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Asset managers have warned of a “major and serious risk” to European capital markets if regulators do not copy the US and cut settlement cycles to one day. Europe’s markets watchdog is considering whether to shorten EU settlement cycles following a move in the US to cut the current two-day settlement time for US equities and corporate bonds, a process known in the industry as T+2.
The US move from T+2 to T+1, which comes into effect in May, has caused concern among EU fund managers as it will reduce the amount of time they have to settle US trades. The European Securities and Markets Authority launched a call for evidence last year on whether EU markets should also move to T+1.
In a response to the Esma call for evidence, the European Fund and Asset Management Association said there was “a compelling case” for the EU to move to T+1. “There is a major and serious risk that if Europe fails to act, other jurisdictions will follow the US while Europe remains on T+2 for a prolonged time,” Efama said. “European capital markets would be behind their peers in terms of capital efficiency and risk management.” Efama added that “a timely transition” to T+1 in the EU should be done in lockstep with the UK to avoid creating further settlement misalignment....
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