LONDON May 16 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
"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.