As the US moves to a T+1 settlement cycle from May 2024, the settlement mismatch between the US and EU will raise operational challenges as well as, we suspect, market structure changes. But another direct consequence of the mismatch will be in the enforcement of current EU regulation. In this paper, we identify those scenarios where EU rules will be tested, suggest the scope of that impact and ask policymakers to explore how the regulatory impacts of US T+1 can be mitigated.
T1 Settlement
In May 2024, the United States, Canada and Mexico will move to a shortened settlement cycle for security transactions. Starting from May, transactions in those markets will settle on a T+1 basis. The impacts of this change will be felt well beyond those markets given the size of the global investor base in US securities. EFAMA has been engaged in understanding the broader impacts, contributing to the industry’s preparedness, and maintaining a regular dialogue with regulators.
At the same time, both the UK and EU are reviewing their settlement cycles with a view to aligning with the United States. EFAMA is actively contributing to this effort. This is a complex task given on the one hand, the diversity and number of infrastructure providers in Europe and on the other, a UST1 reality which in itself will generate significant costs due to global misalignment.
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EFAMA Note: Impacts of US T1 on EU Regulation
As the US moves to a T+1 settlement cycle from May 2024, the settlement mismatch between the US and EU will raise operational challenges as well as, we suspect, market structure changes. But another direct consequence of the mismatch will be in the enforcement of current EU regulation. In this paper, we identify those scenarios where EU rules will be tested, suggest the scope of that impact and ask policymakers to explore how the regulatory impacts of US T+1 can be mitigated.
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