The Commission published on Wednesday, 12 February 2025, a legislative proposal to introduce a targeted amendment to the Central Securities Depository Regulation (CSDR). The aim of the proposed amendment is to shorten the settlement cycle in the EU from two days (so‑called “T+2”) to one (“T+1”) for transactions in transferable securities – such as shares or bonds – executed on trading venues.
Settlement is the process through which, in a securities transaction, the buyer receives the security and the seller receives the payment. The settlement cycle is commonly referred to as the period of time between the trade date (the moment of a trade, denoted as ‘T’) and the settlement date.
The settlement of securities is at the core of capital markets: each day, more than EUR 4 trillion of securities are settled in EU central securities depositories (CSDs).
In the EU, the settlement cycle is regulated by the CSDR and has been harmonised at T+2 since 2015. Many jurisdictions have followed the EU move to T+2. However, since then, financial markets and technology have continued to evolve and, today, a growing number of capital markets have moved or are planning to move to T+1 settlement. As of October 2024, capital markets that represent 60% of the global market capitalisation are settling on T+1. The global shift to T+1 is creating misalignments between EU and global financial markets, which creates costs for EU market participants.
In anticipation of this trend, CSDR refit, adopted in December 2023, mandated the European Securities and Markets Authority (ESMA) to prepare a report assessing the appropriateness of shortening the settlement cycle in the EU. ESMA published its report on 18 November 2024, recommending that the EU move to T+1 no later than 11 October 2027.
The Commission is proposing 11 October 2027 as the appropriate date for the move to T+1 settlement. This takes into account the recommendations set out in the ESMA report as well as input gathered via several meetings with public and private sector stakeholders. This timeline will give market participants approximatively 1 year to develop and agree on standards and processes, 1 year for implementation, and 1 year for testing to ensure an orderly and successful introduction of T+1 on EU capital markets.
The Commission proposal for a move to T+1 in the EU aims to strengthen the efficiency and competitiveness of post‑trade financial market services, which are vital to a well‑functioning savings and investments union (SIU). 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).
A shorter settlement cycle will contribute to developing deeper and more liquid capital markets in the EU. With trades settled more speedily, investors, including retail ones, can use the faster‑received funds to make new trades, thus increasing trading volumes.
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, such as counterparty risk, which is 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. Moreover, the move to T+1 will require increased automation of post‑trading processes, which will lead to more modern and efficient post‑trading processes across the EU.
The move to T+1 will also help avoid market fragmentation and costs linked to misalignment between EU and other global financial markets. Settling securities transactions on T+1 is already technically and legally possible in the EU. However, in the absence of a legislative proposal, the higher level of complexity of EU financial markets – due to the number of different actors, systems and currencies involved – compared to other jurisdictions that already moved to T+1, would make coordinating the process extremely challenging for the market and would not provide legal or even planning certainty. The proposal is also future‑proof, setting a maximum duration for the settlement cycle (T+1) while also allowing market participants to settle their transactions faster, at T+0, if they wish.
The Commission therefore hopes that this proposal can be swiftly agreed by the European Parliament and the Council to whom the proposal will now be submitted. The changes will enter into force once they have reached an agreement on the proposal and after publication in the EU Official Journal.
The move to T+1 will not be without its challenges. This is why the EU T+1 Governance, composed of ESMA, the European Central Bank and the Commission as well as the financial industry, was set up on 22 January. It will pool efforts of the public and private sectors in view of ensuring a smooth transition to T+1.
Given the high level of interconnectedness between EU capital markets and those of the United Kingdom and Switzerland, it makes a lot of sense to have a coordinated approach across the European continent and that we move forward together to T+1. Coordinating our efforts benefits us all, as there will be more harmonisation of settlement cycles and fewer unnecessary costs for market participants.
Related links
Commission proposes to shorten settlement cycle for EU securities from two days to one
Central securities depositories (CSDs)
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