The Authorite des Marches Financiers (AMF) and the Banque de France have called for a “well-coordinated” transition to T+1 in Europe, cooperating closely with the UK and Switzerland.
It said the shift should take a two-phase approach – ironing out the inefficiencies in the T+2 settlement cycle before reducing it to T+1 – in a move it said would pose “substantial challenges” to EU markets.
It comes after the EU said it would look to shorten the settlement cycle by the end of 2027 earlier this month, as it looks to align itself with the UK’s timetable.
“The AMF and the Banque de France notably stress the significance of cooperating closely in particular with the UK and Switzerland, given the interdependencies between EU and these markets,” the AMF said.
It said a two-step approach would be the most pragmatic step forward.
Firstly, it said all trades in a T+2 settlement cycle should be confirmed and allocated by the end of the trade date, which “implies essential operational and technical upgrades in the industry” such as standardising data exchanges and automating manual processes.
The settlement cycle could then be reduced to T+1 the French regulator said.
“The forthcoming T+1 framework should encompass regulatory aspects but also be accompanied by incentives, both regulatory and economic, to facilitate it,” it added.
“This comprehensive strategy aims to ensure a smooth and effective transition to the T+1 settlement cycle, safeguarding the stability, efficiency and competitiveness of European financial markets.”
A lack of harmonisation across Europe on settlement times would likely cause chaos for ETFs in Europe, with the UK previously noting it would look to coordinate its move to a T+1 cycle with the EU.
It follows the move to a T+1 settlement cycle in the US in May, which was anticipated to have a major impact on European markets.
The bearing of the move on European ETFs has yet to be fully understood. ESMA has taken a wait-and-see approach to the impact the move will have on markets, rejecting calls to change UCITS rules over the changes.
