As the financial industry prepares for the transition to a T+1 settlement cycle, significant changes are on the horizon for corporate events processing. The European Securities and Markets Authority (ESMA) has recommended that this transition take effect by 11 October 2027, marking a fundamental change in how transactions are settled across European markets.
Leading the initiative to analyse the impacts of T+1 on corporate events and to provide recommendations aimed at enhancing compliance with international standards is the Corporate Events Group (CEG).
The CEG operates under the governance of the Advisory Group on Market Infrastructure for Securities and Collateral (AMI-SeCo), a European Central Bank (ECB) forum that brings together central banks, financial market infrastructures, and market participants to foster harmonisation and integration of post-trade services in Europe.
What is changing with T+1?
The move to T+1 reduces the time between the execution of a trade and its final settlement. Traditionally, European markets have operated on a T+2 cycle, where settlement occurs two business days after a trade is executed. With T+1, settlement will occur in just one business day, aiming to:
- enhance market efficiency
- reduce counterparty risk
- improve liquidity
To accommodate the T+1 settlement cycle, several key changes are required in the processing of corporate events. These changes are designed to ensure that key dates align with the new requirements, processes are automated to enhance efficiency, and compliance gaps with European corporate event standards are addressed.
Aligning key dates
One of the primary adjustments involves the alignment of key dates for various corporate events. Key events such as distributions, mandatory reorganisations and voluntary reorganisations will need to conform to the shortened settlement cycle.
For distributions, payment dates must be adjusted to ensure timely settlement and disbursement of funds. Mandatory reorganisations, such as mergers and acquisitions, will require changes to processing timelines to accommodate the shorter settlement cycle. Similarly, voluntary reorganisations, which involve shareholder elections, must synchronise election deadlines and execution dates with T+1.
Streamlining processes through automation and standardisation
Automation also plays a crucial role in the transition to T+1, offering a means to streamline workflows and reduce manual intervention. Two areas of focus are buyer protection instructions and market claims. Automating workflows for buyer protection instructions will facilitate the submission and processing of these instructions, ensuring that they are handled accurately and on time. Market claims, which arise from discrepancies in corporate actions, will also benefit from automation, reducing the need for manual processing and enhancing overall efficiency.
To support these automated processes, the adoption of ISO 20022 messaging is essential. This standardised messaging format enables seamless communication and processing, ensuring that all parties involved in corporate events are on the same page and can execute transactions smoothly.
Meeting European corporate event standards
Compliance with European corporate event standards is another critical aspect of the transition to T+1. Stakeholders must identify and resolve compliance gaps to meet the new standards and ensure readiness for the T+1 settlement cycle. This involves engaging with market participants, including issuers, custodians and investors, to collaborate on the necessary changes and ensure adherence to the new requirements.
Learning from the US experience
As Europe prepares for its transition to T+1, valuable lessons can be learned from the US market, which has already shifted to T+1, making the switch on 28 May 2024. The US approach provides insights into the challenges and opportunities associated with the transition, offering a roadmap for European markets to follow.
The transition to T+1 settlement is more than just a regulatory requirement; it is an opportunity to transform corporate events processing for the better. By aligning key dates, automating processes, and ensuring compliance, the industry can enhance efficiency, reduce risks, and improve liquidity. To ensure a smooth and successful transition, Euronext Securities will continue to collaborate and engage with stakeholders to ensure that market participants’ needs are met, paving the way for a more efficient, competitive, and resilient European financial ecosystem.
Euronext Securities is actively participating in technical working groups and contributing to the Industry Steering Committee as part of the new governance structure for the T+1 settlement cycle in the European Union.
This initiative has been established by the European Post Trade Forum (EPTF) and is supported by regulators, market infrastructures, and industry associations such as ECSDA:
- Alessio Mottola – Co-lead of the Corporate Actions Working Group
- Thomas Metier – Co-lead of the Settlement Efficiency Working Group
- Chiara Rossetti – Co-lead of the Trading Working Group
Author: Alessio Mottola
CEO, Euronext Securities Milan and co-leader of the T+1 settlement cycle Corporate Events workstream in the European Union
For more information on ESMA and the T+1 Governance Structure please see: https://www.esma.europa.eu/esmas-activities/markets-and-infrastructure/…