Well, … to be precise, on October 11, 2027!
While the presentation of ESMA’s final report to the European Parliament and Council (with its cost-benefit analysis) was expected for January 17, 2025, ESMA surprised the entire financial community on November 18 by proposing the date of October 11, 2027 for the implementation of a D+1 delivery deadline , instead of the current +2 (see https://www.esma.europa.eu/press-news/esma-news/esma-proposes-move-t1-october-2027).
Far from overlooking the potential impacts of such a shortening of the R/L cycle, ESMA is justifying its proposal with 2 main points:
– The costs associated with inaction, i.e. non-alignment with other jurisdictions,
– Reduced clearing risk, with margin requirements estimated to have fallen by 25%-30% since the R/L cycle was changed in the US, at the end of May 2024.
Transposed to a more heterogeneous European context (90 trading venues, 14 CCPs, 34 CSDs, not to mention 11 currencies), the short-term delay requires to set-up an effective governance to meet this challenge.
It should be established quickly.
Despite the purely technical aspect of modifying settlement/delivery parameters, which has already been operational since the change of cycle in the US, SLIB is planning detailed studies to be carried out in 2025 with the aim of supporting its customers throughout this major change.
The idea is to identify optimizations that can be made in order to guarantee continuity of service without bottlenecks.
Indeed, the reduction in the settlement/delivery cycle compresses the time needed to process and correct instructions after the trade date, from 27 hours at present to just 3 hours starting from the end of 2027!
For each division (OMS, Middle-Office, Settlement; Account Management), we will identify areas for improvement.
In particular, we’ll be looking at the following areas :
– the order-confirmation process and connection to market systems (DTCC / SWIFT) and SBI in France
– the settlement/delivery process to ensure rapid transaction settlement (anticipation of chain breaks, automation, etc.)
As far as clearing management is concerned, it remains difficult to predict the impact, even if, in theory, the value of margin calls should naturally fall.
But will there be more “intra-day” calls, more erroneous transactions and therefore an impact on the collateral called by the clearing houses? In any case, it’s important to ensure that the processing chain is automated, and we believe that our RMS offer can ideally contribute to this efficiency.
