Ahead of deciding whether to mandate a move to T+1 settlement for European securities markets, regulators are pledging to establish a governance structure to oversee the possible transition.
In a joint statement, the European Securities and Markets Authority (ESMA), the European Commission’s financial stability division, and the market infrastructure unit of the European Central Bank signalled the intention to prepare for a possible move to T+1 by setting up a framework to support any future such move.
ESMA noted it has been mandated to assess a possible move to a shorter settlement cycle in Europe, following the change in North American markets earlier this year, and that it will submit its final report to the European Parliament and Council in the coming weeks on whether to shorten the settlement cycle.
Ahead of that report, it shared its preliminary views on the issue in Monday’s statement.
The regulator said a move to T+1 would bring “important benefits” for the EU Savings and Investments Union, including “risk reduction, margin savings and the reduction of costs linked to the misalignment with other major jurisdictions globally.”
Given the need for an efficient and competitive market, along with the possible challenges of a shift to T+1, “it is urgent to act if the EU wants to avoid prolonging and amplifying the negative impacts of the misalignment with major jurisdictions internationally,” the statement said.
Additionally, industry investment would be required to achieve the harmonization, standardization and modernization needed to facilitate a move to T+1, the regulators noted. They said there’s a strong preference from the industry for regulators to mandate a shortening of the settlement cycle, if that’s the route that policymakers choose.
“In their view, this would ensure a coordinated and smooth transition to T+1 and provide legal certainty,” ESMA said in its statement. But a policy decision on whether to mandate a move to T+1 will have to come from European legislators, it said.
In the meantime, the regulators said they believe it’s necessary “to accelerate every aspect of the technical work needed to pave the way to any future move to T+1,” which is why it’s pledging to develop a governance structure “as soon as possible.”
“In order not to lose momentum, details of the governance structure will follow shortly,” the statement said. “It will be important that this governance is inclusive and ensures balanced sectorial and geographical representation.”