ECSDA: T+2 Settlement Smooth

Terry Flanagan

The number of failed transactions did not increase when the Eurozone last month shortened its settlement cycle by one day, according to the European Central Securities Depositories Association.

On 6 October, 29 European markets cut their settlement cycle by one day to move from three days after trade date, T+3, to T+2. Wednesday 8 October was the first day when instructions settled according to the new cycle.

ECSDA, which represents 41 national and international central securities depositories across 37 European countries, said on its website that no country experienced a significant increase in the number of failed transactions as a result of the move.

Using settlement data collected from 17 CSDs, ECSDA said that on 8, 9 and 10 October the number of failed instructions in 11 out of 17 markets was lower than the preceding week based on the proportion of the total value of settled instructions. In five markets, the fail rate remained at zero during the transition while just one market had an increase in the number of failed instructions on 8 October, which was less than 10% and within the range of normal fluctuations according to ECSDA.

Soraya Belghazi, secretary general at ECSDA, said in an email to Markets Media: “The reason why the move to T+2 went so smoothly is probably because there was such an unprecedented effort at educating market participants and preparing them for the change.”

In May ECSDA published best practices, under the aegis of the European Central Bank, so that CSDs could communicate with their participants, who could then talk to their own clients.

Belghazi said that the changes were minimal for CSDs who already had experience of shorter settlement cycles, such as same-day for certain money market instruments. “The real challenge was rather on the side of market participants, especially smaller players with low levels of automation,” she added.

ECSDA said several non-EU markets are now considering moving to T+2 and Serbia, Bosnia and Montenegro may potentially move as early as 1 January 2015 while Spain will include equities in T+2 in November next year.

Last month The Depository Trust and Clearing Corporation formed an industry steering committee and working group so that the US can move to T+2 for equities, corporate and municipal bonds, and unit investment trusts.

The co-chairman of the DTCC steering committee are Kathleen Joaquin, chief industry operations officer at the Investment Company Institute and Tom Price, managing director, operations, technology & business continuity planning, at the Securities Industry & Financial Markets Association.

Joaquin said in a statement: “The voluntary move to a T+2 settlement cycle for securities currently settling at T+3 will result in a meaningful reduction in liquidity and operational risks, will promote better use of capital, and will create significant process efficiencies for market participants—all changes that will benefit investors.”

Moving to a T+2 settlement cycle in the US would initially cost the industry approximately $550m and result in annual savings of approximately $195m according to a October 2012 cost-benefit analysis commissioned by DTCC and conducted by the Boston Consulting Group. The analysis said the cost would be recovered in between 2.5 and 3.5 years.

The DTCC added that in addition to the Eurozone moving to T+2, a number of markets in the Asia/Pacific region are already on T+2 or T+1, while others are looking to reduce their settlement cycle from T+3.

Photo via ECSDA

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