![]() ![]() AFME, a European trade body for banks and brokers, estimates the move will mean an 83 per cent reduction in settlement times for local banks and investors. The US shortened its settlement window from three to two days in 2017, but next year’s move marks a more dramatic reduction. From next year, they will have only a few hours between the end of the US trading window at 4pm Eastern Standard time, and the end of the settlement window at 9pm - the early hours of the next day in Europe. Last week the European Securities and Markets Authority asked the industry for input on the costs and benefits of moving its market to T+1, to see if it would enhance the attractiveness of the bloc’s capital markets.īut that will be of little benefit for settlement teams in Europe. ![]() Such is the heft of US markets that Canada and Mexico subsequently announced plans to reduce their settlement windows to a single day, and all three countries will go live on the same weekend at the end of May next year. “The bulk of the pain is really the misalignment between one region and another,” he added. “The move to T+1 is going to impact all US securities and all baskets that contain US securities,” said Jim Goldie, head of ETF capital markets for Europe, Middle East and Africa at Invesco. Shortening the settlement period will reduce the funds - known as margin payments - brokers need to post at a clearing house to cover potential losses while the trade is being settled. The settlement bottleneck stopped investors from buying some popular stocks such as GameStop and AMC. Brokers struggled to cope with the volume of trades, and were asked to stump up collateral by the clearing houses that sit between buyers and sellers and settle trades.Ĭritics argued the two-day window increased that strain by saddling the system with 48 hours’ worth of unsettled trades. In the wake of the meme stock episode, US regulators have homed in on the settlement, a little-noticed but critical market service in which buyers and sellers reconcile their deals and legally transfer assets. “If for whatever reason we’ve got the wrong settlement instructions, we’ve only got a few hours to try and sort that out,” said Gareth Bateman, trade execution manager at asset manager Montanaro. Institutions have relied on having at least one full working day to iron out operational issues, from finding the money or the assets, resolving mismatches or overcoming local IT issues.įrom late May, that timeframe will drop to as little as a few hours before trades that were lined up are cancelled, as the US moves from two-day to one-day settlement. ![]() Interlinking markets, such as foreign exchange and cross-border ETFs are likely to be thrown out of synchronisation. But their ability to trade them will be shaken by the implications of the project, known in the industry as a move to T+1. The move marks one of the biggest changes to the US market structure in recent years, with ramifications for traders around the world.Įuropean institutions held more than $11tn of US equities and debt last year, according to the Federal Reserve. Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Įuropean fund managers and banks face a rush to be ready for reforms to the US securities market in the wake of the meme stocks mania, or potentially face problems trading in the world’s biggest capital market.Ī rush of activity has been sparked by a US plan to halve the two-day window set aside to finalise millions of share and bond deals, starting next May. ![]()
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