The European Securities and Markets Authority (ESMA) has proposed a move to T+1 in the EU by Q4 2027 – in line with the UK.
Published in the watchdog’s final T+1 recommendations, ESMA recommends that the migration to T+1 occurs simultaneously across all relevant instruments – with a coordinated approach across the continent “desirable”.
In a report, ESMA highlighted the increased efficiency and resilience of post-trade processes that a move to T+1 would facilitate, “achieving the objective of further promoting settlement efficiency in the EU, contributing to market integration and to the Savings and Investment Union objectives”.
Shortening the settlement cycle in the EU “will undoubtedly change the way in which markets function today”, the report stated, affecting entities throughout the transaction and settlement chains with varying levels of impact.
Regarding potential dates, ESMA recommends 11 October 2027 as the optimal date – considering the difficulties of going live of such a substantial project in November and December. The regulator also wishes to avoid the first Monday of October as the transition date, as it is the first Monday after quarter-end.
ESMA said it will continue to work with the European Commission and the European Central Bank on work related to rules on settlement efficiency, adding that “all actors of the financial system will need to work on harmonisation, standardisation, and modernisation to improve settlement efficiency”.
It is expected that existing CSDR and settlement discipline regulation will need to be amended, in order to “have the legal certainty and to foster the necessary improvements in post-trading processes”, the watchdog said.
The move aligns with the proposed move to T+1 in the UK – which was announced in September. Last month, the European T+1 Industry task force voiced support for a co-ordinated move to T+1 in the EU, acknowledging the benefits of an aligned approach across the entire European region, including the EEA, the UK and Switzerland.
“T+1 will allow EU capital markets to keep up with the evolution of other markets, putting an end to costs linked to the current misalignment of settlement cycles,” the report stated. “This will directly benefit the EU asset management industry, will contribute to the harmonisation of corporate event standards in the EU and will more generally contribute to the competitiveness of EU capital markets.”
ESMA added that the costs and benefits related to the shortening of the settlement cycle have been difficult to quantify, however the benefits of risk reduction, aligning with global markets and margin savings represent key objectives for the EU capital markets.
Andrew Douglas, chair of the T+1 Taskforce Technical Group, commented on the announcement, stating: “The UK Taskforce has always promoted a combined migration with UK, EU and CH moving together as our preferred solution and so on behalf of the UK Taskforce, I welcome this announcement of the European migration date for 11 October 2027.
“We have worked closely with ESMA over the past 12 months sharing our progress and I am confident that this relationship will continue to develop as we look at how we can develop joint migration plans.”