Twenty-seven European markets are transitioning to a T + 2 settlement cycle today, October 6, 2014. Until today, those markets settled transactions three days after the transaction date; beginning today, securities settlements will occur two days after the transaction date. The move puts Europe ahead of the United States, as the US has a T + 3 settlement date for most of its securities transactions.
By shortening the cycle, the European Commission seeks to standardize settlement procedures across all of the affected European markets and to shorten the time needed to observe and address settlement fails. Faster settlements mean faster availability of funds for reinvestment and quicker resolution of credit and other risks associated with settlement fails.
The new settlement cycle only directly affects the markets’ Central Securities Depositories, which hold records of securities accounts and transactions and which are responsible for orchestrating post-trade settlements. Currently, only European markets are undergoing this transition; because of the significant cross-border trading volume between Europe and the United States, however, the outcomes of the transition will be closely monitored by the United States. As a result, any efficiency gains or implementation-related shortcomings related to the transition will be of great interest to American securities markets and regulators in the coming months.