The European financial markets face a significant
change as the Autorité des Marchés Financiers (AMF) and the Banque de France advocate for a coordinated transition to the faster T+1 settlement cycle.
This move aims to enhance efficiency and stability in securities transactions
across the EU and marks an important development in market operations.
The European Commission recently endorsed the T+1
settlement cycle, paving the way for a shift in how securities transactions are
settled. This faster settlement reduces the settlement period from two days
(T+2) to one day (T+1). It reportedly aligns the EU more closely with global
market practices.
However, the transition brings substantial challenges
due to the unique specificities of the EU market. The AMF and the Banque de
France highlighted the necessity of a close cooperation with key international
markets, notably the UK and Switzerland.
The two institutions said a coordinated approach is important to ensure a seamless transition, given the interconnected nature of these financial markets. The interdependencies between the EU and these markets
require a carefully calibrated timeline to manage the shift smoothly.
A two-phased approach has been proposed as the most
pragmatic way forward. Initially, within the current T+2 settlement
environment, all securities trades should be confirmed and allocated by the end
of the trade date. This step necessitates essential operational and technical
upgrades across the industry, including the standardization of data exchanges
and automation of manual processes.
Two-Phased Approach to Implementation
The second phase involves reducing the settlement
cycle to T+1 once a satisfactory level of trade confirmations on the trade date
is achieved. This phased approach ensures a structured transition, mitigating
potential disruptions while promoting efficiency.
The T+1 framework can also be effective by
encompassing regulatory aspects and also being supported by regulatory and
economic incentives. These incentives aim to facilitate the transition,
ensuring that market participants are adequately prepared and motivated to
adopt the new settlement cycle.
The strategy outlined by the AMF and the Banque de
France aims to safeguard the stability, efficiency, and competitiveness of
European financial markets. By advocating for this strategic transition, they
aim to position the EU markets for a more resilient financial ecosystem.
In May, Canada moved to a T+1 settlement cycle for equity and long-term debt market trades. This step, which aligned with similar changes in the US, promised to enhance the settlement process and reduce risks associated with delayed trades.
The European financial markets face a significant
change as the Autorité des Marchés Financiers (AMF) and the Banque de France advocate for a coordinated transition to the faster T+1 settlement cycle.
This move aims to enhance efficiency and stability in securities transactions
across the EU and marks an important development in market operations.
The European Commission recently endorsed the T+1
settlement cycle, paving the way for a shift in how securities transactions are
settled. This faster settlement reduces the settlement period from two days
(T+2) to one day (T+1). It reportedly aligns the EU more closely with global
market practices.
However, the transition brings substantial challenges
due to the unique specificities of the EU market. The AMF and the Banque de
France highlighted the necessity of a close cooperation with key international
markets, notably the UK and Switzerland.
The two institutions said a coordinated approach is important to ensure a seamless transition, given the interconnected nature of these financial markets. The interdependencies between the EU and these markets
require a carefully calibrated timeline to manage the shift smoothly.
A two-phased approach has been proposed as the most
pragmatic way forward. Initially, within the current T+2 settlement
environment, all securities trades should be confirmed and allocated by the end
of the trade date. This step necessitates essential operational and technical
upgrades across the industry, including the standardization of data exchanges
and automation of manual processes.
Two-Phased Approach to Implementation
The second phase involves reducing the settlement
cycle to T+1 once a satisfactory level of trade confirmations on the trade date
is achieved. This phased approach ensures a structured transition, mitigating
potential disruptions while promoting efficiency.
The T+1 framework can also be effective by
encompassing regulatory aspects and also being supported by regulatory and
economic incentives. These incentives aim to facilitate the transition,
ensuring that market participants are adequately prepared and motivated to
adopt the new settlement cycle.
The strategy outlined by the AMF and the Banque de
France aims to safeguard the stability, efficiency, and competitiveness of
European financial markets. By advocating for this strategic transition, they
aim to position the EU markets for a more resilient financial ecosystem.
In May, Canada moved to a T+1 settlement cycle for equity and long-term debt market trades. This step, which aligned with similar changes in the US, promised to enhance the settlement process and reduce risks associated with delayed trades.
