The UK’s Accelerated Settlement Taskforce has recommended a two-phased approach to shortening the settlement cycle beginning with operational changes in 2025 and a full transition by the end of 2027.
The two-phased process would initially see some operational and behavioural changes mandated for 2025 to enable the market to prepare in advance of the formal move.
In its report, the group added however, that if the EU commits to move to T+1 within a timeframe that aligns with the UK’s plans, simultaneous adoption should be considered.
The taskforce also recommended a Technical Group should be established, comprising operational and market experts to work through the details including how changes can be best implemented to enable a smooth transition to T+1.
Andrew Douglas, who has worked for 35 years in the post-trade industry, most recently with DTCC, will lead the group, which will report later this year to confirm the dates for both phases of the transition.
More than 80 trade associations and industry participants have volunteered to support the Technical Group. These include AFME, Baillie Gifford, Brown Brothers Harriman, DTCC, Euroclear, FMSB, Forvis, Goldman Sachs, ICMA, ISITC Europe, ISLA, JP Morgan, Linklaters, LSEG, PIMFA, Santander CIB, The IA and UK Finance.
Charlie Geffen, Taskforce Chair, said: “The direction of travel for shorter settlement cycles is clear. This is a major project that will keep the UK at the forefront of technology in capital markets.
“The strong and collaborative engagement I have seen from stakeholders during the preparation of this report means that I am confident that the UK has the expertise and commitment to enable the necessary operational changes to take place in 2025. This will provide the UK with the flexibility to adapt to global developments and secure a smooth transition before the end of 2027.”
The UK taskforce has faced some hurdles in preparing the recommendations, most notably trouble in finding a consensus on when that ultimate transition date should be. Some members wished to minimise the period of misalignment with the US which moves to T+1 in May this year, while others wish to align with the EU – for which there is currently no timeframe.
Because of the back and forth, the recommendations have arrived three months later than initially planned.
The European Securities and Markets Authority (ESMA) published its report on the feedback received to its call for evidence on shortening the settlement cycle last week, where it received 81 responses from associations.
Despite confirming it will not pursue a leapfrog shift to T+0, the regulator only revealed it will continue to engage with the industry and will seek to publish another report before 17 January 2025.
Commenting on the report AFME’s CEO, Adam Farkas, said, “AFME agrees with, and supports, the conclusion of the report that UK securities markets should adopt a T+1 settlement cycle, within a reasonable timeframe.
“The report recommends a coordinated approach across the UK, EU and other European jurisdictions. AFME fully endorses this conclusion, and we further note that the report does not identify any material advantage for UK capital markets to move to T+1 out of step with regional partners. We therefore call on authorities to adopt a collaborative approach in order to reach a pan-European consensus on timing.
“We highlight the need for further detailed technical analysis across Europe in order to determine the appropriate implementation date, and the nature and timing of any broader market changes that are necessary to facilitate T+1. This analysis should incorporate lessons learned from the US move to T+1 in May 2024. We therefore welcome the establishment of the Technical Group and we will continue to share our, and our members’ wealth of expertise during the next phase of work.”