Three of Euroclear’s central securities depositories (CSDs) – Euroclear Belgium, Euroclear France and Euroclear Nederland – are adopting the proposal in CSD Regulation to shorten the settlement cycle from T+3 to T+2 in Europe. This means that securities transactions will settle two business days after trade date rather than three.
As of October 2014, securities transactions conducted on all trading venues (stock exchanges, multi-lateral trading facilities and organised trading facilities) that settle in the three Euroclear CSDs will be settled on a T+2 basis.
Over-the-counter (OTC) transactions are exempt from the T+2 regime. This move pre-empts the proposed 2015 start date stipulated in the pending CSD Regulation for T+2 settlement across the European Union (EU).
An early start date also enables clients of the three CSDs to prepare for T+2 settlement well before the three CSDs migrate their settlement activity to the European Central Bank’s (ECB) Target2-Securities (T2S) platform in March 2016, which will operate a T+2 settlement regime.
“The concept of a shorter settlement cycle across Europe has its roots in the work of the Giovannini Group in 2001-03,” said Valérie Urbain, chief executive officer (CEO) of Euroclear Belgium, Euroclear France and Euroclear Nederland.
“We concur with the Association for Financial Markets [AFM] in Europe’s recent findings that a move towards a shorter settlement cycle will increase operational efficiency, as well as drive down counterparty risks. After extensive consultation with clients and stakeholders in our markets, we took the decision to commit to T+2 settlement now, and to make the transition earlier than required.
“Technically and functionally, Euroclear CSDs are ready today to settle on a T+2 basis. The shorter settlement cycle will require some changes in market practice disciplines such as pre-settlement matching, confirmation and affirmation of client transactions as early as possible, ideally on trade date.”
Euroclear Finland, Euroclear Sweden and Euroclear UK & Ireland are in various stages of discussions about a move towards a T+2 cycle. Recommendations and time lines are expected during 2014.
Euroclear Bank, the international central securities depository (CSD), already settles trades as early as T+0; i.e. in real-time, provided both counterparties to the trade agree to the same settlement period.
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