ESMA calls for evidence on shortening settlement cycle
06 October 2023 Europe
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The European Securities and Markets Authority (ESMA) has released a call for evidence on the shortening of the settlement cycle.
The move aims to help ESMA assess the costs and benefits of a possible reduction of the settlement cycle in the European Union. The Authority will consider all possibilities for a shortened settlement cycle, including both T+1 and T+0.
Previous market events have prompted some jurisdictions outside of the EU to shorten their settlement cycles to T+1, or even T+0, to reduce counterparty risk and the risks linked to excessive volatility between trade and settlement.
The Authority states that distributed ledger technology (DLT) could open up opportunities for efficiency improvements in the entire trading and post-trading lifecycle, including potentially instantaneous settlement.
Further, shortening the settlement cycle in the EU could bring benefits in terms of increased efficiency and reduction of counterparty credit risk and the related collateral needs.
This might also increase the competitiveness and the attractiveness of EU financial markets, which are goals pursued by the Capital Markets Union.
The call for evidence aims to help identify whether any regulatory action is required to smoothen the impact for EU market participants of the planned shortening of the settlement cycle to T+1 in other jurisdictions, such as the US.
ESMA is also seeking feedback on how and when a shorter settlement cycle could be achieved and what impacts the decision could have on the EU’s capital markets resulting from international developments related to securities settlement.
The Authority seeks input, including quantitative evidence, from all stakeholders involved in financial markets.
ESMA invites market infrastructures including central securities depositories (CSDs), central counterparties (CCPs) and trading venues, as well as their members, other investment firms and their representatives to respond.
Stakeholders have until 15 December 2023 to provide their input.
ESMA will consider the feedback it receives from this consultation in Q1 2024 and aims to submit this to the European Commission and publish a final report in Q4 2024.
The move aims to help ESMA assess the costs and benefits of a possible reduction of the settlement cycle in the European Union. The Authority will consider all possibilities for a shortened settlement cycle, including both T+1 and T+0.
Previous market events have prompted some jurisdictions outside of the EU to shorten their settlement cycles to T+1, or even T+0, to reduce counterparty risk and the risks linked to excessive volatility between trade and settlement.
The Authority states that distributed ledger technology (DLT) could open up opportunities for efficiency improvements in the entire trading and post-trading lifecycle, including potentially instantaneous settlement.
Further, shortening the settlement cycle in the EU could bring benefits in terms of increased efficiency and reduction of counterparty credit risk and the related collateral needs.
This might also increase the competitiveness and the attractiveness of EU financial markets, which are goals pursued by the Capital Markets Union.
The call for evidence aims to help identify whether any regulatory action is required to smoothen the impact for EU market participants of the planned shortening of the settlement cycle to T+1 in other jurisdictions, such as the US.
ESMA is also seeking feedback on how and when a shorter settlement cycle could be achieved and what impacts the decision could have on the EU’s capital markets resulting from international developments related to securities settlement.
The Authority seeks input, including quantitative evidence, from all stakeholders involved in financial markets.
ESMA invites market infrastructures including central securities depositories (CSDs), central counterparties (CCPs) and trading venues, as well as their members, other investment firms and their representatives to respond.
Stakeholders have until 15 December 2023 to provide their input.
ESMA will consider the feedback it receives from this consultation in Q1 2024 and aims to submit this to the European Commission and publish a final report in Q4 2024.
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