Shortening the settlement cycle

EFAMA supports a timely transition to a T+1 settlement cycle for Europe in response to the ESMA Call for Evidence (eventid=23184). EFAMA acknowledges the imminent move to T1 in the US (eventid=19797, eventid=24191) and emphasizes the need for a dynamic roadmap that can be adapted based on lessons learned from the US migration.
The document highlights the potential impacts of moving to T+1 or T+0, including challenges in processes such as matching, allocation, affirmation, and confirmation, as well as potential legislative or regulatory actions to address these challenges. EFAMA expresses frustration about the difficulty in obtaining data and recommends focusing on T+1 implementation first, deferring discussions about T+0 for a future workstream.
EFAMA notes the importance of coordinating with the US to avoid negative consequences for European capital markets. The response discusses potential risks, benefits, and costs associated with the transition, including impacts on hedging practices, FX transactions, and the overall functioning of markets.
The document also addresses potential consequences for liquidity, the need for industry-wide coordination, and the impact on retail investors. EFAMA emphasizes the importance of building a dynamic roadmap, committing to a coordinated move with the UK, and considering the diverse landscape of management companies in Europe.
The response suggests that the move to T+1 for European ETFs aligns secondary market trades with the US T+1, reducing costs for trading US shares. However, concerns are raised about the complex settlement process for instruments trading on multiple venues and the potential negative impacts on smaller asset managers.
EFAMA recommends actively building a roadmap for a timely transition to T+1 for the EU, with flexibility based on the US experience.