DACSI and NVB Begin Work on Shortening the Securities Settlement Cycle
The EU has recently decided to shorten the securities settlement cycle from two days to one by 2027. To ensure a smooth transition to this shorter settlement cycle in the Netherlands, the Dutch Advisory Committee Securities Industry (DACSI) and the Dutch Banking Association (NVB) have established a joint T+1 Taskforce. This taskforce will facilitate knowledge sharing from the European T+1 collaboration and identify specific challenges for the Dutch market. Participants in the taskforce represent the entire market infrastructure, with DNB and AFM joining as observers.
Securities Settlement to Be Shortened from Two Days to One in Late 2027
Behind stock market trading lies a complex system that remains largely invisible to consumers. After buying or selling a security, such as a stock, the transaction must be settled financially and administratively. Funds move between the accounts of buyers and sellers, and securities must be transferred between portfolios. This process involves various financial entities, including exchanges, central counterparties, brokers, custodians, and trading platforms, forming the market infrastructure of our financial system. Over the next few years, this post-trade landscape will undergo significant changes.
The EU has agreed to accelerate the settlement of securities transactions starting in October 2027. Currently, the administrative and financial settlement of securities trades, such as stocks and bonds, takes place within two days, a process known as T+2. To improve the efficiency of European capital markets, this period will be reduced to just one day, or T+1.
Benefits of Moving to T+1
The transition to a T+1 settlement cycle offers several advantages:
- Increased Market Safety and Predictability
Faster settlement reduces counterparty risk, minimizing the chances of a party failing to meet its obligations in a transaction.
- Faster Access to Funds and Cost Savings
A quicker settlement cycle allows investors to access their funds sooner. Additionally, market participants (such as pension funds) will need to hold less cash or collateral for transaction processes, leading to cost reductions.
- Alignment with Global Financial Centers
With T+1, the EU’s settlement cycle will match that of other major financial markets, such as the U.S., making cross-border transactions easier.
A Complex and Labor-Intensive Transition
Moving from a T+2 to a T+1 settlement cycle is a highly complex and resource-intensive process. The entire financial sector must transition simultaneously while reaching consensus on new trading procedures. This is particularly challenging for the EU, where financial markets are fragmented across 27 member states, each with different exchanges, trading platforms, central counterparties, custodians, and currencies. The shift to T+1 therefore requires extensive coordination among policymakers, regulators, and the financial sector.
To oversee this transition, ESMA, the European Commission, and the ECB, together with industry stakeholders, have launched a collaborative initiative. Various working groups are analyzing the technical and operational changes needed for a successful migration. These groups report to a committee where the financial sector must collectively agree on new trading procedures.
