European securities markets should make the move to T+1 settlement in the fall of 2027, the European Securities and Markets Authority (ESMA) has recommended.
The European regulator issued a final report on the prospect of shortening the settlement cycle, endorsing the move on the basis that it would increase market efficiency and resilience. ESMA has called for adopting T+1 settlement on Oct. 11, 2027.
The report said that a shorter settlement cycle will benefit the region’s capital markets in various ways, including reducing costs and risks, while aligning the European market’s practice with other major jurisdictions. T+1 settlement was adopted by Canada and the U.S. earlier this year.
However, it also highlighted the challenges that the effort will likely face, including required changes to regulation and industry processes, along with the need for increased harmonization, standardization and cooperation among various components of the financial system — all of which will demand increased investment.
While some instruments already settle in T+1, and even T+0, the transition will pose challenges for, “market infrastructures, intermediaries, asset managers and other stakeholders involved in the settlement of securities transactions,” it said.
Last month, the Canadian Capital Markets Association issued a post-implementation report, which declared that the latest effort to reduce the settlement cycle has been a success, while highlighting some of the challenges that the project faced in this market.
Looking ahead, ESMA said that it will revise the rules on settlement efficiency, and work on establishing a governance framework to oversee the proposed move to T+1 with the European Commission and the European Central Bank.