21 September 2022

AFME: T+1 Settlement in Europe: Potential Benefits and Challenges

The purpose of this paper is to provide some initial reflections on two major questions: should Europe (by which we mean the European Economic Area (EEA), the United Kingdom, and Switzerland) also move to T+1? And if so, how can this be achieved?

Executive Summary

‘Settlement cycle’ refers to the time period between trade date, when a transaction is agreed and executed by a buyer and

seller, and settlement date, when the transaction is completed and the securities and cash are exchanged. The current

settlement cycle for most transactions in equities and fixed income markets is two business days, referred to as ‘T+2’.

Recently, the US and other jurisdictions have announced plans to move to a one business day settlement cycle (‘T+1’), the

next stage in a historic compression of settlement cycles, at each stage driving further advancement in post trade efficiencies,

and reducing systemic risk.

Many of the benefits and challenges of a US migration to T+1, as articulated by the US securities industry association, SIFMA1,

would also be equally applicable to EEA markets, the UK and Switzerland. However, given the unique nature of European

markets – which, in comparison to the US, have a multitude of currencies, market infrastructures, and distinct legal frameworks

– AFME considers that the implementation would be more complex. Quite simply, there is more to consider, more to change,

and more actors to coordinate.

AFME calls for open dialogue across the full spectrum of participants in European securities markets – including issuers,

investors, market infrastructures, intermediaries, and regulators – to review how T+1 settlement could be achieved, where

operational and regulatory frameworks would need to be adapted, and to identify an appropriate timescale for such a

project. Industry coordination will be essential for success.

As an immediate next step, AFME supports the establishment on an industry task force, to conduct a detailed assessment of

the benefits, costs and challenges of T+1 adoption.

AFME

© AFME