Overview

• New paper discusses if Europe should move to 1-day settlement cycle (known as T+1).
• Current settlement for most transactions in equities, fixed income markets is (T+2).
• Post announcements by US, other of intention to move to shorter settlement cycles.
• The move would follow historic trend towards shorter settlement cycles, could result in reduced market risk and associated costs.
• Move to T+1 could be most challenging migration yet as it would remove only business day between trading-settlement, create significant pressure on post-trade operations.
• Such move in settlement terms would affect particularly global participants.
• Rushed/uncoordinated approach likely to result in increased risks, costs, inefficiencies.
• Particularly given unique nature of EU markets as they have multiple different market infrastructures and legal frameworks.
• Should set up task force to conduct detailed assessment of benefits, costs, challenges.

Key Aspects

• T+1 Settlement in Europe: Potential Benefits and Challenges paper highlights the key benefits of moving to a shorter settlement cycle including reduction of risk.
• Significant reduction of associated costs and maintaining global alignment.
• As barriers to overcome pre-migration cites post trade activities compressed into shorter time frame; possible increase in settlement fails.
• Greater operational complexities for global participants; securities lending impact.
• Impact on Exchange Traded Funds (ETFs), securities-based derivatives more important
• AFME cautions that successful migration will require coordinated industry effort, from initial impact assessment through to development of a detailed implementation plan.