Three Euroclear CSDs adopt T+2 settlement cycle

Three of Euroclear's central securities depositories are to shorten the transaction settlement cycle from three to two business days after the trade date.

Three of Euroclear's central securities depositories (CSDs) are to shorten the transaction settlement cycle from three to two business days after the trade date.

Euroclear announced that all transactions conducted on trading venues and cleared through Euroclear Belgium, Euroclear France and Euroclear Nederland would be settled on the new cycle, known as T+2, as of October 2014. OTC transactions are exempt.

The move towards a shorter settlement cycle was first suggested by the Giovannini Group, which advised the European Commission on financial market issues, about a decade ago.

T+2 has since been written into the pending CSD Regulation, which is being considered by the European Parliament and Council. The regulation is expected to take effect in 2015.

"A move towards a shorter settlement cycle will increase operational efficiency, as well as drive down counterparty risks," Valérie Urbain, CEO of Euroclear Belgium, Euroclear France and Euroclear Nederland, said.

However, the shorter settlement cycle will require some changes in market practice such as pre-settlement matching, confirmation and affirmation of client transactions as early as possible, ideally on trade date, she said.

"After extensive consultation with clients and stakeholders in our markets, we took the decision to commit to T+2 settlement now, and to make the transition earlier than required."

Euroclear's early start date is aimed at allowing clients of the three CSDs to prepare for T+2, before the CSDs connect to the European Central Bank's Target2-Securities (T2S) platform in March 2016, the second of four waves of migration.

T2S is meant to simplify and harmonise settlements across European borders, providing a common IT platform and standards for all transactions.  It is set to launch on 22 June 2015, and will operate a T+2 settlement regime.

Euroclear Finland will connect to T2S in 2017, while Euroclear Sweden and Euroclear UK & Ireland are not migrating to the new platform. However, all the CSDs are in various stages of discussions to also move towards a T+2 cycle. Recommendations and time lines are expected during 2014.

Euroclear Bank, the international central securities depository, already settles trades in real time.

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