EU Shortens Settlement Cycle to T+1 with ESMA's Backing

• The European Securities and Markets Authority (ESMA) is supporting the shortening of the settlement cycle in the EU to T+1.
• The move aims to boost efficiency, support market integration, and achieve the objectives of the Savings and Investment Union.
• A dedicated governance structure has been established to facilitate coordination among industry stakeholders and regulatory bodies.
• The transition to T+1 is expected to take place in Q4 2027, with October 11 being the optimal date.

The move aims to boost efficiency, support market integration, and achieve the objectives of the Savings and Investment Union.

The European Securities and Markets Authority (ESMA) has thrown its weight behind an ambitious plan to shorten the settlement cycle in the EU to a mere one day, known as T+1. This move is expected to boost efficiency in the trading and post-trading environment, paving the way for greater market integration and the achievement of the Savings and Investment Union's objectives. The European Commission, European Central Bank, and industry stakeholders will work together under ESMA's guidance to ensure a smooth transition. A dedicated governance structure has been put in place to facilitate coordination among these parties.

To support the implementation of T+1, ESMA is preparing regulatory standards that will provide a clear framework for industry participants to follow. The European Commission, ECB, and industry stakeholders have established a governance structure comprising the T+1 Coordination Committee and an industry committee with specialized workstreams. This structure aims to facilitate coordination among these parties and ensure a successful transition to T+1. ESMA's Chair, Verena Ross, chairs the T+1 Coordination Committee, which includes representatives from ESMA, the European Commission, ECB, and the Industry T+1 Committee.

The transition to T+1 is expected to take place in Q4 2027, with October 11 being the optimal date. ESMA has recommended this timeline to ensure a coordinated approach with other jurisdictions in Europe. The complexity of implementing changes required for a T+1 settlement cycle necessitated the establishment of a governance structure to facilitate industry coordination. This structure will play a crucial role in ensuring a successful transition and minimizing disruptions to market participants.

Lawyers should watch for the potential impact on market integration and the objectives of the Savings and Investment Union, as well as the coordination with other jurisdictions in Europe.

Source: Original reporting via ESMA