Out-Law / Your Daily Need-To-Know

UK and Irish stock exchanges to shorten security settlement times

04 Dec 2013, 9:56 am

Securities traded on the UK and Irish capital markets will be settled within two working days of the transaction from October next year, following an agreement between the central securities depository (CSD) and major stock exchanges.

The agreement will apply from 6 October 2014, and will affect the cash and securities components of trades conducted by retail and institutional investors on stock exchanges and multilateral trading facilities that currently settle by the third working day, known as 'T+3'. The new 'T+2' settlement cycle will not apply to over-the-counter (OTC) transactions.

The European Commission proposed harmonising securities settlement cycles across the EU last year and its proposed Central Securities Depositories Regulation (CSDR) is expected to set a deadline of 1 January 2015. Action by industry in the UK and Ireland ahead of this anticipated date has been led by Euroclear UK & Ireland, but has the backing of regulators at the Financial Conduct Authority (FCA) and the Bank of England.

"I am delighted that our stakeholders and regulators have accepted our offer to coordinate the implementation of this industry-wide development in the UK and Ireland," said John Trundle, the CSD's chief executive. "Euroclear UK & Ireland is working collaboratively with industry practitioners to address and mitigate risks associated with the move to a shorter settlement cycle in order to ensure a very smooth and coordinated transition."

Participating stock exchanges and securities markets include the London Stock Exchange (LSE), BATS Chi-Ex Europe, the Irish Stock Exchange and Turquoise, an alternative trading platform part-owned by LSE.

The 'settlement cycle' is the period after a trade has taken place, but before the underlying assets are exchanged for cash by a CSD. CSDs sit between the traders and ensure performance of the transaction. The UK's last official change took place in 2001 when the settlement cycle was shortened from T+5 to T=3, but Euroclear already allows traders to settle in 'real-time' if both counterparties to the trade agree.

The CSD also announced that the shorter settlement cycle would apply to regulated trades that settle through Euroclear Belgium, Euroclear France and Euroclear Nederland from the same date.

The EU's proposed CSDR would create an EU-wide regulatory regime for CSDs. The draft regulation also includes 'dematerialisation', or paperless, obligations for most securities; harmonised settlement periods for most transactions; and settlement discipline measures.