In February 2023, the US Securities and Exchange Commission (SEC) announced amendments to settlement rules aiming to shorten the cycle for most broker-dealer transactions from T+2 to T+1. This means that the official transfer of securities to the buyer’s account and the cash to the seller’s account would happen in one business day, instead of two business days, following the transaction date. Such regulatory developments in the US were followed by similar developments in Canada and Mexico, with UK and EU developing plans to harmonise their frameworks as well, citing regulatory alignment with international markets.

Shortening settlement cycle would lead to the reduction of margin requirements for CCPs and reduction in risk and cost savings. Such a move is technically possible and could lead to increased automation and standardisation of core back office and post trade processes, increasing market efficiency. However, it also comes with the increased risk of failed settlement cycles and decrease in settlement efficiency if the markets are not well prepared. To ensure market readiness, ESMA launched Call for evidence on shortening of the settlement cycle in December 2023. Feedback gathered from the industry indicates numerous challenges associated with T+1, with ESMA concluding that an eventual transition to T+1 could take place no earlier than 32 months from the date industry is informed that the change needs to happen.

Deutsche Börse Group supports all “T+n” settlement cycles and encourages market participants (like custodians, banks, brokers) to decide whether it is beneficial and if they are operationally ready. Yet, we understand that the transition to T+1 should not be rushed, as important lessons can be observed and taken into account from the U.S./Canadian experience, as well as the opportunity costs of such a move which should be considered.

For further information on Deutsche Börse Group’s positioning on the matter, find our statements and position papers under Publications.