The European Securities and Markets Authority (ESMA), along with the European Commission and the European Central Bank, has outlined the next steps in the journey toward a shortened securities settlement cycle. With North America shifting to T+1 earlier this year, European regulators are now preparing for a similar transition.
In an effort to align with global markets, ESMA has been tasked with assessing the feasibility and impact of moving to T+1 across the EU. Working in close collaboration with the European Central Bank’s Directorate-General for Market Infrastructure and Payments (ECB-DG MIP) and the European Commission’s DG FISMA, ESMA is conducting a thorough review of the costs, benefits, and logistical challenges of the shift. While the final report is expected to be delivered to the European Council and Parliament in the coming weeks, the regulator shared its preliminary findings to accelerate discussions.
ESMA’s early analysis suggests that moving to a T+1 settlement cycle could bring significant benefits, including reducing risks, saving margins, and lowering costs by aligning with other major global markets. However, the transition will require substantial changes to the EU’s legal, regulatory, and operational frameworks. The regulator emphasises that harmonisation and modernisation of post-trade systems will be crucial to ensuring a smooth and efficient transition.
Call for legal certainty
Although the infrastructure for T+1 settlement already exists within the EU, market participants have expressed a preference for formal regulation. Many are calling for amendments to the Central Securities Depositories Regulation (CSDR) to mandate the shift. Such legal certainty, they argue, would help ensure a coordinated transition and reduce the risk of disruption. ESMA has indicated that any legislative proposal would need to be approved by the EU co-legislators after the release of its full report.
Next steps
With Europe’s capital markets deeply interconnected, a coordinated approach across the region will be essential for a successful transition. The Eurosystem’s TARGET-2-Securities (T2S) platform, which handles settlement for most of the EU’s Central Securities Depositories (CSDs), is expected to play a central role in this shift. Additionally, the ECB’s advisory group on market infrastructures, AMI-SeCo, which has been promoting post-trade harmonisation for years, will continue to be a key player in the transition process.
To oversee the technical preparations for T+1, ESMA, DG FISMA, and the ECB have agreed to establish a governance structure that includes representatives from the financial industry. This governance body will ensure that the transition is managed effectively and that stakeholders are well-represented.