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EU Commission Asks to Shorten Settlement Cycle from T+2 to T+1
Many major financial markets—such as those in the United States, Canada, China, and India—have already moved to or are considering a T+1 cycle. This alignment will minimize cross-border friction and lower the cost burden for market participants operating in multiple jurisdictions.
This change would reduce the time between executing a trade and completing the cash and securities exchange, thereby lowering counterparty risk and increasing market liquidity. The proposal aims to enhance market efficiency and competitiveness by freeing up capital more quickly, promoting further automation in post-trade processes, and aligning the EU with international standards. The transition to T+1 is scheduled for October 11, 2027, allowing ample time for market participants to adjust their systems and processes.
BY eEuropa
Brussels, 20 February 2025 - 4 MINUTES READ
On 12 February 2025, the European Commission has proposed a significant change to the post-trade settlement process for transferable securities within the European Union. This legislative amendment aims to shorten the current settlement cycle—from two business days (T+2) to just one business day (T+1)—marking a major step forward in streamlining and modernizing the EU’s financial markets.
What Is Settlement and Why It Matters - Settlement is the process by which the buyer receives the securities and the seller obtains the cash following a trade. Traditionally, the T+2 cycle has been in place to allow time for the necessary verifications and transfers between parties. However, as the financial landscape evolves with rapid technological advancements, the need for quicker, more efficient processes has become apparent.
What Is Settlement and Why It Matters - Settlement is the process by which the buyer receives the securities and the seller obtains the cash following a trade. Traditionally, the T+2 cycle has been in place to allow time for the necessary verifications and transfers between parties. However, as the financial landscape evolves with rapid technological advancements, the need for quicker, more efficient processes has become apparent.
In practice, the Commission is asking the European Parliament and the Council of the EU to amend Regulation (EU) 909/2014 with the changes contained in the proposed Regulation subject to Communication COM(2025) 38 final.
Key Elements of the Proposal
Expected BenefitsThe transition to T+1 is expected to offer several tangible benefits:
Implementation Timeline and Next Steps
The proposal sets the transition date to T+1 at October 11, 2027. This timeline is designed to give market participants ample time to upgrade their systems, test new processes, and align with the regulatory changes. Following its presentation, the proposal will be reviewed by the European Parliament and the Council. Once an agreement is reached and the amendment is published in the EU Official Journal, the changes will officially come into force.
Conclusion
The EU Commission’s proposal to reduce the settlement cycle from T+2 to T+1 represents a forward-looking initiative aimed at enhancing market efficiency, reducing risk, and ensuring that the EU remains competitive on the global stage. By streamlining the post-trade process, this change is set to benefit a wide range of stakeholders—from individual investors to large financial institutions—by creating a more dynamic and resilient financial market landscape.
Stay tuned to our blog for further updates and in-depth analysis on this transformative proposal and its impact on the future of EU financial markets.
Key Elements of the Proposal
- Shortened Settlement Cycle: The proposal mandates that, following the execution of a trade, both the transfer of securities and payment occur within one business day (T+1).
- Enhanced Market Efficiency: By reducing the time funds and securities are locked up, the new system promises to free up capital more quickly. This increased liquidity can lead to higher trading volumes and more dynamic market conditions.
- Risk Reduction: A shorter settlement period reduces the window of time during which counterparty risk is present, thus lowering the overall risk exposure for both buyers and sellers.
- Alignment with Global Standards: Many major financial markets—such as those in the United States, Canada, China, and India—have already moved to or are considering a T+1 cycle. This alignment will minimize cross-border friction and lower the cost burden for market participants operating in multiple jurisdictions.
- Future-Proofing the Market: The Commission’s proposal not only sets T+1 as the new standard but also allows for even faster settlements (T+0) should technological advancements permit. This forward-thinking approach is aimed at keeping EU markets competitive and resilient.
Expected BenefitsThe transition to T+1 is expected to offer several tangible benefits:
- Increased Automation: Moving to a shorter settlement cycle necessitates higher levels of automation in post-trade processes, fostering a more modern, efficient financial ecosystem.
- Cost Reduction: A unified settlement cycle reduces the costs associated with operating under divergent timelines across global markets, thereby boosting competitiveness.
- Enhanced Liquidity: With cash and securities being freed up faster, market participants can reinvest in new trades, potentially leading to deeper and more liquid capital markets.
- Strengthened Resilience: Faster settlements mean reduced exposure to market risks, contributing to the overall stability and resilience of EU financial markets.
Implementation Timeline and Next Steps
The proposal sets the transition date to T+1 at October 11, 2027. This timeline is designed to give market participants ample time to upgrade their systems, test new processes, and align with the regulatory changes. Following its presentation, the proposal will be reviewed by the European Parliament and the Council. Once an agreement is reached and the amendment is published in the EU Official Journal, the changes will officially come into force.
Conclusion
The EU Commission’s proposal to reduce the settlement cycle from T+2 to T+1 represents a forward-looking initiative aimed at enhancing market efficiency, reducing risk, and ensuring that the EU remains competitive on the global stage. By streamlining the post-trade process, this change is set to benefit a wide range of stakeholders—from individual investors to large financial institutions—by creating a more dynamic and resilient financial market landscape.
Stay tuned to our blog for further updates and in-depth analysis on this transformative proposal and its impact on the future of EU financial markets.
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Source: © European Union, 1995-2025
Source: © European Union, 1995-2025
