The Association for Financial Markets in Europe is setting up a task force to tackle the big questions about the T+1 move.
Grygo is the chief content officer for FTF & FTF News.
The move to a shorter settlement cycle for European equities has many more moving parts than the transition in the U.S. and Canada, which are moving fast from the current trading day plus two (T+2) settlement cycle to the shorter, one-day, T+1 time frame for equity markets.
In addition, Europe does yet face pressure from industry players and the SEC’s aggressive compliance date of May 28, 2024, for the start of T+1 settlement, which is the Tuesday after the Memorial Day holiday weekend.
However, while Europe will take its time, there is evidence that T+1 might come to Europe. Exhibit 1 in this argument is that early last month the Association for Financial Markets in Europe (AFME) announced it is setting up a new industry task force to tackle the big questions about the T+1 move.
AFME describes itself as “the voice of Europe’s wholesale financial markets, providing expertise across a broad range of regulatory and capital markets issues. We represent the leading global and European banks and other significant capital market players. AFME’s members are the lead underwriters of 89 percent of European corporate and sovereign debt, and 75 percent of European listed equity capital issuances.” AFME is also a member of the Global Financial Markets Association (GFMA) Alliance, which includes SIFMA and the Asia Securities Industry and Financial Markets Association (ASIFMA).
For the task force, AFME “is issuing a call for interest for participation from a broad and diverse group of industry associations representing stakeholders who will be impacted by a shortening of the securities settlement cycle in Europe,” according to the announcement.
The industry association calls itself “a leading voice on the debate surrounding a move to a one-day settlement cycle (T+1) in Europe,” and looks as if it and other groups might eventually usher in T+1 across Europe.
“The task force will assess two key questions. Firstly, whether Europe should follow the U.S. and other jurisdictions in moving to shorter settlement cycles, based on a robust cost-benefit analysis. Secondly, if so, how and when the potential move should happen,” according to the official statement.
“Further consideration will be required to identify the changes to the current post-trade operating environment that would be necessary to facilitate T+1, and to agree on actions required to deliver those changes, including an appropriate timeframe,” AFME notes.
The AFME task force will “ensure all aspects of T+1 adoption in Europe are considered, including direct economic costs and savings to the industry, as well as less tangible factors such as global alignment and market attractiveness,” says Pete Tomlinson, director of post-trade at AFME, in a prepared statement.
“It is important that such a move is carefully considered. A rushed approach is likely to result in increased risks, costs and inefficiencies, particularly given the unique nature of European markets which have multiple different market infrastructures and legal frameworks,” Tomlinson says.
Even so, the task form “is a logical and necessary step for Europe, both in terms of managing the impacts of the US move to T+1, and in considering a European timetable for a possible similar move,” says Tanguy van de Werve, secretary general of European Fund and Asset Management Association (EFAMA), in a statement.
“Given the high degree of exposure to one another’s markets, the shortened settlement cycle will invariably require changes to existing processes for European firms and U.S. investors exposed to European securities. It is important that we leverage on these shorter-term priorities to build an industry view on the need for, and potential roadmap to, a shortened settlement cycle in Europe,” adds van de Werve.
Of course, Europe could decide not to move at all to T+1, which would make things incredibly complicated for the equity markets functioning at T+1.
My guess is that Europe will get to T+1 in its own way after much consideration, debate, and negotiation, and North America will adjust grudgingly to the twists and turns to come.
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