ESMA Targets Three-Year Move to T+1
Posted by Colin Lambert. Last updated: November 19, 2024
The European Securities and Markets Authority (ESMA) has targeted October 2027 for moving the European Union’s securities markets to T+1 settlement.
The regulator has issued a final report highlighting the increased efficiency and resilience of post-trade processes that should be prompted by a move to T+1, noting it would facilitate achieving the objective of further promoting settlement efficiency in the EU, contributing to market integration and to the Savings and Investment Union objectives.
ESMA recommends that the migration to T+1 occurs simultaneously across all relevant instruments, and while it says that should be achieved in Q4 2027, “Considering the different elements assessed by ESMA, in particular the difficulties linked to the go-live of such a big project in November and December, and the challenges linked to the first Monday of October (just after the end of a quarter), ESMA recommends 11 October 2027 as the optimal date for the transition to T+1 in the EU.”
With the UK in particular looking at a shift to T+1, ESMA also recommends following a coordinated approach with other jurisdictions in Europe.
Regarding the quantification of the costs and benefits, the elements assessed by ESMA suggest that the impact of T+1 in terms of risk reduction, margin savings and the reduction of costs stemming from the misalignment with other major jurisdictions globally, will represent “important benefits” for the EU capital markets.
It warns, however, that the change will also imply some challenges, including amending the Central Securities Depositories Regulation (CSDR) and the settlement discipline framework, in order to have legal certainty and foster the necessary improvements in post-trading processes to move successfully to T+1. “Additionally, all actors of the financial system will need to work on harmonisation, standardisation, and modernisation to improve settlement efficiency,” it states. “This will require some level of investment. The complexity of a trading and post-trading environment such as the EU capital markets means that this project will require a specific governance to be put in place.“
