Transitioning securities settlement to T+1 in the EU

RegCORE Client Alert | Capital Markets Union

QuickTake

On 12 February 2025, the European Commission (the Commission) published a proposal for an EU Regulation as regards a shorter (standard) settlement cycle in the EU (the Proposal) with the objective to shorten the period of the settlement cycle for transactions in transferable securities from two business days (T+2) to one (T+1) in the EU.  Available here.Show Footnote This follows on from earlier announcements from the EU, Switzerland and the UK to move to T+1 in three phases with a go live planned for Monday 11 October 2027 as the (current) optimal date.While this date is one that the EU, Switzerland and the UK will aim to move to, including in a bid to avoid the difficulties of such a substantial project going live in November or December or the first Monday in October as that would be the first Monday after quarter-end, 11 October 2027 is not only a U.S. public holiday (Columbus Day/Indigenous Peoples’ Day), however most US markets have historically and will presumably remain open for that day, but equally a Canadian public holiday (Thanksgiving Day), where most Canadian markets are closed but also a religious holiday (start of Yom Kippur). While September has historically had more down markets, October has historically been the month of global market crashes (The Bank Panic of 1907, the Stock Market Crash of 1929 and Black Monday 1987).Show Footnote A lack of harmonisation on settlement times, in particular if any efforts of the EU, Switzerland and the UK are not coordinated or subject to one or more delays could cause serious disruptions to these as well as global markets.

For the EU, the Proposal impacts the entirety of the EU-27 and its respective capital markets (trade and execution venues) and financial market infrastructure. While all of these are subject to the same EU legislative, regulatory and supervisory principles and expectations each EU-27 Member State has a number of aspects that are specific to it. This includes in particular a number of non-legislative market practices that may need to be considered within a given market but equally for cross-border trades across markets, execution venues, settlement systems and financial market infrastructure.While TARGET2, TARGET2-Securities and TIPS, the ECB’s common platform for the transfer of cash and securities already supports compressed settlement cycles, the EU-27’s markets remain diverse with a (regrettably) fragmented trading, clearing and settlement ecosystem boasting multiple central counterparties and central securities depositaries. Unlike the US, where DTCC led the T+1 transition, there is no EU equivalent.Show Footnote Delivery on the transition will require consistent and comprehensive industry-wide collaboration amongst all participants in the transaction and value chain.

Following the publication of the Proposal, the Commission also released a Q&A on the matter for context and further stakeholder engagement.Available here.Show Footnote The Proposal aims to enhance the efficiency, reduce risks and improve the competitiveness of the EU’s capital markets. This PwC EU RegCORE Client Alert provides a brief overview of the Proposal, its implications and the steps ahead in the EU and should be read with separate thought leadership coverage on efforts in Switzerland and the UK.

Key takeaways

Securities (of various types – equities, debt, investment funds etc.) are traded (sold or bought) on many different markets globally. They can be traded over-the-counter (OTC) or on trading venues such as exchanges. For securities that are held in paperless form, electronic systems, clearing and settlement are the services that effect the sale as well as purchase and the enabling of the transfer of ownership interests and payments made by way of electronic as opposed to physical means. The importance of these services to EU capital markets, and indeed completing the EU’s Capital Markets Union (CMU), have been confirmed time and again in the context of their role to reduce fragmentation across Member States. Mandated reports including the Giovannini Report,Giovannini Report, 2001. The Giovannini Group. Cross-border clearing and settlement arrangements in the European union, available here.Show Footnote the Draghi Report,The Report on the future of European competitiveness, available here.Show Footnote the Letta ReportMuch more than a market report, available here.Show Footnote as well as the Noyer ReportThe report on developing European capital markets to finance the future, the “Noyer Report”, available here.Show Footnote have consistently highlighted the need to embrace innovation so as to strengthen the competitiveness and attractiveness of EU capital markets but also to deliver on the EU’s financing needs.