ESMA and the European Commission pave the way for T+1 settlement in the EU

The European Commission has proposed to shorten the settlement cycle for EU securities transactions, reducing the time frame from two days to one.

The proposals were issued by the European Commission (EC) and European Securities and Markets Authority (ESMA) on 12 February 2025 as part of the regulatory preparations to herald in the changes. The transition to a one-day settlement cycle (known as T+1) from two days (T+2) is due to commence from 11 October 2027.

The change to T+1 settlement discipline in Europe will require funds and their managers to consider legal and operational impacts, including to consider the risks around the areas of liquidity and counter party risk.

Settlement cycles in EU securities transactions

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 the trade date (the moment of a trade is denoted as "T") and the settlement date. In the EU, the settlement cycle is regulated by the Central Securities Depositories Regulation (CSDR) and has been harmonised at T+2 since 2015.

The settlement of securities is at the core of capital markets. Each day, more than €4 trillion of securities are settled in EU central securities depositories (CSDs). Before the adoption of the CSDR, the securities settlement cycle within the EU was not harmonised. This lack of harmonisation was recognised by the EC and co-legislators as a risk to safe cross-border settlement.

A decade later, the question of further shortening the settlement cycle has arisen, especially as technology has developed rapidly and many jurisdictions globally (including China, India and, more recently, the US, Canada and Mexico) have already introduced shorter settlement cycles.

With the CSDR Refit adopted in December 2023, ESMA was mandated to deliver a report on the appropriateness of shortening the settlement cycle in the EU and this report was delivered on 18 November 2024, where it was recommended that the EU move to T+1 settlement occur no later than 11 October 2027.

EC legislative proposals to amend the CSDR

On 12 February 2025, the EC published its legislative proposal to effect the T+1 transition which would formally occur by way of a single amendment to Article 5(2) of the CSDR. It is a relatively uncomplicated and straight-forward change to the CSDR to implement the change to T+1.

The European Commission press release also highlights the importance of Switzerland and the UK aligning with the EU on this change given the interconnectedness of European capital markets. This legislative proposal will go to the European Parliament and the Council next, and will then be published in the Official Journal in order to become effective from 11 October 2027.

ESMA consults on amendments to RTS on settlement discipline under the CSDR

In coordination with, and taking into account the European Commission's legislative proposal on 12 February 2025, ESMA simultaneously launched a consultation on settlement discipline under the CSDR.

While the consultation paper includes draft amendments to the existing regulatory technical standards (RTS) under the CSDR, it also explores additional tools to improve settlement efficiency. ESMA's preliminary view on this is that no regulatory action is required. Nevertheless, ESMA would like to receive stakeholders’ views. The topics covered include the CSD business day schedule, the Standard Settlement Instructions format, the Unique Transaction Identifier (UTI), Place of Settlement (PSET) and Place of Safekeeping (PSAF).

The consultation consists of 53 questions and the consultation period will run until 14 April 2025. ESMA will then publish a final report and submit draft RTS to the European Commission by October 2025. ESMA's consultancy on the amendments to settlement discipline can be found here.

How Ogier can help

Ogier can provide the necessary assistance to ensure that clients are fully prepared for the T+1 changes in advance of them becoming effective. For more information, contact our team via the details below.

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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