Europe is mulling a shift to a shorter T+1 settlement trade cycle for its markets from the current T+2, according to people in the know. ‘T’ stands for trade day.
The Association for Financial Markets in Europe (AFME) — an industry advocacy organisation that represents wholesale market participants in Europe, including the European Union and the United Kingdom — may launch an industry task force to move towards a shorter settlement cycle. The association will discuss the feasibility of such a move, changes required and the timeline to make such a transition.
T+1 settlements are done within one business day of the transaction’s completion. For example, shares bought on Wednesday would be credited to the demat account on Thursday. A faster settlement system may reduce the risk of default, increase market liquidity and jack up trading volumes.