The Association for Financial Markets in Europe (AFME) has today responded to ESMA’s call for evidence on shortening the settlement cycle in the European Union.

Pete Tomlinson, Director of Post Trade at the Association for Financial Markets in Europe (AFME), said: “AFME welcomes the opportunity to respond to this important consultation. Moving to a T+1 settlement cycle will be a complex and demanding undertaking for the entire industry, so it is important that feedback is carefully considered before next steps are decided.
Any move to a T+1 settlement cycle must be effected in a way that does not introduce new risks, damage the existing efficiency, liquidity and functioning of EU capital markets, create barriers to investing in the region’s securities markets, or diminish access to capital markets for issuers.
“If a decision to move to T+1 is made, it will be necessary to define an appropriate timetable that generates industry momentum and provides clarity to market participants.”

Among AFME’s key points are:

• AFME fully supports ESMA’s conclusion that any decision to shorten the settlement cycle in the EU should be based on a proper cost-benefit analysis.
• It is critical that this considers not only the impact on post-trade processes, but also potential broader market impacts on trading and liquidity and the competitiveness of EU markets.
• Any move to a default T+1 settlement cycle must be effected in a way that does not introduce new risks, damage the existing efficiency and functioning of EU capital markets, create barriers to investing in the region’s securities markets, or diminish access to capital markets for issuers, which would be contrary to the CMU objectives.
• AFME calls for a coordinated approach across Europe, including EEA countries, Switzerland and the UK.
• The North America migration to T+1 in May 2024 represents an opportunity to incorporate “lessons learned” before making a decision in Europe. However, it is important to remember that the complexity of the European post-trade ecosystem could make T+1 adoption a more challenging project in Europe as compared to other jurisdictions.

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