Changes from report parliamentary committee draft to plenary report

Addedamending Regulation (EU) No 909/2014 as regards a shorter settlement cycle in the Union

RemovedAlthough significant operational and technical work remains, from a legislative and political standpoint, the proposal should not pose significant challenges. In view of the technical nature of the proposal and the urgency of adopting the proposal, your Rapporteur therefore proposes that Parliament approves the proposal without amendments.

AddedTHE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

AddedHaving regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof,

AddedHaving regard to the proposal from the European Commission,

AddedAfter transmission of the draft legislative act to the national parliaments,

AddedHaving regard to the opinion of the European Central Bank,

AddedHaving regard to the opinion of the European Economic and Social Committee,

AddedActing in accordance with the ordinary legislative procedure,

AddedWhereas:

Added(1) Article 5(2) of Regulation (EU) No 909/2014 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 period is referred to as the ‘settlement cycle’. The requirement for the settlement to take place at the latest on the second business day after the trading takes place is referred to as ‘settlement cycle in T+2’, or, simply, ‘T+2’.

Added(2) Longer settlement periods for transactions in transferable securities increase risks for transaction parties and reduce 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 trade (‘T+1’). The global shift to shorter settlement periods is, however, creating misalignments between Union and global financial markets. Those misalignments will only further increase when more countries move to T+1 settlement and increase the cost caused by such misalignments for Union market participants. Furthermore, some global capital markets have already shortened the settlement cycle to T+0 for certain types of transactions. In the Union, central securities depositories can already settle a non-negligible number of transactions on a T+0 basis.

Added(3) In its report on the appropriateness of shortening the settlement cycle in the European Union, published on 18 November 2024, the European Securities and Markets Authority 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. T+1 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 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.

Added(4) It is therefore appropriate to introduce a targeted amendment to Regulation (EU) 909/2014 in order to shorten the current mandatory settlement cycle to one business day after the trading takes place. The 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 .

AddedSecurities 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.

AddedAn explicit exemption is not needed for margin lending transactions as they are not transactions in transferable securities and hence they fall outside the scope of the T+1 settlement cycle requirement.

Added(4b) 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. The Commission is expected to monitor market developments, the volumes of settlement fails and the readiness of the industry to comply with the T+1 settlement cycle requirement and consider accordingly whether there is a significant risk that the move from a T+2 to a T+1 settlement cycle could lead to a material increase in settlement fails. Where such a risk is identified, the Commission can, where necessary, consider adjusting Delegated Regulation (EU) 2017/389 accordingly, or taking any other appropriate measure within the scope of the empowerments laid down in Regulation (EU) No 909/2014. Any adjustments should be temporary and proportionate to the objective.

Added(5) Regulation (EU) No 909/2014 should therefore be amended accordingly.

Added(6) Since the objectives 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 their 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 those objectives.

Added(7) To ensure that all relevant stakeholders involved are sufficiently prepared and able to move to T+1 settlement in a coordinated and timely manner, the date of application of this Regulation should be deferred.

Added(7a) Pursuant to Regulation (EU) No 909/2014, ESMA is mandated to periodically prepare a report on the potential shortening of the settlement cycle in the Union. That report will explore the feasibility of shortening the settlement cycle in the future to T+0, to ensure that regulation and market infrastructures in the Union align with the increasing scope and pace of global financial markets and best practices of other international regulatory regimes. A settlement cycle of T+0 is already technically feasible and might be further facilitated by innovations such as distributed ledger technology while ensuring safety of data and transparency. A further shortening of the settlement cycle would reduce risks of illegal and collusive trading schemes such as dividend stripping (‘cum ex trading’).

Added(7b) ESMA should monitor settlement efficiency during the move to a T+1 settlement cycle and should report with increased frequency thereon during the months immediately preceding and immediately following the move to T+1. In light of the exemption from the T+1 settlement cycle requirement provided for certain types of securities financing transactions pursuant to this amending Regulation, ESMA should pay particular attention to the settlement efficiency of securities financing transactions traded on or outside trading venues.

AddedHAVE ADOPTED THIS REGULATION:

AddedAmendment to Regulation (EU) No 909/2014

AddedIn Article 5 of Regulation (EU) No 909/2014, paragraph 2 is replaced by the following:

Added‘2. As regards transactions in transferable securities referred to in paragraph 1 which are executed on trading venues, the intended settlement date shall be no later than on the first business day after the trading takes place. That requirement shall not apply to transactions which are negotiated privately but executed on a trading venue, to transactions which are executed bilaterally but reported to a trading venue or to the first transaction where the transferable securities concerned are subject to initial recording in book-entry form pursuant to Article 3(2).’.

AddedThat requirement shall also not apply to any of the following transactions where they are documented as single transactions composed of two linked operations:

Added(a) securities lending or securities borrowing, as defined in Article 3, point (7), of Regulation (EU) 2015/2365 of the European Parliament and of the Council;

Added(b) buy-sell back transactions or sell-buy back transactions, as defined in Article 3, point (8), of Regulation (EU) 2015/2365;

Added(c) repurchase transactions, as defined in Article 3, point (9), of Regulation (EU) 2015/2365.’;

Added(2) Article 74 is amended as follows:

Added(a) in paragraph 1, point (a), the following point is inserted:

Added‘(ia) the categories of transactions, the intended settlement date of the transactions and whether the transactions are traded on trading venues;’;

Added(b) in paragraph 2, point (d) is replaced by the following:

Added‘(d) upon request from the Commission, for the reports referred to in paragraph 1, point (a)(ia), points (e), (h), (j) and (k).’;

Added(3) Article 75 is amended as follows:

Added(a) in paragraph 1, point (a), the following point is inserted:

Added‘(ia) the market impact of, and justification for, the exemption from the T+1 settlement cycle requirement for certain types of securities financing transactions;’.

AddedEntry into force and application

AddedThis Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

AddedIt shall apply from 11 October 2027.

AddedThis Regulation shall be binding in its entirety and directly applicable in all Member States.

AddedDone at Brussels,

AddedFor the European Parliament For the Council

AddedThe President The President