Inconsistent settlement cycles around the world are expected to cause increased disruption to the global securities market, with a panel at InvestOps Europe bemoaning the lack of urgency in certain markets to align to a T+1 cycle.
The discussion began with an overview of the settlement landscape around the world, which included the expectation that the UK’s Treasury taskforce on T+1 will move forward its timeline and publish its final recommendations, rather than simply initial findings, by the end of this year – potentially pointing to an accelerated timeline for T+1 in the UK.
This comes as the European Securities and Markets Authority (ESMA) this month invited market participants to provide feedback on the shortening of the settlement cycle in the European Union. However, the general feeling in Europe is that a move to T+1 within the next five years is unrealistic due to the fragmented nature of the European industry and the existing challenges around settlement fails and CSDR.
“The reality is that we’ve got multiple jurisdictions and locations going live with T+1 at different times,” said one panellist. “It looks like the UK and Europe won’t be aligned, unfortunately. Europe’s a very different beast; it’s far more complicated when you think about the 30+ CSDs, all of the intricacies that happen with T2S markets and non T2S markets, and the inefficiencies that still exist within the market itself. So that whole move is going to have a far more complicated delivery schedule to it.”
The panel agreed that disparate settlement cycles will only serve to cause disruption to the global industry, with a move in Europe needed sooner rather than later. On a potential seven-year wait for T+1 in Europe, one expert said: “You cannot wait seven years to go live; you can’t be seven years behind the US and have organisations carrying this very disjointed settlement cycle for such an extended period of time.”
Frustration also appears to be present within the European markets, with one panellist stating that some CSDs have “made early noises about potentially rebelling” and going ahead without the rest of the European markets “because they do not want to be seen as non-competitive”.
“Symmetry across the globe is really important,” added another expert. “Having seven years of massive, mismatched settlements – I just don’t know how you’d do that. It will be tonnes of headaches, costs and staff. It’s going to be more frustrating for desks if we’ve got misalignment – it’s going to become a bigger and bigger problem. We don’t want to be managing fails and mismatches, it’s non-value-add work. Reducing that down will force discipline.”
What the industry can do, the panel agreed, is to be vocal with regulators on what needs to happen to ensure as much harmonisation as possible. Industry bodies, working groups and CSDs need to work together to find common goals and not pull in separate directions; otherwise there is potential chaos afoot.