whether the EU can remain at T+2 without damaging its competitiveness.

No doubt the EU is facing increasing pressure to align itself with developments in the rest of the world (e.g., India, China, the U.S. and Canada) to avoid inefficiencies in cross-border settlement and improve the attractiveness of the bloc’s capital markets. Its neighbor, the UK, is exploring the potential of faster settlement of financial trades. The Accelerated Settlement Taskforce launched by the Chancellor of the Exchequer is expected to publish its initial findings by December 2023, with a full report and recommendations made by December 2024.

ESMA has been closely watching and monitoring developments in Canada and the U.S. and understands that sufficient time is needed to undertake meaningful consultations, supported by quantitative evidence for a better understanding of the issues and to produce an assessment of the costs and benefits stemming from the harmonized shortening of the securities settlement cycle in the EU. ESMA intends to submit to the European Commission and publish a final report in Q4, 2024 at the latest.

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