Last Updated on July 8, 2025 by Arnaud Collignon
Shortening the Settlement Cycle in the EU: A Step Towards Efficiency
The European Union is taking significant steps to enhance the efficiency of its financial markets by shortening the settlement cycle. This initiative aims to reduce risks and improve liquidity, ultimately benefiting investors and the economy as a whole.
What is the Settlement Cycle?
The settlement cycle refers to the time it takes for a trade to be finalized and the ownership of securities to be transferred from the seller to the buyer. Currently, the standard settlement cycle in the EU is T+2, meaning transactions are settled two business days after the trade date.
Key Changes Proposed
To streamline this process, the European Commission has proposed a reduction of the settlement cycle to T+1. This change is expected to:
- Reduce counterparty risk: A shorter settlement cycle minimizes the time that parties are exposed to each other’s credit risk.
- Enhance liquidity: Faster settlements can lead to improved cash flow for investors.
- Boost market efficiency: A more efficient settlement process can attract more participants to the market.
Implementation Timeline
The transition to a T+1 settlement cycle is set to be implemented by 2025. This timeline allows market participants to prepare for the necessary adjustments in their systems and processes.
Conclusion
Shortening the settlement cycle is a crucial step towards modernizing the EU’s financial markets. By adopting a T+1 settlement cycle, the EU aims to enhance market efficiency, reduce risks, and ultimately provide better services to investors.
External Links
- Shortening Settlement Cycle in the EU – CSSF
- European Commission – Financial Markets
- European Securities and Markets Authority (ESMA)
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