Industry trade

The market body calls for caution on a shorter settlement in Europe

A trader works at the Frankfurt Stock Exchange in Frankfurt, Germany February 22, 2022. REUTERS/Timm Reichert

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LONDON, Sept 21 (Reuters) – Halving the settlement time for stock trades in Europe to one business day would be “difficult” and requires full analysis by regulators before any decision is made, an industry body said on Wednesday. steps.

Since 2014, banks and brokers have had two business days, known as T+2, to settle – the final stage of a transaction where legal ownership of a stock is exchanged for cash.

“A move to T+1 would remove the single business day between trading and settlement, creating significant pressure on post-trade operations, especially for global participants,” said the Association of Financial Markets in Europe (AFME ) in a working document.

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Pressure is mounting for such a move in Europe after initiatives in the United States, Canada and India.

The United States Securities and Exchange Commission has proposed rules to introduce T+1 from the end of March 2024 to reduce credit, market and liquidity risk exposures, and reduce the number and value of transactions unresolved at any time.

It also reduces the time brokers have to tie up capital and margin to cover unsettled trades, saving them money.

UK and EU authorities, keen to keep their capital markets globally competitive, have already held informal discussions with industry on T+1.

AFME said adopting T+1 in the EU would be more complex given that it has many more trading, clearing and settlement operators than single jurisdictions like the US, Switzerland and Great Britain.

He called for full analysis by regulators, policymakers and industry to quantify the impact of moving to one-day regulation, while also keeping tabs on what is happening in Switzerland and Britain. .

“An important area for further discussion will be whether or not a synchronized implementation schedule is needed across the wider Europe,” AFME said.

Some market participants are already planning instant settlement using blockchain, the technology that underpins crypto-assets. The US settlement house DTCC is driving the T+0 settlement.

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Reporting by Huw Jones Editing by Mark Potter

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