T+1 Settlement

In the wake of the US industry’s decision to shorten its settlement cycle to one day after the date of the trade (T+1) in April 2024, the UK and EU launched studies to determine whether to follow suit and reduce their own cycles from the current two days to one day.

AMAFI teamed up with France Post Marché and the AFG to respond to ESMA's consultation on introducing a T+1 or even T.0 settlement cycle in Europe (AMAFI / 23-85).

The associations agreed to review only the T+1 scenario, since introducing same-day settlement would entail deep-seated changes to the technology currently used by financial markets and looks unworkable in the short and medium term.

AMAFI offered the following observations:

• In a purely European context, there is no objective benefit to switching to T+1. While it makes sense to consider the international environment and the attractiveness of European markets, there is no evidence that the settlement period determines a market’s appeal to issuers or investors.
• Switching to T+1 in Europe would mean a radical shift for EU market participants, including market infrastructures. For this reason, such a move cannot be compared to the switch from T+3 to T+2 carried out several years ago, which did not involve changes for infrastructures.
• Shortening the settlement cycle is not compatible with the trend towards longer trading hours, notably for the benefit of retail customers in the EU.
• Last but not least, this change would require substantial resources, which could be more usefully put towards projects with greater value added.

At this stage, the technical drawbacks appear to outweigh the benefits. In addition, while the move to T+1 by other jurisdictions will definitely have consequences for European stakeholders (investment firms and management companies), the effects should not be overestimated. It would be more sensible to estimate the costs and benefits of switching to T+1 in Europe once other markets, and especially the US market, have moved to the new timing.