26 October 2010

FT: Brussels looks to cut settlement times

European regulators are considering ways to cut the time it takes for securities to be processed after trades are done in a bid to reduce risks to the system in the event of defaults and other large financial failures. Currently settlement in most of Europe takes place three days after the trade is made, in a system known as “T+3”. Germany uses T+2.
 

Reducing the cycle by a day would cut by a third the time it takes for a deal to be finalised – and thus reduce the scope for failures such as defaults while transactions work their way through settlement and custody processes. It would also make it easier for the region to handle corporate actions such as rights issues and takeover bids.

A taskforce appointed by Brussels to study ways to implement T+2 across Europe with the minimum of disruption to the operations of banks, asset managers and others will soon make its recommendations.  The issue is likely to be high on the agenda at Sibos, a securities settlement and payments systems conference being held this week in Amsterdam.

Brussels proposed draft legislation to regulate short-selling activity last month, partly with the explicit aim of reducing settlement risks linked to uncovered short-selling. The new rules - which must be approved by the European Parliament and member states - would require more disclosure of short positions and give regulators more powers to intervene in crisis situations.

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