Trading securities: EU Commission wants to shorten settlement cycle to one day

What is the securities settlement cycle?

The settlement of securities is the series of processes at the end of which a seller in a securities transaction receives the cash and the buyer receives the security. The settlement of securities is at the core of capital markets. Each day, more than €4 trillion of securities[1] are settled in EU central securities depositories (CSDs).

The period of time between the trade date (the moment of a trade, denoted as ‘T’) and the settlement date (the moment the buyer receives the securities, and the seller receives the payment) is commonly referred to as the settlement cycle. In the EU, the settlement cycle for most of the transactions in transferrable securities, such as shares or bonds, executed on a trading venue is regulated by the Central Securities Depositories Regulation (CSDR).

Currently, CSDR requires settlement to take place no later than on the second business day after the date of the trade. This requirement is commonly referred to as ‘T+2′ and has been applied since 1 January 2015.

What is the Commission proposing?

The Commission has proposed a targeted legislative amendment to CSDR to shorten the duration of the settlement period of transactions in transferable securities to one business day after the trading takes place (‘T+1’). The Commission is proposing 11 October 2027 as the appropriate day for the move to T+1 settlement.

Why is the Commission coming out with this proposal?

For many years, T+2 has been the global standard for the duration of the settlement cycle. However, a clear momentum at international level has been building towards the adoption of a T+1 settlement cycle in recent years. As of October 2024, securities transactions in capital markets that represent 60% of the global market capitalisation, including the United States, Canada, China and India, are settled in T+1. Other international capital markets – such as the United Kingdom, Switzerland, Japan or Australia – have committed to or are considering moving to T+1 as well.

If the EU does not move to T+ 1 soon, it will be increasingly misaligned with its largest counterpart in the US, Europe and Asia. The misalignment presents challenges for EU market participants when trading securities on foreign markets which have already adopted T+1. The shorter settlement in those jurisdictions, combined with time-zone differences, can result in a significant shortening of the time available for EU market participants to complete the settlement of transactions. This implies additional costs for them due to the operational inefficiencies from handling different settlement cycles.

In addition, maintaining the current settlement at T+2 in the EU could further fragment EU capital markets, as EU market participants would continue to implement divergent solutions to cope with a shorter settlement cycle in most of the world’s capital markets.

What are the benefits from a move to T+1 in the EU and who will benefit from them?

Fast, efficient, and reliable settlement is important for the Savings and Investments Union (SIU) which aims to unlock private financing for the digital, green and social transition as well as to boost growth. A move to T+1 can promote the competitiveness and attractiveness of EU capital markets and strengthen the SIU, by preventing further market fragmentation. In the medium-term, it will bring important benefits for a wide range of stakeholders (investors, such as fund managers and retail investors, companies and market infrastructures). Concretely, the benefits are:

• T+1 will promote settlement efficiency and increase the resilience of EU capital markets. A shortening of the settlement cycle implies a reduction in risks related to settlement, i.e. the risk that one of the parties to the transaction will not receive its cash or securities in case the other party to the transaction defaults. It will also bring cost savings through reduced need for margin requirements, i.e. collateral posted to guarantee the transactions during the settlement cycle. The move to T+1 will also require greater automation of post-trading processes. This will lead to more modern and more efficient processes across the EU.
• T+1 will improve the liquidity of EU capital markets. With trades settled more speedily, investors, including retail ones, can use the faster-received funds to make new trades, thus increasing trading volumes. Increased liquidity will contribute to the competitiveness of EU capital markets and facilitate financing for the necessary investments supporting growth and transformation of the European economy.
• T+1 will eliminate the costs linked to the misalignment of settlement cycles between EU and other jurisdictions, which will benefit EU market participants trading securities on those foreign markets.

The Commission’s analysis together with the European Securities and Markets Authority (ESMA) Report confirm that the expected benefits – such as increased automation and efficiency of post-trade processes, risk reduction, lower margin requirements and elimination of misalignment-related costs and frictions – should, over time, largely outweigh the initial costs stemming from necessary investments that a move to T+1 will entail.

What previous work has been done before coming out with the proposal?

The EU has closely monitored the transition to a shorter settlement cycle by other jurisdictions, especially that of the US in May 2024.

During the recently concluded review of the CSDR, the European Parliament and the Council mandated ESMA to prepare a report looking at the advantages and disadvantages of shortening the settlement cycle in the EU and to set out a plan on how a transition to T+1 could be achieved. In November 2024, ESMA published its Report which recommends that the EU move to T+1 should occur on 11 October 2027.

In October 2024, an industry working group, the European T+1 Task Force, published a report supporting a move to T+1, while underlining that a move to T+1 will be a demanding and complex process for all market participants.

Why is a legislative proposal needed? Can’t this be achieved through an industry initiative?

T+1 settlement in the EU is already technically and legally possible, and already happening for some asset classes, such as sovereign debt. However, the complexity of EU capital markets – due to the number of different actors, systems and currencies involved – compared to other jurisdictions which settle at T+1 would make coordinating the move in the EU extremely challenging for the industry. EU market participants have therefore indicated a strong preference for amending the CSDR. Legal certainty as to the date of the transition will also ensure market buy-in and facilitate a harmonised and coordinated shortening of the settlement cycle in the EU.

The European Commission chose to come out with its proposal now to give the European Parliament and the Council sufficient time to adopt the proposal and provide market participants with enough time to prepare a smooth move to T+1.

Why is the Commission proposal considering a move to T+1 and not to T+0?

In its November 2024 report, ESMA was of the view that mandating a shortening of the settlement cycle to the same day in which the transaction takes place (‘T+0′) would be premature and that the costs linked to the changes required in systems and processes to be able to achieve T+0, would largely outweigh the benefits at this stage.

That said, today’s proposal only mandates that the settlement should take place no later than one business day after the trade date. This will not prevent Central Securities Depositories that are already technologically capable to do so from starting or continuing to voluntarily settle transactions on T+0 or prevent future industry initiatives to move to T+0.

Will this proposal require preparations from the industry?

To achieve a shorter settlement cycle across the EU, further harmonisation, standardisation and modernisation of post-trade processes will be needed. Experience in other jurisdictions has shown that close cooperation between public authorities and the financial industry is of the utmost importance to facilitate the transition to T+1. Therefore, in January 2025, the European Commission, ESMA and European Central Bank (ECB) launched a governance structure, incorporating the EU financial industry to oversee and support the technical preparations of the move to T+1.

Will the European Union cooperate with other European jurisdictions to do the move to T+1?

Given the high level of interconnectedness between EU capital markets and those in other jurisdictions in Europe, in particular the UK and Switzerland, a coordinated approach across Europe is desirable to avoid any further misalignment of settlement cycles with those countries and unnecessary costs for market participants.

The Commission notes that the UK Accelerated Settlement Taskforce, charged with preparing the UK transition, recommends a move to T+1 on 11 October 2027 and is also calling for coordination with EU efforts. In addition, the Swiss Securities Post-Trade Council has recently recommended a move to T+1 in October 2027.

The EU authorities regularly discuss the shortening of the securities settlement cycle with Switzerland and the UK, in particular in the context of its regulatory dialogues with those countries.

Why has the EC prepared a staff working document instead of an impact assessment?

Due to the urgency to act given international developments, the Commission prepared a Staff Working Document analysing the impacts of an EU move to a shorter settlement cycle. This took into account the findings of ESMA’s Report on ‘shortening the settlement cycle in the EU’, which assessed both costs and benefits. As part of the preparation of the report, ESMA gathered the views of EU stakeholders through various means, including a 3-month call for evidence launched on 5 October 2023. In its report, ESMA carefully assessed the advantages and challenges of a move to T+1 in the EU and concluded that shortening the settlement cycle to T+1 would bring important benefits for the Savings and Investments Union.

Why is the Commission proposing 11 October 2027 as the date for the move to T+1?

The Commission, after considering the recommendations presented in ESMA’s report, the report of the industry task force, and input from stakeholders, is proposing 11 October 2027 as the appropriate day for transition to T+1 settlement.

ESMA estimated that industry needs at least 31 months to prepare for the move and make the necessary investments and adaptations to their processes, taking into account previous experience from the move to T+2 and international experience in the shift to T+1.

This will give market participants more or less one year to develop and agree on solutions, one year for implementation and one year for testing in order to ensure a successful introduction of T+1 settlement on EU capital markets.

When looking at the most adequate moment of the year to go live on T+1,  the feedback gathered by ESMA highlighted the preference for Q4 2027, to avoid the beginning of the year (January), the corporate events season (usually between May and July), the end of the calendar year (November and December) and quarter shifts (typically contracts expire at the end of a quarter, with high volumes of activity around it).

Does the proposal exclude some types of securities or transactions from T+1? Is there any phasing-in?

When the EU moved to T+2 in 2015, it was assessed that a misalignment in the settlement cycles of transactions in different class of securities traded on exchange was detrimental to the efficiency of EU capital markets. This assessment still stands today.

Based on the public consultation carried out in preparation of its report, ESMA also recommended a transition to T+1 for all types of securities and transactions without a phasing-in. Market participants largely agreed on such a transition to T+1 including all types of securities and transactions already in the scope of CSDR.

When will the proposal come into force?

The proposal will now be submitted to the European Parliament and the Council for their consideration. The changes will enter into force once the co-legislators have reached an agreement on the proposal and after publication in the EU official journal.

Considering the need to provide industry sufficient time to coordinate and complete their preparations, the Commission calls on the co-legislators to process the proposals without undue delay.

What are the roles of ESMA and ECB in the process?

ESMA published a report on ‘shortening the settlement cycle in the EU’ as mandated under CSDR in November 2024. Since then, ESMA has been working on technical and regulatory aspects related to a shift to T+1, as well as liaising with a number of authorities in other jurisdictions on the matter. ESMA also ensures the proper flow of information with national competent authorities within its technical committees and at the Board, using these discussions to take their input into account.

The ECB/Eurosystem operates TARGET2-Securities (T2S) which is the settlement platform used by two-thirds of EU CSDs to provide their settlement services. The ECB/Eurosystem is also following the process in its capacity as a central bank.

Given the interconnectedness of the EU capital market all relevant actors must contribute to making the transition to shorter settlement a success on the EU capital market. This is why ESMA, ECB and the European Commission have proposed a governance structure to coordinate the technical work needed to ensure a smooth move to T+1 settlement. Key elements of the governance structure established with the industry include:

• the EU T+1 Industry Committee comprising senior leaders from market players. The industry has appointed Giovanni Sabatini as the independent Chair of the Committee to coordinate industry efforts;
• several technical workstreams, established by the EU T+1 Industry Committee and focused on the necessary technological and operational adaptations, as well as scope, legal, and regulatory considerations.
• a Coordination Committee, chaired by ESMA, with the European Commission, the ECB and the independent chair of the EU T+1 Industry Committee as members, to ensure alignment between authorities and the industry and address challenges during the transition.

More information

• Press release
• Commission proposal
• Staff Working Document
• EU T+1 governance structure