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Global Settlement: Implications for T+1 in Europe

By DTCC Connection Staff | November 9, 2021

At AFME’s 14th annual European Post Trade conference, DTCC’s Robert Cavallo spoke on a panel with other key industry stakeholders about the proposal to shorten the settlement cycle in the United States, and if Europe is ready to make the same move. Panelists included Pierre Davoust, Euronext, Terri Van Praagh, Northern Trust, Sachin Mohindra, Goldman Sachs, and moderated by Peter Tomlinson, AFME.

Related: The Move Towards T+1 and its Impact on the Post-Trade Industry

U.S. Phase 1 Complete

In 2014, Europe led the initial movement to a T+2 settlement cycle, with the U.S. waiting to adopt T+2 three years later. Today, however, these roles are reversed; the U.S. is now leading the T+1 effort while Europe has no current plans to shorten the settlement cycle further.

Over the summer, industry working groups representing a broad range of industry stakeholders and regulators, discussed the processes that impact trade, clearing and settlement. Cavallo shared that the goal of these meetings was to identify any factors that would prohibit a move to T+1, and they are on the verge of concluding.

The next step is for the Industry Steering Committee (ISC) and the Industry Working Group (IWG) to discuss impacts to industry and any potential showstoppers in an interim analysis summary report, to be released very soon, within the next few weeks.

Managing Shorter Settlements Across Time Zones

The discussion turned to the changes that will need to occur to manage a shortened settlement across time zones, particularly given the U.S. / Asia time differential. Mohindra said there is substantial workflow involved in post-trade processes, and a move to T+1 from T+2 is significantly greater than the move from T+3 to T+2, particularly for international trades. With this severely decreased window, all post-trade processes will have to be done by the trade date.

Van Praagh added the complexities of behavioral practices across markets and regulators are an added challenge. Essentially, the 12-hour window for operational post trade processing has been reduced to two hours, putting more pressure on operations, and work needs to be done to find the optimal solution.

Shortened Settlement in Europe

The intensified market volume and volatility in response to Covid-19 and the meme stock acted as a catalyst to discussions about shortening the settlement cycle in the U.S.

Davoust noted that these volatility triggers were less of an impact to markets in Europe. And while there are clear benefits to a shortened cycle, European firms are currently focusing on the Central Securities Depository Regulation (CSDR) Securities Discipline Regime (SDR). The last piece of regulation, which focuses on settlement discipline, will be implemented in February 2022, with a goal of improving settlement efficiency in Europe.

Adding friction to the process is the current European structure, with multiple CSDs and CCPs, unlike the U.S. with a single architecture. Mohindra said until there is a regulatory push to make the change in Europe, it is unlikely given the fragmentation of the market. The implementation of CSDR SDR should act as a catalyst to improve settlement efficiency in Europe.

Robert Cavallo
Robert Cavallo

DTCC Director, DTC Settlement Product Management

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