Improving the Settlement Efficiency Landscape in Europe

AFME and Deloitte released a report titled „Improving the Settlement Efficiency Landscape in Europe“. The report examines the causes of settlement fails in the EU securities market and provides recommendations to enhance the efficiency of post-trade processes. The lack of high-quality, granular, public data on settlement fail rates and reasons in Europe has been identified as a barrier to assessing the current environment. To address this, the report utilizes various data sources to track inefficiencies across the post-trade lifecycle.
AFME’s recommendations include reducing exceptions, expediting exception resolution, and optimizing the settlement of available inventory. The focus is on increasing settlement efficiency, improving the operating environment, and preparing for a potential transition to a shorter T+1 settlement cycle.
The report identifies counterparty behavioral factors, data quality issues, and inventory management issues as the principal direct drivers of settlement inefficiency. A distinction is made between “matched fails“ and „unmatched fails,“ with a focus on preventing the latter through robust pre-settlement processes.
Recommendations to address these issues include providing all necessary settlement information on Trade Date, developing solutions to reference data issues, expediting exception resolution through the possible adoption of a UTI, and optimizing settlement processes at the CSDs and intermediaries.
The report emphasizes the importance of improved data quality and standards throughout the lifecycle, and suggests reviewing the fails reporting methodology under CSDR.
AFME and its members propose creating a cross-industry action group to review relevant data, define performance metrics, find solutions to common issues, and coordinate implementation. The report acknowledges the complexity of the European market context and proposes steps for adoption of recommendations, including changes by AFME, its members, CSDs, and potential advocacy for regulatory guidelines.