European banks consider moving to single-day settlement

European banks and brokers are considering halving the two-day window for completing stock trades in a bid to keep pace with the United States in the race to upgrade the plumbing of global capital markets.

The European Financial Markets Association, which represents banks and brokers, will form a new industry group to assess the feasibility of clearing millions of securities transactions in a single day across the region.

Discreet payments activity, where transactions are coordinated and assets are legally transferred from sellers to buyers, came to prominence in the United States two years ago. meme stock mania.

Some brokers, including Robinhood, blame it on two days That’s because the system can’t keep up with the volume and pace of transactions, and Windows puts customers’ money at risk if a transaction fails, he said.

Last month, the United States, along with Canada, confirmed that they will move to single-day payments by May 2024. India made the transition this year. AFME’s director of post-trade and prime services, Peter Tomlinson, said the US decision was the catalyst for establishing a working group in Europe.

For Europe, the move to one-day payments is “a matter of when and how, not whether it is possible,” he said.

“The UK and EU don’t want to be seen as slow and undeveloped as the US market,” said industry consultant Tony Freeman.

But AFME warned that the situation in Europe is more complicated than in the US. In the United States, the stock market plumbing is operated by a single company, the Depository Trust & Clearing Corporation.

“There are 18 clearinghouses in Europe . Mr Tomlinson said. “The risk is if this project is done in a rushed or uncoordinated manner .

Europe finally shortened the settlement period in 2014, and the European Union is likely to review its bloc regime in 2025. But the UK is also looking at shortening the settlement time as part of a sweeping overhaul of post-Brexit competitiveness and efficiency. of that capital market.

Virginie O’Shea, founder of capital markets advisory firm Firebrand Research, said European regulators would inevitably consider moving to a T+1 settlement as the UK is already on its way. rice field.

“Centers looking to bid for business against London, such as Paris and Amsterdam, will find it advantageous to have shorter settlement cycles to increase their competitiveness,” she said. The last thing Europe wants is for some markets to move and some not to move.” European banks consider moving to single-day settlement

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