AFME responds to ESMA consultation on shortening settlement cycles in the EU

AFME has provided a response to ESMA’s CfE on the potential shortening of settlement cycles in the EU (please see EventID#23184). AFME expresses its support for moving to a T+1 settlement cycle but underscores the complexity and demands associated with such a transition. AFME emphasizes the need for careful consideration of feedback before deciding on the next steps.
AFME outlines key points in its response, including full support for ESMA’s view that any decision to shorten the settlement cycle should be based on a thorough cost-benefit analysis. The organization stresses the importance of considering not only the impact on post-trade processes but also the broader market effects on trading, liquidity, and the competitiveness of EU markets. AFME insists that any move to a T+1 settlement cycle must be executed in a way that does not introduce new risks, damage existing market efficiency, or create barriers to investing in the region’s securities markets.
Furthermore, AFME advocates for a coordinated approach across Europe, including EEA countries, Switzerland, and the UK. The organization suggests that the North America migration to T+1 in May 2024 provides an opportunity to learn valuable lessons before making a decision in Europe. However, AFME acknowledges that the complexity of the European post-trade ecosystem could pose additional challenges compared to other jurisdictions.
AFME is actively involved in preparations for the move to T+1 settlement cycles and leads the European Task Force in this regard. The organization’s current areas of focus include assisting members in preparing for the US move to T+1 in 2024, active participation in the UK Accelerated Settlement Task Force, collaboration with other EU stakeholders, and preparing a report on addressing settlement fails and laying the groundwork for T+1.