Corporate Law Update: 23 - 29 March 2024

This week:

EU sets out next steps on shortening securities settlement cycle

The European Securities and Markets Authority (ESMA) has published feedback to its recent call for evidence on shortening the settlement cycle for securities on the European Union’s capital markets.

In October 2023, ESMA invited views on proposals to shorten the EU’s securities settlement cycle from T+2 to T+1 (as is now the case in the United States) or even T+0. You can read more about the EU’s call for evidence on shortening the securities settlement cycle in our previous Corporate Law Update.

The feedback to the call for evidence was quite mixed, highlighting operational impacts that go beyond simple adaptations of post-trade processes. In particular, respondents were almost unanimous in rejecting T+0 as a settlement proposal, and so ESMA will be concentrating solely on T+1 settlement.

ESMA now intends to assess several questions, including the potential impact on securities lending and borrowing, market-making and the repo market, FX trading, cross-border activities, and benefits resulting from margin reductions for cleared transactions.

It will also address whether the discrepancy between T+1 settlement in North America and T+2 settlement in the EU creates any problems for participants in both markets, taking into account lessons learnt from the North American move to T+1.

Finally, ESMA will take into account any further feedback from stakeholders in the APAC region on the potential impact of a move in the EU to T+1, given time zone difference.

In terms of next steps, ESMA will report on the feasibility of a move to T+1, including how a shortening of the settlement cycle could be organised and when it should be achieved. Any changes will then require legislation.

Read ESMA’s press release regarding feedback to its call for evidence on shortening the EU’s securities settlement cycle

Read ESMA’s feedback statement following its call for evidence on shortening the EU’s securities settlement cycle (opens PDF)