In May 2024, the US, along with Canada and Mexico, shortened the standard settlement cycle for most broker-dealer transactions from two business days after the trade date (“T+2”) to one business day after trade date (“T+1). The decision, announced by the SEC in February 2023, triggered discussions in the EU and the UK on the direct implications for European market participants and the need for European markets to align with the US in the future. It is clear that the move to T+1 presents a major industry transformation that will require significant investment from firms to upgrade post-trade systems and processes as well as related technology and which will also have important implications from a trading, funding and market liquidity perspective which need to be carefully considered. ICMA is actively involved in the discussions on T+1 representing members’ views and concerns.
ICMA has created a T+1 Taskforce (comprising members of the SMPC, ERCC, and MIAG) to engage in these discussions and related consultations. In particular, ICMA is keen to stress the importance of assessing the impact of shorter settlement cycles on trading and market liquidity, as well as on repo and securities financing (noting that SFTs, by their very nature, do not have standard settlement cycles).
In the UK, ICMA is an active member of the Accelerated Settlement Taskforce (AST) which was created by the HM Treasury in December 2022 to assess benefits and challenges of a potential UK move to T+1 and related recommendations - The AST is mandated to prepare its final report by the end of 2024.
On the EU side, CSDR Refit-mandates ESMA to produce a report by the end of 2024 on costs and benefits of a potential shortening of the settlement cycle in the EU. In order to support ESMA's work, in March 2023, a cross-industry taskforce was created, consisting of a number of relevant trade associations, including ICMA which continues to convene on a regular basis.
Related news and publications:
ICMA comments on the UK's draft recommendations on T+1
31 October 2024 ICMA has submitted today a set of comments in response to the draft recommendations issued by the Technical Group (TG) of the UK’s Accelerated Settlement Taskforce (AST). The draft recommendations were published on 27 September for market consultation, reflecting several months of detailed discussions within the Technical Group and its various workstreams. ICMA has been a member of the AST since its inception in early 2022 and has actively contributed to the discussions of the Technical Group. ICMA’s response to the consultation submitted today to the chair of the AST is based on additional feedback received from members of ICMA’s own T+1 Taskforce which brings together members of ICMA’s secondary market and repo and collateral constituencies, as well as a number of additional considerations received from ICMA’s primary bond market groups.
European T+1 Industry Task Force publishes Roadmap for Adoption of T+1 in EU securities markets
14 October 2024 The European T+1 Industry Task Force, which includes ICMA along with 20 other trade associations, has today published a report outlining its preliminary analysis on the regulatory, technical, and operational changes required to facilitate a successful transition to T+1 in EU securities markets.
UK’s T+1 Technical Group publishes draft recommendations for a UK move to T+1
27 September 2024 The UK’s T+1 Technical Group has published today its draft recommendations for a UK move to T+1. The report reiterates the intention of the UK to move to T+1 by the end of 2027 and sets out a long list of recommendations and proposed best practices to ensure a smooth transition. The proposals (43 principal recommendations and 14 additional recommendations) have been issued along with a list of consultation questions, with a window for all stakeholders to submit comments on the proposals by the end of October.
Following the consultation, the TG’s final report will be published by the end of this year, including further details on the proposed timeline.
ESMA holds full-day Public Hearing on shortening the settlement cycle
10 July 2024 ESMA held a full-day Public Hearing on shortening the settlement cycle today featuring a series of panel discussions with key industry stakeholders. As part of the Hearing, ICMA had the opportunity to speak on the first panel of the event, a debate around the “appropriateness of shortening the settlement cycle in the EU, expected impacts, costs and benefits. This was an opportunity to reiterate to ESMA and other participants the particular challenges from a fixed income perspective with T+1 in the EU, highlighting in particular the key structural differences between the EU market and the setup in the UK and the US. Following the public hearing, ESMA published all the related material, including the introductory remarks by Verena Ross (ESMA chair), presentation slides, as well as a recording of the full event.
ICMA Webinar: T+1: State of play and bond market implications
29 April 2024 ICMA and a panel of leading market practitioners gathered for a webinar on 29 April to discuss a proposed “Shortening of the settlement cycle to T+1”, reviewing the latest developments across different jurisdictions and discussing potential consequences for the international bond markets. Following a brief introduction and a presentation on the current state of play in the US, EU and UK, the webinar featured a panel discussion focused on the important implications of a move to T+1, specifically from a trading and liquidity perspective, including considerations around the market making of bonds, related repo activities, as well as funding and FX.
EU T+1 Industry Taskforce comments on UK's ''Geffen report'' & outlines next steps
9 April 2024 The EU cross-industry taskforce on T+1 has released a joint statement today to welcome the recent report published by the chair of the UK’s Accelerated Settlement Taskforce (the “Geffen report”) and to reiterate the importance of close coordination between the UK, the EU and Switzerland on any potential move to a T+1 settlement cycle.
See the full statement here.
ICMA welcomes Geffen Report on faster settlement of financial trades in the UK
28 March 2024: ICMA welcomes the report released today by the Chairman of the UK Accelerated Settlement Taskforce (AST), Charlie Geffen (the “Geffen Report”). ICMA has been a member of the AST since its inauguration in December 2022, and an active contributor to the constructive discussions. While the report reflects the Chairman's personal views and conclusions, we recognise the positive evolution over the past months which have led to an overall more balanced report that ICMA can broadly support.
In particular we welcome:
(i) The more realistic timeline provided, with a target date in 2027,
(ii) the possibility for a narrow scope of instruments which would exclude instruments settled outside of the UK, such as Eurobonds; and
(iii) a relatively flexible mandate given to the newly established Technical Group (TG), an open and expert forum largely driven by market practitioners, of which ICMA forms part.
We look forward to further productive work over the next months within the TG and associated subgroups, and towards the Final AST report which is to be published later this year.
While we believe that the case for T+1 in Europe needs to be weighed more carefully, taking into account the significant risks, challenges and costs as well as longer-term benefits arising from such a move, we are keen to continue to play an active and constructive role in the discussion, both in the UK and the EU.
ESMA issues short report summarising feedback received in response to their Call for Evidence on shortening the settlement cycle
21 March 2024 ESMA has issued today a short report summarising the feedback received in response to their Call for Evidence on shortening the settlement cycle which closed in December 2023. On this basis, ESMA is now working on its final report for the European Commission which will assess potential impacts and costs and benefits of an EU move to T+1. ESMA is expected to submit their final report before mid-January 2025.
ICMA responds to ESMA Call for Evidence on the shortening of the settlement cycle
15 December 2023: ICMA has responded to the ESMA Call for Evidence on the shortening of the settlement cycle. The response was produced by ICMA’s T+1 Taskforce, representing around 150 members, including sell-sides, buy-sides, market infrastructures as well as other relevant service providers.
ICMA views a potential EU move to T+1 as a significant undertaking with wide-ranging implications, not only for the post-trade process, but also from a trading, market-making liquidity and funding perspective. A move to T+1 is would come with significant risks that need to be carefully considered, and that are exacerbated by the complexities and fragmentation of the EU market. In that sense, ICMA strongly supports ESMA’s Call for Evidence with the aim of conducting a thorough assessment of all the expected costs and benefits of such move. It is important that the outcome of this process is, at this stage, considered open. Given the far-reaching and market-wide implications, it is critical that any decision in favour or against a further shortening of the settlement cycle is based on a solid understanding of costs and benefits.
Read the response here. Along with the consultation response itself, ICMA submitted a number of supporting documents, including an ICMA analysis on the costs of a misalignment of settlement cycles across jurisdictions and instruments as well as an Overview of current repo settlement cycles in the UK and the EU. Furthermore, ICMA also supported a set of High-Level Remarks of the European T+1 Industry Task Force which we co-signed along with 16 other trade associations.
ESMA issued today a Call for Evidence on the shortening of the settlement cycle in the EU
5 October 2023: ESMA issued today a Call for Evidence on the shortening of the settlement cycle in the EU. ICMA will work with its members to prepare a response to the consultation by the deadline of 15 December 2023, building on the discussions to date on this important topic.
ICMA has been an active contributor to the discussion on a potential shortening of the settlement cycle to T+1, which has gained significant momentum since the US decision to move to T+1 in May 2024. ICMA is a member of the UK’s Accelerated Settlement Taskforce as well as the relevant EU cross-industry Taskforce on T+1, along with a number of other relevant associations. Members who would like to be involved in the discussion on T+1, please reach out to ercc@icmagroup.org.
UK chancellor announces launch of a Taskforce to explore faster settlement
9 December 2022: HM Treasury has announced the launch of the UK Accelerated Settlement Taskforce (AST) which is mandated to explore the potential for faster settlement of securities trades in the UK and issue related recommendations by the end of 2024. Charlie Geffen was appointed as chair of the AST and ICMA will be fully involved in the work as a full member of the group.
Contacts
Alexander Westphal
Senior Director, Market Practice and Regulatory Policy; secretary to the ICMA European Repo and Collateral Council (ERCC) and Committee, and ERCC Operations Group
Direct line: +44 20 7213 0333
Nina Suhaib-Wolf
Director, Market Practice and Regulatory Policy
Direct line: +44 20 7213 0318
