The deadline for the EU’s transition to T+1 has been set for 11 October 2027. However, certain details in the scope remain to be clarified. Global Trading investigates one aspect of this in a recently published article – the exemption of securities financing transactions (SFTs).
The European Council has agreed to exempt SFTs from T+1 settlement due to their “non-standardised” nature. Global Trading highlights that the exemption has been recommended in a report by the UK’s Accelerated Settlement Technical Group along with a call for “greater legal and regulatory clarity around the instruments”.
A quote from the report reads, “There is a significant share of SFTs that are executed for a settlement date later than the standard settlement cycle, a trend that is expected to increase in both repo and securities lending markets. Restricting the ability of UK trading venues to offer participants the possibility to execute these transactions would risk driving this activity away from those venues.”
The report further describes the current scope of the UK’s Central Securities Depositories Regulation (CSDR) regarding SFTs as “ambiguous”. This ambiguity has already caused “confusion and regulatory uncertainty” during the move to T+2. With the move to T+1 looming, it is an opportunity to “rectify the situation by providing clarity and legal certainty”. This is especially important now that SFT markets are becoming increasingly electronic.
Not just in the UK
Global Trading quotes Franck Noel, managing director of strategy, risk and transactions at Deloitte, who echoes the UK’s sentiments about SFTs’ shorter settlement timeline and the need for clarity under CSDR.
He says, “Whether this exemption will significantly change the workload remains uncertain. SFTs are often tied to bond ownership, meaning that if institutions use SFTs on their assets, they will still need to review their processes and value chain to ensure compliance with T+1 settlement requirements. Additionally, recall procedures will need to be accelerated to accommodate the shorter settlement cycle.”
The European Council has clarified that the exemption will only apply to SFTs documented as single transactions composed of two linked operations.
