The WFE appreciates the opportunity to comment on ESMA’s call for evidence on shortening the settlement cycle in Europe, and agrees that the question of settlement cycle duration is of significant importance, as this may bring benefits in terms of technological modernisation, increased capital efficiency, and reduced counterparty exposure, while risking other impacts such as spikes in trade fails, liquidity shortfalls, or market volatility.
However, moving to a shorter settlement cycle presents substantial challenges, particularly within the context of Europe’s complex post-trade ecosystem. Therefore, in this response, the WFE encourages ESMA to focus on market readiness and consider the level of technological and operational change required by market infrastructure providers. Furthermore, the WFE highlights that moving beyond T+1 would require a fundamental overhaul of market infrastructure, technology, and regulatory frameworks, and that any further work regarding moving to T+0 or atomic settlement should involve significant additional consideration of these risks and their potential consequences.
The WFE puts forward that any next steps towards a shorter settlement cycle should involve extensive industry-wide engagement, a robust cost benefit analysis, impact assessment, and feasibility study, with an outline of potential risks, dependencies, and bottlenecks, as well as a transparent decision-making process with a clear migration decision-point. If it is decided to shorten the settlement cycle in Europe, this should take place according to an agreed industry roadmap, including continuous assessment of industry preparedness, testing under the shortened settlement cycle, issue resolution, and migration management during the period leading up to any migration. Any transition should not be rushed, and the WFE recommends that the EU use this time to observe and incorporate the lessons learned following the implementation process of T+1 in the US.