EU agrees to follow US, UK in settling securities trades faster

International financial market actors hailed a potential agreement that could see transactions finalised one day after trades are made — but moving to T+1 could require new Brussels legislation.

EU regulators confirmed in a Tuesday statement that they want to speed up the settlement of securities transactions – following a shift already underway in the US and UK.

The plan to move from T+2 settlement – where deals are finalised two working days after a trade takes place – to next-day, or T+1, has already been hailed by the financial sector, with hopes that it could also form part of the bloc’s post-Brexit cooperation with the UK.

“The impacts of T+1 in terms of risk reduction, margin savings and the reduction of costs linked to the misalignment with other major jurisdictions globally bring along important benefits” for EU capital markets, said a joint statement by the financial services department of the European Commission, the European Central Bank and EU securities market authority ESMA.

“It is urgent to act if the EU wants to avoid prolonging and amplifying the negative impacts of the misalignment with major jurisdictions internationally,” the statement said, adding that the three institutions “consider it necessary to accelerate every aspect of the technical work” needed for the move.

The US, guided by the Securities and Exchange Commission, moved to swifter settlement in May of this year. The intention was to modernise financial markets and cut risk – but the shift left a mismatch for those who trade on both sides of the Atlantic.

Signal welcomed by European financial services sector

The EU financial sector has already applauded Tuesday’s statement.

The European Fund and Asset Management Association “wholeheartedly agrees with the underlying rationale for this move,” the lobby group said in a statement, adding that ongoing misalignment would damage the competitiveness of EU financial products.

It follows a statement made on Monday by the Association for Financial Markets in Europe, representing major investment banks, which called on public authorities to formally commit to the change.

Both lobby groups say they favour a shift in late 2027, the date already identified by regulators in the UK – and indeed some hope that agreeing on a common date could prove a win from warmer relations between London and Brussels.

“The big players, both the buy side, sell side and market infrastructure, would really want the UK, Switzerland and the EU aligned” on the issue, Nick Collier, Managing Director of City of London’s Brussels office, told Euronews, describing it as a way of “minimising friction” after the UK’s exit from the EU single market.

Though ESMA says the change is possible under existing law, the industry favours amending EU laws on securities depositaries to mandate the change – something that would require agreement from the Commission, Members of the European Parliament and EU member states.