Shorter stock settlement time in Europe offers slim savings: industry body

FE Team | Published: December 20, 2023 00:32:32

LONDON, Dec 19 (Reuters): Shortening the time it takes to finalise a share trade in Europe would save industry just 41 million euros ($44.80 million) and take up to two years to phase in, Europe's clearing house industry body said on Monday.
Wall Street and Canadian markets are moving to 'T+1' in May, meaning it will take just one business day after a stock transaction for the trade to be settled, with ownership swapped for cash, compared to two business days at present.
The aim of the move is to cut risk and margin needs by having shorter transaction exposures to changes in markets.
The European Union, Switzerland and Britain also apply T+2, but with no decision yet on matching Wall Street's move, though the EU's securities watchdog ESMA has asked market participants to give their views.
In its response, EACH, an industry body for clearing houses in Europe belonging to exchanges such as Deutsche Boerse, Euronext and London Stock Exchange Group, said it wanted to contribute factual information to "enrich" the discussion on shortening the settlement cycle.
Talk of a 41 per cent reduction in margin, or cash to back trades in case of default, is based on an "incorrect" reading of a document from US clearing and settlement house DTCC on T+1, EACH said.
The actual expected reduction is 24.6 per cent, EACH calculated.
For Europe, EACH estimated that savings from moving to T+1 in cash equities would be around 41 million euros a year, or a cut of 0.5 per cent in overall margin across different markets.