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French regulators propose two step approach to T + 1 in Europe
THE AMF AND BANQUE DE FRANCE ARE CALLING FOR A COORDINATION BETWEEN THE UK AND EUROPE IN THEIR PLANS TO SHORTEN THE SETTLEMENT CYCLE .
French regulator Autorité des Marchés Financiers ( AMF ) and Banque de France have released a joint paper proposing a twostep approach to the European Union ’ s move to T + 1 settlement .
Europe is now in a ‘ when not if ’ situation when it comes to its plans to shorten its settlement cycle , as confirmed by the European Commission in January earlier this year .
In their statement , the AMF and Banque de France have suggested a two-pronged approach as “ the most pragmatic way forward ”.
The first step is a prerequisite to the second and will involve all trades being confirmed / allocated “ as soon as practicable and no later than on trade date ”.
The industry will be responsible for ensuring improvements in standardisation and common market practices in the EU such as market infrastructure cut offs and settlement of cross border transactions and ETF shares .
As part of step one , the T2S operator must be offered sufficient time to prepare for the settlement of an increased volume of trades during the real time settlement period , as well as for the postponing of the night batch settlement .
The pair confirmed that in order to ensure step one is completed , the European Commission should launch working groups with all stakeholders .
Step two is dependent on step one – wherein if the level of transactions confirmed / allocated on trade date is deemed as ‘ sufficient ’ then the settlement cycle could be reduced to T + 1 .
In the event of this happening , the AMF and Banque de France have suggested that rules should be carefully designed to ensure the continued attractiveness of European instruments to foreign investors .
The pair said this two-pronged approach would allow Europe a sufficient observation window to learn the necessary lessons from North America ’ s shift to T + 1 .
“ Even if these markets are not fully comparable with the EU markets , it will be interesting to observe the impact ,” said the pair in their proposal .
As part of their paper , the AMF and Banque de France have also tabled other methods for achieving T + 1 , such as leveraging the best execution or additional settlement costs of US processes to “ go beyond setting up a mandatory cap and find incentive measures or tools ” or the transitional measures used to implement the CSDR cash penalties mechanism .
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