EU lawmaker backs faster stock settlement time

LONDON Wed May 16, 2012 1:18pm EDT

LONDON May 16 (Reuters) - The prospect of a common transatlantic approach to curbing settlement risk in securities trading was boosted on Wednesday after a senior European Union lawmaker signalled backing for a core element of draft EU law.

The bloc's executive European Commission has proposed that the time taken to settle trades should be no more than two days -- known in the industry as T+2 -- compared with three days in nearly all EU countries at present.

Settlement refers to the exchange of cash for legal ownership and custody of a stock, and regulators are pushing to shorten the time this takes to minimise risky exposures.

The law will need approval from member countries and the European Parliament. In a first indication of the assembly's position, UK centre-right EU lawmaker Kay Swinburne said she would back T+2.

Some in the industry feared Swinburne, who is responsible for the measure in parliament, would push for next-day settlement, a far more burdensome prospect for the industry.

"I do see T+2 as a starting point over time," she told a conference held by European banking lobby AFME.

The United States is looking at shortening its three-day settlement time too, but again there is opposition to next-day settlement, meaning T+2 is more likely there as well.

"The European Commission's proposal for a T+2 settlement cycle paves the path for increased efficiency across Europe," said Marianne Brown, chief executive of Omgeo, a company jointly owned by Thomson Reuters and U.S. clearing house DTCC that specialises in trading services.

"Ultimately, it is anticipated that the T+2 initiative in the EU will drive other markets, including the United States, to look at accelerating their settlement cycles."

Transactions worth 920 trillion euros are settled annually in the EU.

The law would penalise failure to settle trades on time but Swinburne said she was open to tailoring this regime better and making it "slightly more proportionate".

The measure would give a final push to the market to "truly listen to the needs of users" after a voluntary industry code dating back six years failed to bring down transaction fees in a major way, Swinburne said.

The new law is set to come into effect in 2014.

A parallel shake-up of the sector is also progressing.

The European Central Bank, after losing patience with the slow progress of market-led changes, is building a platform for one-stop settlement for stocks and bonds in the euro zone.

Marc Bayle, head of the ECB's Target 2 Securities programme, told the conference he expected more settlement houses to sign up by the end of June to represent all settlement volume in the euro area.

"We expect it to go live in June 2015," Bayle said.

Settlement would cost 15 euro cents, far below current cross-border fees and close to the U.S. level, he added.

Paul Symons, head of public affairs at Euroclear, one of the biggest settlement houses in the EU, said it was "pretty likely" it would sign up to T2S in June.