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The EU will cut the time it takes to settle stock, bond and fund trades from two days to one from October 2027, the European Commission confirmed on Wednesday, in a move designed to boost liquidity in the bloc’s capital markets.
“A shorter settlement cycle would enhance the attractiveness of EU markets,” the commission wrote. It comes as the EU is seeking to re-energise its markets by encouraging more domestic and international investment and boosting liquidity.
Single-day securities settlement will begin on October 11 2027 — the date that Esma, the EU’s financial market regulator, had previously recommended, aligning the switch with those in the UK and Switzerland in order to minimise costs for banks and fund managers.
Settlement is the typically dull but important process of matching and legally transferring assets from sellers to buyers. It was thrown into the spotlight during the US meme stock mania at the peak of the coronavirus pandemic, when some companies including Robinhood blamed the two-day settlement window for their systems being unable to keep up with heightened trading volumes.
The move to so-called T+1 settlement will bring a “significant reduction in margin requirements for market participants”, Maria Luís Albuquerque, the EU commissioner for financial services, said on Wednesday.
It would also “unlock important benefits, notably by achieving risk reduction, margin savings and the reduction of costs linked to misalignment with other major jurisdictions globally”, the commission wrote.
The UK is seeking to also shorten its settlement window in line with the EU. Last week, a UK government task force laid out a plan recommending October 11 2027 as the first date from which UK securities should be settled on a single-day basis, saying it “warmly welcomed” the EU’s expected move on the same day.
The EU decision comes after the US shortened its settlement time in May last year, as the SEC sought to minimise the risk of failed trades.
Canada and Mexico also moved from two-day to single-day settlement for stocks, bonds and exchange traded funds last year, while India reduced its settlement window in 2023. China was the first mover, adopting T+1 settlement in 2022.
“The global shift to T+1 is creating misalignments between EU and global financial markets and creates potential competitiveness gaps for EU capital markets. These misalignments will only increase the more countries will move to T+1,” the commission acknowledged.
Some countries, including India, are already thinking ahead to same-day settlements.
“Other international markets are already thinking of same day or even instantaneous settlement, so-called T+0. Today’s proposal [means] that market participants can clear trades even faster, if they want to,” Albuquerque said.
EU countries and the European parliament have to agree to the switch to T+1 before it takes effect.
https://www.ft.com/content/0d977872-f26c-4c13-aeb6-54c670066c33
