The Association for Financial Markets in Europe (AFME) has responded to ESMA’s call for evidence on shortening the settlement cycle in the European Union.

Pete Tomlinson, Director of Post Trade at the Association for Financial Markets in Europe (AFME), said: “AFME welcomes the opportunity to respond to this important consultation. Moving to a T+1 settlement cycle will be a complex and demanding undertaking for the entire industry, so it is important that feedback is carefully considered before next steps are decided.

Any move to a T+1 settlement cycle must be effected in a way that does not introduce new risks, damage the existing efficiency, liquidity and functioning of EU capital markets, create barriers to investing in the region’s securities markets, or diminish access to capital markets for issuers.

“If a decision to move to T+1 is made, it will be necessary to define an appropriate timetable that generates industry momentum and provides clarity to market participants.”

Among AFME’s key points are:

• AFME fully supports ESMA’s conclusion that any decision to shorten the settlement cycle in the EU should be based on a proper cost-benefit analysis.
• It is critical that this considers not only the impact on post-trade processes, but also potential broader market impacts on trading and liquidity and the competitiveness of EU markets.
• Any move to a default T+1 settlement cycle must be effected in a way that does not introduce new risks, damage the existing efficiency and functioning of EU capital markets,  create barriers to investing in the region’s securities markets, or diminish access to capital markets for issuers, which would be contrary to the CMU objectives.
• AFME calls for a coordinated approach across Europe, including EEA countries, Switzerland and the UK.
• The North America migration to T+1 in May 2024 represents an opportunity to incorporate “lessons learned” before making a decision in Europe. However, it is important to remember that the complexity of the European post-trade ecosystem could make T+1 adoption a more challenging project in Europe as compared to other jurisdictions.

Source: AFME

Statement from FESE, which represents European exchanges

FESE believes reducing the settlement cycle from T+2 to T+1 should be closely coordinated among regulators, market participants, and Financial Market Infrastructures (FMIs).

From a technical perspective, Trading Venues can potentially support any “T+n” settlement cycles (with an appropriate adaptation timeline). However, operational readiness can be challenging for some market participants.

FESE Members are ready to support and follow their customers if a shift to T+1 materialises.

Source: FESE

Statement from ICMA 

ICMA has responded to the ESMA Call for Evidence on the shortening of the settlement cycle.  The response was produced by ICMA’s T+1 Taskforce, representing around 150 members, including sell-sides, buy-sides, market infrastructures as well as other relevant service providers.

ICMA views a potential EU move to T+1 as a significant undertaking with wide-ranging implications, not only for the post-trade process, but also from a trading, market-making liquidity and funding perspective. A move to T+1 is would come with significant risks that need to be carefully considered, and that are exacerbated by the complexities and fragmentation of the EU market. In that sense, ICMA strongly supports ESMA’s Call for Evidence with the aim of conducting a thorough assessment of all the expected costs and benefits of such move. It is important that the outcome of this process is, at this stage, considered open. Given the far-reaching and market-wide implications, it is critical that any decision in favour or against a further shortening of the settlement cycle is based on a solid understanding of costs and benefits.

Read the response here.

Source: ICMA