The EU Council and the European Parliament have reached a provisional agreement on new rules to make transactions in transferable securities more efficient.
The goal of the new rules is to shorten the settlement cycle on securities trades, such as transactions in shares or bonds, executed on EU trading venues, from no later than two business days (the so-called ‘T+2’) to no later than one business day after the trade date (‘T+1’).
The new measure takes the form of an amendment to the central securities depositories regulation (CSDR), which entered into force ten years ago. The regulation harmonised the securities settlement cycle in the EU at a maximum of two business days after the trade date. Since then, many markets outside the EU have shortened their settlement cycle or are in the process of doing so.
The agreement to change the settlement cycle in the CSDR will therefore prevent a misalignment between EU and global financial markets and maintain the competitiveness of EU capital markets. Both the Draghi and Letta reports highlight the current post-trading landscape, including settlement of trades, as a significant barrier to EU capital markets.
The co-legislators have however agreed to exempt certain securities financing transactions (SFTs) from the settlement cycle requirement. SFTs are financial transactions that allow investors and firms to use assets, such as the shares or bonds they own, to secure funding for their activities.
In order to avoid any risks of circumvention of the T+1 settlement cycle requirement, the exemption should only apply if SFTs are documented as single transactions composed of two linked operations.
The two institutions will now move to formally adopt the new rules. They will then apply from 11 October 2027.
