(1)

Article 5(2) of Regulation (EU) No 909/2014 of the European Parliament and of the Council (4) regulates the settlement period for most transactions in transferable securities executed on trading venues. With certain exceptions, the intended settlement date for such transactions is to be no later than on the second business day after the trading takes place. Such a period is referred to as the ‘settlement cycle’. The requirement for settlement to take place at the latest on the second business day after the trading takes place is referred to as the ‘T+2 settlement cycle’, or, simply, as ‘T+2’.

(2)

Longer settlement periods for transactions in transferable securities increase the risks to the transaction parties and reduce the opportunities for buyers and sellers to enter into other transactions. For those reasons, many third-country jurisdictions have moved, are in the process of moving, or plan to move to a settlement period of one business day after the trading takes place (‘T+1’). The global shift to shorter settlement periods is, however, creating misalignments between Union and global financial markets. Those misalignments will further increase when more countries move to T+1 settlement, thereby increasing the costs to Union market participants caused by such misalignments. Furthermore, some capital markets have already shortened the settlement cycle for certain types of transactions to T+0. In the Union, central securities depositories already settle a non-negligible number of transactions on a T+0 basis.

(3)

In its report of 18 November 2024 on the assessment of the appropriateness of shortening the settlement cycle in the European Union, the European Supervisory Authority (European Securities and Markets Authority) (ESMA), established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council (5), concluded that shortening the settlement cycle in the Union to T+1 would significantly reduce risks in the market, in particular with respect to counterparty and volatility risks, and free up capital no longer required to cover margin calls. The T+1 settlement cycle would also enable Union capital markets to keep up with the evolution of other global markets, eliminating the costs associated with the current misalignment of settlement periods. It would also contribute to the further harmonisation of corporate event standards and market practices in the Union, and more generally to the competitiveness of Union capital markets. The Commission shares those conclusions.

(4)

It is therefore appropriate to introduce a targeted amendment to Regulation (EU) No 909/2014 in order to shorten the current mandatory settlement cycle to no later than one business day after the trading takes place. That shortening of the settlement cycle would not prevent central securities depositories from voluntarily settling transactions on the same date as the trade date, where technologically feasible.

(5)

Securities financing transactions allow market participants to manage their liquidity and funding needs in a flexible manner. Market trends indicate a growing use of such transactions on trading venues. Certain securities financing transactions that are executed on trading venues would fall within the scope of the T+1 settlement cycle requirement. However, given the non-standardised nature of such transactions and, in particular, the non-standardised settlement periods that might need to be agreed to by the parties to such transactions to achieve their objectives, and to avoid discouraging their execution on trading venues, those transactions should be exempt from the T+1 settlement cycle requirement. At the same time, to avoid any risk of circumvention of the T+1 settlement cycle requirement, the exemption should apply only if the securities financing transactions in question are documented as single transactions composed of two linked operations. As a consequence, and for the purposes of the T+1 settlement cycle requirement, undocumented securities financing transactions should be subject to that requirement. An explicit exemption is not needed for margin lending transactions as they are not transactions in transferable securities and therefore fall outside the scope of the T+1 settlement cycle requirement.

(6)

Regulation (EU) No 909/2014 provides for various measures to address settlement fails, including cash penalties imposed on failing participants. The calculation of those cash penalties is determined by parameters specified in Commission Delegated Regulation (EU) 2017/389 (6). The Commission is expected to keep track of market developments, the volume of settlement fails and the readiness of the industry to comply with the T+1 settlement cycle requirement, and to consider, accordingly, whether there is a significant risk that the move from a T+2 to a T+1 settlement cycle requirement would lead to a material increase in settlement fails. Where such a risk is identified, the Commission is able, where necessary, to consider whether to adjust Delegated Regulation (EU) 2017/389 accordingly, or to take any other appropriate measure within the scope of the empowerments laid down in Regulation (EU) No 909/2014, in order to mitigate both financial and non-financial adverse consequences. Any adjustments should be temporary, proportionate to the objective and designed to avoid imposing excessive costs on the industry.

(7)

ESMA should monitor settlement efficiency during the move to a T+1 settlement cycle and should report thereon with increased frequency during the months immediately preceding and immediately following that move. In light of the exemption from the T+1 settlement cycle requirement for certain types of securities financing transactions pursuant to this Regulation, ESMA should pay particular attention to the settlement efficiency of securities financing transactions traded on or outside trading venues.

(8)

Regulation (EU) No 909/2014 should therefore be amended accordingly.

(9)

Since the objective of this Regulation, namely to introduce a shorter settlement cycle in the Union, cannot be sufficiently achieved by the Member States but can rather, by reason of its scale and effects, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective.

(10)

To ensure that all relevant stakeholders involved are sufficiently prepared and able to move to the T+1 settlement cycle in a coordinated and timely manner, the date of application of this Regulation should be deferred,

(1)

in Article 5, paragraph 2 is replaced by the following:

(*1)  Regulation (EU) 2015/2365 of the European Parliament and of the Council of 25 November 2015 on transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012 (OJ L 337, 23.12.2015, p. 1, ELI: http://data.europa.eu/eli/reg/2015/2365/oj).’;"

(2)

Article 74 is amended as follows:

(3)

in Article 75, first paragraph, the following point is inserted: