RegCORE – Client Alert | Capital Markets Union
QuickTake
On 31 March 2025, the European Central Bank (ECB) issued an opinion on the proposed regulation to amend Regulation (EU) No 909/2014 (the Opinion), which aims to reduce the settlement cycle for certain transactions in transferable securities from two business days (T+2) to one business day (T+1).1 As described in an earlier EU RegCORE Client Alert of this series, this move is intended to enhance the efficiency and alignment of the EU's settlement process with global standards.
The Opinion underscores the importance of fast, efficient, and reliable settlement as a cornerstone for the development of transitioning the Capital Markets Union into the EU's Savings and Investments Union (see standalone Client Alert series on those topics). This Client Alert assesses the outcomes communicated in the Opinion and key takeaways for market participants.
Key Takeaways
In its relatively short – that is one page – Opinion, the ECB explicitly welcomes the proposed regulation's objective of reducing the maximum duration of the settlement cycle from T+2 to T+1. The ECB emphasises that this change is crucial for improving the efficiency and resilience of post-trade processes within the EU. This endorsement is grounded in the belief that a shorter settlement cycle will significantly enhance the operational efficiency of financial markets, thereby contributing to the overall stability and robustness of the financial system.
In its Opinion, the ECB further notes that the proposed move to a T+1 settlement cycle would reduce the impacts associated with misalignment with other major global jurisdictions. This alignment is expected to mitigate risks and inefficiencies that arise from having different settlement cycles across regions. The ECB points out that aligning the EU's settlement cycle with global standards will help in reducing operational complexities and risks for market participants engaged in cross-border transactions, thereby fostering a more integrated and competitive financial market.
The improved efficiency and resilience of the post-trade processes are indeed underscored as key benefits of the proposed regulation. To this end, the ECB substantiates that this would minimise the duration of exposure to market risks and improve the overall stability of the financial system. This change is thus anticipated to lead to a more efficient allocation of capital and resources within the EU financial markets.
Notably, the ECB points out that the proposed regulation contains provisions affecting the competence of the European System of Central Banks to ensure efficient and sound clearing and payment systems within the Union and with other countries. It is in this vein, that the ECB's opinion reflects its mandate to promote the smooth operation of payment systems and to contribute to the stability of the financial system.
The ECB also briefly appreciates the broader economic implications of the proposed regulation. By enhancing the efficiency and reliability of settlement processes, thereby optimising liquidity, the regulation is expected to support the development of the recently announced Savings and Investments Union.2 The Opinion of the ECB is part of a coordinated effort with other key EU-level institutions, including the European Securities and Markets Authority (ESMA) and the European Commission's Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA). This joint endorsement (see also Joint Statement by ESMA, DG FISMA and the ECB's Directorate General for Market Infrastructure and Payments on shortening the standard securities settlement cycle in the EU here) affirms the broad consensus among key regulatory bodies on the benefits of a shorter settlement cycle.
Outlook and next steps
What has been generally published by the ECB as a positive Opinion on the proposed regulation marks a significant step towards the implementation of a T+1 settlement cycle in the EU. The process will now involve the European parliament and the Council of the EU – the co-legislators – considering the ECB's Opinion as they deliberate on finalising the proposed regulation.
Market participants should prepare for the potential transition to a T+1 settlement cycle by reviewing and adjusting their operational processes, systems, and risk management frameworks. The move to T+1 will require significant coordination among various stakeholders, including central securities depositories (CSDs), clearing houses and financial institutions. Certain firms may need to invest in technology upgrades, staff training and process reengineering to ensure a smooth transition to T+1.
Footnotes
1. Available here.
2. Available here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
