On 21 March 2024, the European Securities and Markets Authority (ESMA) published a Feedback Statement received to its October 2023 Call for Evidence on shortening the settlement cycle.

Regulation (EU) 2023/2845 (CSDR Refit) mandates ESMA to submit to the European Commission (Commission) by 17 January 2025 a report on shortening the settlement cycle.

The purpose of the Call for Evidence was to collect stakeholders’ views as well as quantitative evidence to form a better understanding of the possibility for the EU to shorten the settlement cycle and to inform ESMA’s report.

In summary, the Feedback Statement finds that:

  • Views on shortening the settlement cycle were quite mixed and ESMA received limited quantitative evidence due to forecasting complexities.
  • Several questions remain to be assessed. These include, for instance, the impacts on securities lending and borrowing, market making and the repo market.
  • ESMA will aim to clarify the possible implications of T+1 for retail investors and smaller market players.
  • ESMA received a number of suggestions on how the shortening of the settlement cycle could be organised and its report will assess these suggestions in order to provide the Commission with a detailed outline of how to move to a shorter settlement cycle as mandated by the CSDR Refit. ESMA will look at legislative and regulatory measures, including any transitional measure which could help ensure a smooth transition to T+1.
  • The transition to T+1 in other jurisdictions will require EU market players active in those jurisdictions to adapt their processes. Whether any legislative or regulatory barrier may jeopardise EU market players from operating in an environment where securities transactions in North America settle in T+1 while the EU remains in T+2 requires further analysis.
  • A significant part of the feedback suggests that alignment would be beneficial although this will not solve challenges related to cross-border settlement within the EU. ESMA has been strongly encouraged to consult with investors located in the APAC region, as they would be particularly impacted by a potential EU move to T+1 due to time zone differences. ESMA will aim to include in its report lessons learnt from the North American move to T+1 as well as any further feedback received from stakeholders in the APAC region.

ESMA will aim to publish the report mandated by CSDR Refit in Q3/Q4 2024, before the given legislative deadline, i.e., 17 January 2025.