Banks and fund managers call on EU to commit to shorter settlement plan

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

European banks and fund managers have urged Brussels to publicly commit to shortening the window for settling EU stock and bond trades, as the US and UK press on with plans to modernise their own markets.

A task force representing 18 market lobby groups on Monday called on EU authorities to “make a formal commitment” to reform settlement times. The task force, led by the Association for Financial Markets in Europe (AFME), also called for the bloc to set a timeframe to guide the industry in its preparations.

Settlement is the typically mundane but crucial process of matching and legally transferring assets from sellers to buyers.

The push on the EU comes as other countries around the world shorten their own settlement windows from two days to one, to cut risk and boost liquidity in their markets. The US, Canada, India and Mexico have already switched while the UK is planning to go live in the second half of 2027. Switzerland is also in discussions with its market participants.

The EU has been making assessments but has yet to make a formal decision. “This process can only be completed by a pan-EU task force with the appropriate authority,” the AFME added.

The task force, which includes representatives from trade bodies such as the European Banking Federation, fund management bodies ICI, Aima and Efama, said the industry preferred to harmonise the EU’s move with the UK.

They said it would reduce problems that could arise from mismatches in settlement, when the finalisation of a deal and the availability of the assets used in the deal are not aligned. For example, a buyer may need to sell their shares in one day but may not receive the cash for two days. Currency markets typically reconcile deals over two days.

If the UK and Switzerland introduced changes before or after the EU, “in both scenarios, accelerating settlement would lead to complexities”, the AFME said in its report. European banks, brokers and investors are broadly supportive of moving in line with the UK in 2027, but require EU officials to make that commitment. Creating an EU-level group to push the work forward was “a critical next step”.

In an industry consultation earlier this year, 70 per cent of attendees favoured a move in the final quarter of 2027.

The EU’s transition is expected to be more complicated than that of individual countries, given the region’s fragmented capital markets. For example, the AFME noted that some changes to clearing processes would specifically affect the Spanish market because of the clearing house’s netting times.

Settlement times were thrown into the spotlight during the US meme stock mania at the height of the coronavirus pandemic when some brokers including Robinhood blamed the two-day settlement window for their systems being unable to keep up with the volume of trading. Speeding up settlement reduces the funds that brokers need to put up as collateral.