Markets body urges caution on shorter settlement in Europe

By Huw Jones

LONDON (Reuters) – Halving settlement time for stock trades in Europe to one business day would be “challenging” and needs full analysis by regulators before any decision is taken, a markets industry body said on Wednesday.

Since 2014, banks and brokers have had two working days, known as T+2, to settle – the final leg of a trade where legal ownership of a stock is swapped for cash.

“A move to T+1 would remove the only business day between trading and settlement, creating significant pressure on post-trade operations, particularly for global participants,” the Association for Financial Markets in Europe (AFME) said in a discussion paper.

Pressure is building for such a move in Europe after initiatives in the United States, Canada and India.

The U.S. Securities and Exchange Commission has proposed rules to introduce T+1 from the end of March 2024 to cut exposures to credit, market and liquidity risks, and reduce the number and value of unsettled transactions at any given time.

It also reduces the amount of time brokers have to tie up capital and margin to cover unsettled trades, saving them money.

Authorities in Britain and the European Union, mindful of keeping their capital markets globally competitive, have already held informal discussions with industry on T+1.

AFME said adopting T+1 in the EU would be more complex given it has far more trading, clearing and settlement operators than single jurisdictions like the United States, Switzerland and Britain.

It called for a comprehensive analysis by regulators, policymakers and industry to quantify the impact of moving to one day settlement, while also keeping an eye on what’s happening in Switzerland and Britain as well.

“An important area for further discussion will be whether or not a synchronised implementation timeline is required across Europe more broadly,” AFME said.

Some market participants are already planning instant settlement using blockchain, the technology that underpins cryptoassets. U.S. settlement house DTCC is piloting T+0.

(Reporting by Huw Jones; Editing by Mark Potter)

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