20 Oct 2014 – On 6 October 2014, 29 European markets* moved from a T+3 to a T+2 settlement cycle, in a “big bang” migration unprecedented in terms of it scale. Thanks to coordinated efforts by market players in all countries, the transition was very smooth and occurred without negative effects on settlement efficiency.
A highly coordinated effort
The shortening of the settlement cycle to 2 business days after trade date is the result of a legal requirement in the European CSD Regulation, which entered into force on 17 September. Last year, market players decided to migrate simultaneously in order to minimise the risk of errors and avoid market distortions that could have resulted from a phased approach. European trade associations representing market infrastructures and their clients subsequently agreed on best practices, published under the aegis of the Eurosystem TARGET2-Securities project, which served as a basis for raising awareness among market participants at national level.
No increase in settlement fails
Based on settlement data collected from 17 CSDs, ECSDA is pleased to report that no country has experienced a significant increase in the number of failed transactions as a result of the move. With the switch taking effect on 6 October 2014, Wednesday 8 October was the first day when instructions settled according to the new cycle (i.e. trades concluded both on Friday 3 October and Monday 6 October settled on that day). In three days of 8, 9 and 10 October 2014, the fail rate at most CSDs actually remained stable or decreased compared to the previous week.
- In the majority of markets (11 out of 17), the number of failed instructions (as a proportion of the total value of settled instructions) on 8 October was actually lower than that of the preceding week.
- In 5 markets, the fail rate remained at zero during the transition (i.e. there were no settlement fails either in the week prior to 6 October or on 8 October).
- Only one market displayed an increase in the number of failed instructions on 8 October, albeit a very minor one (less than 10%, which is within the range of normal fluctuations in the fail rate).
Although the market had anticipated the possibility of a sudden increase in fails as a consequence of the necessary adjustments, the week of 6 October actually turned out to be a “normal week” in terms of settlement efficiency, confirming that the coordinated awareness-raising efforts had paid off.
More markets yet to follow
Following the successful move of these markets, several non-EU markets are now considering moving to T+2 to reap the benefits of a harmonised settlement cycle. Serbia, Bosnia and Montenegro, among others, might move as early as 1 January 2015, although this remains to be confirmed. The Spanish market will complete its migration to T+2 by including equities transactions in November next year, following a major reform of the domestic framework for post trade. Outside Europe, DTCC in the United States is leading the debate on a move to T+2.
* The 29 markets which moved to T+2 on 6 October 2014 included Austria, Belgium, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Greece, Hungary, Iceland, Italy, Ireland, the Netherlands, Latvia, Lichtenstein, Lithuania, Luxembourg, Malta, Norway, Poland, Portugal, Romania, Slovakia, Spain (for bonds), Sweden, Switzerland, and the United Kingdom.
Bulgaria, Germany and Slovenia were already settling on a T+2 basis.