EU Moves Closer to T+1 as ESMA Finalizes Settlement Rules; Retail Traders Could Gain

The European Securities and Markets Authority has released its Final Report proposing amendments to the Regulatory Technical Standards on settlement discipline under the Central Securities Depositories Regulation. The update aims to address operational problems since the regime’s rollout. It seeks to improve settlement efficiency and to support the EU’s shift to a T+1 settlement cycle.

While the changes mainly affect financial institutions and central securities depositories, retail traders could experience indirect benefits. Faster settlements and fewer trade failures may improve the reliability of transactions. Greater automation and transparency in post-trade processes could also contribute to smoother brokerage operations.

EU T+1 Committee Guides Settlement Changes

The proposals reflect responses to a public consultation and input from the EU T+1 Industry Committee. They are intended to simplify post-trade procedures and to align market practices across the Union. The measures keep the CSDR’s central objective of reducing settlement fails.

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ESMA Proposes Operational Changes for CSDs

ESMA sets out a series of operational changes. These include same-day timing for trade allocations and settlement instructions. Allocations and confirmations must be sent in machine-readable formats to support straight-through processing. Firms will be required to adopt and maintain standardised reference data to reduce mismatches.

The report makes several functionality changes for central securities depositories. Hold & release and auto-partial settlement will be mandatory. CSDs must provide auto-collateralisation to ease intraday liquidity needs. They will also be required to offer either real-time gross settlement or multiple settlement batches during the business day.

Final Report Submitted for EU Approval

ESMA proposes tighter monitoring and reporting of settlement fails. CSDs must collect more granular data and increase public disclosure. The changes include revised methods to identify top failing participants and more frequent reporting on causes and remediation.

The package will be phased in. Some pre-settlement rules will take effect from December 2026. Reporting and disclosure measures will follow. Structural changes that require significant IT work will be implemented by the T+1 go-live date in October 2027.

ESMA has submitted the Final Report to the European Commission. The Commission has a period to consider endorsement. The draft will then be subject to scrutiny by the European Parliament and the Council before any formal adoption.