Shortening the settlement cycle in the EU
Well good morning.
And thank you for the ‘big boss' title, Aidas, I quite enjoy that!
I think maybe to just say thank you for the patience of people in the room and those online.
We have had quite a turnout for this event.
In fact, when I arrived outside, there was quite a lot of people queuing, and I thought, wow! I mean, we have a huge turnout.
But there's another event in the building.
It strikes me that a good, catch-all, tabloid line for this event is, what a difference a day makes.
Some of you recognise it from a song.
But I think that's essentially what we're talking about, what a difference a day can make.
So really appreciate that we're having this.
My thanks to my colleagues in FISMA, Jenny and her team, for pulling this together.
It's a technical topic.
But it's much more than that.
Because it does cut to the heart of our aims for our Capital Markets Union.
A shorter settlement cycle can help liquidity and the efficiency of the market.
It also reduces risks, and lower risks mean less need for collateral.
And of course this topic has gained a lot of momentum over the past few months.
And I think that's typified by the room being full, and the online audience being very many.
And it ' s fast becoming one of the main issues for financial market infrastructures.
But of course any change to the settlement cycle also has consequences for the whole financial ecosystem.
Central securities depositories, issuers, market makers, asset managers and end investors.
And so today we have representatives from across the financial sector with us.
And I should give a shout-out to a former colleague in the European Parliament, Johan, who also will be involved today.
And we appreciate the involvement of the European Parliament because the institution will have a role to play.
So it ' s good to have this broad representation, and I think it will help our discussions.
For me, the key question that we need to discuss is not if Europe will make the move to T+1 settlement.
Instead, the key issue is when and how we move.
So my opening remarks will focus on where we are today.
We have three panels: the opportunities for Europe, on the international dimension, and on how the shift could be made to work in practice.
The push for a quicker, more efficient settlement cycle in the EU is not new.
We moved to T+2 settlement back in 2015.
And other major players followed our example soon after.
The Commission has regularly called for greater settlement efficiency.
We can already increase efficiency with more compliance with the current T+2 standard.
But I think we can also be more ambitious.
New technologies – making faster settlement more feasible – are being taken up in the post-trading ecosystem.
And international developments are pointing in this direction too.
Some countries, like the US and Canada, are moving to T+1.
Others, like the United Kingdom, are actively considering a move.
And others still, like India, have already moved.
Some stakeholders even suggest that parts of the settlement chain could operate on a T+0 timeframe.
So the direction of travel is very clear towards even shorter settlement.
So how and when will we get to T+1 in the EU?
From a legal perspective, there ' s nothing to prevent EU markets from shortening the settlement cycle already.
Some might say that the industry could decide to move whenever it wants to.
But the EU post-trading environment is seen as much more complex than in comparable markets outside the EU.
So a strong political steer is important if we want an orderly and consistent approach across the EU.
In 2015, the driver behind T+2 settlement was the introduction of a common settlement platform – TARGET2-Securities.
That had a strong political steer behind it.
Today, the driver is events outside the EU.
International developments impact on the EU, its place in the global financial system, and the Capital Markets Union.
And the Commission is watching what ' s happening very closely.
But, as in 2015, it looks unlikely that a big shift to T+1 will happen in the EU without some form of political direction.
Which is why the Commission is actively looking at what this shift might look like, the potential impact on EU stakeholders, and the opportunities and challenges it might bring.
Close dialogue between all categories of stakeholders from industry and regulators is key.
And I think today ' s event is an example of this.
It was good to see this topic highlighted in the recent review of the Central Securities Depositories Regulation.
The European Parliament and Council asked ESMA and the EuroSystem to prepare a report on how and when this move could take place.
And I warmly welcome the initiatives recently undertaken by ESMA: the workshop organised in December and the call for evidence.
We hope this will make the practical impacts of a move to T+1 clearer.
I also welcome that market participants have already started exploring how to adapt their IT and business models to the changes happening worldwide.
The working group started by AFME and the EU financial market sector can play an important role here.
The evidence we will collect – from the discussions today, from ESMA, and in the months ahead – will help us make this move in the right direction.
So to today ' s discussions and the panels.
Today will help us I think answer some key questions.
What are the opportunities for the European Union and how can we maximise them?
Do we need more international coordination, in the wider European context?
And how can we make the move to T+1 happen in practical terms?
The first panel will look at the opportunities of a move to T+1 settlement.
I am of course very aware that moving to a shorter settlement cycle poses challenges.
It increases operational complexity.
In turn, this may increase the number of settlement failures, at least temporarily.
And we need better efficiency before any move to faster settlement.
With a shorter settlement cycle, trade processes need to become faster and more standardised, or perhaps automated entirely.
The persistent fragmentation of EU markets is also regularly mentioned as a challenge.
And it ' s one that comparable countries outside the EU do not face.
I hear the industry ' s concerns on these difficulties.
And they will not be overlooked.
But moving to a shorter settlement cycle also has many benefits.
Shorter settlement cycles can improve market efficiency.
And this helps buyers and sellers save time, increases trading volumes and releases capital.
All of which help develop deeper and more liquid capital markets, which is a key goal as you know of Capital Markets Union.
Second, a shorter settlement cycle can help reduce counterparty and market risks, while also reducing the amount of collateral needed to cover these risks.
And that reduces the risk of collateral shortages.
Finally, moving to a shorter settlement cycle would require greater automation.
And this offers the opportunity to modernise many outdated processes and expand capacities.
Our second panel will focus on the international dimension.
In addition to the time zone difference, the duration of the settlement cycles between the EU and the US will be misaligned.
That ' s inevitable, but we can still manage this misalignment.
For that, we will keep an open dialogue with US colleagues.
And some of them are here today and are very welcome.
I would like to thank Gary Gensler, Chair of the SEC, for taking the time to make remarks later today.
His insight on developments in the US will be very valuable to all of us.
It is also important to keep an open dialogue with partners elsewhere in Europe, including the United Kingdom.
I know many stakeholders are calling for a coordinated approach between key European markets, due to their interconnectedness.
Coordination is key if we want to minimise costs for EU businesses.
Any misalignment between key European markets would unfortunately come at the expense of EU and non-EU stakeholders.
Of course, every jurisdiction needs to assess what works best for them.
But we are open to discussing how we might try to reach consensus on timing across the European continent.
And finally, the third panel looks at how we can make the shift to T+1 happen in a way that works best for the EU.
It will gather views on how best to put a shorter settlement cycle into practice in the EU while mitigating any negative effects.
Adjustment to a shorter settlement cycle will be challenging, at least at first.
And some stakeholders will face more challenges than others.
But I am confident that any short-term difficulties will be outweighed by longer-term gains, and the EU ' s financial sector can rise to these challenges.
And of course you can count on the Commission ' s support.
So I encourage our panellists and our participants to focus on solutions.
On how we can make the move in a way that works best for everyone.
Colleagues, I think we all know a clear trend is emerging for shorter settlement cycles.
When it comes to T+1, the question is no longer if, but how and when it will happen here in the EU.
And it won ' t be in the next few months.
But it's the way that all major markets are headed.
So this is the mindset we should have for today ' s discussions.
We should all assume that the move to a shorter settlement cycle will happen.
So we ' re not here today to debate whether the EU should make this move.
I mean you can have that chat over the coffee, but not in the room!
We ' re here to discuss how it should happen – how we can make it work and how we can minimise the costs involved.
And I think we ' re up to the challenge.
I know that we have in this room a full house. We even have had to add chairs.
So the interest is great, because the potential benefits are also very significant.
And the EU leads in many areas. We do not want to be left behind.
So I'm pleased that we have so many experts with us today.
And that you've all shown such keen interest in it.
So I want to wish you very fruitful discussion.
And while this is a technical topic, as I said earlier in my opening remarks, it is much, much more than that.
So good wishes for the discussion and I look forward to the outcomes.
Thank you.
| Zařazeno | čt 25.01.2024 10:01:00 |
|---|---|
| Zdroj | Evropská komise en |
| Originál | ec.europa.eu/commission/presscorner/api/documents?reference=SPEECH/24/422&language=en |
| lang | en |
| guid | /SPEECH/24/422/ |
