The European T+1 Industry Task Force is in support for “a coordinated approach across the entire European region, including the EEA, the UK and Switzerland”. This, it expresses in a recently published high level roadmap for the adoption of T+1 in EU securities markets. In addition, the paper also recommends a T+1 transition period between 24 and 36 months.
The task force “is supportive of a move to T+1 in the EU, and recognises the potential benefits in terms of efficiency improvements and risk reduction”. Nevertheless, it acknowledges that the move “would be a complex, multi-year undertaking” that requires the collaboration of all industry stakeholders.
The roadmap proposes a number of recommendations that could fall under two categories – required implementation steps, and measures to support settlement efficiency. The first concerns “core necessary changes to the existing legal, regulatory and operational framework required to facilitate a move to T+1”, while the second involves “broader changes that would help mitigate the risk that a move to T+1 results in an increase in settlement fails or a loss of other efficiencies”.
The nitty gritty
One of the required implementation steps suggests a change to Article 5 in the Central Securities Depository Regulation (CSDR) “to mandate a maximum of one business day between trade date and intended settlement date for transactions executed on trading venues in in-scope transferable securities”. Securities financing transactions (SFTs) should be exempted from Article 5, but OTC transactions should adopt a T+1 settlement cycle “where appropriate”. The paper calls on industry participants to “agree on a new ‘daily timetable’ for trading, clearing, settlement and ancillary processes”.
To support settlement efficiency, the paper proposes that article 2 of the regulatory technical standards (RTS) on CSDR Settlement Discipline be updated. This is to “enforce completion of the allocation/confirmation process on the business day prior to intended settlement (i.e. typically T+0), and for this information to be exchanged in electronic, STP format”. Overall, messaging standards need to improve, both in their availability, and in their use in different transaction types. Transactions involving a timezone difference of more than two hours between the counterparties should be permitted an extension to 10.00 CET on T+1.
Keep it simple
Other recommended steps for a successful transition include a “temporary suspension of cash penalties over the implementation period”. Authorities should also “avoid implementing complex changes to the CSDR cash penalty rules in advance of the transition.”
The task force is keeping in mind the UK’s proposed implementation deadline of H2 2027, but cautions that “it may be more appropriate to determine the implementation date by first defining the necessary transition period”. This would, in turn, depend on the changes deemed as necessary. “A realistic implementation date should be decided upon and communicated with the maximum possible notice period”.
