A new development which portends faster and efficient trades of securities has brought joy among European asset managers. Regulation in Europe is finalizing its move to shift from the old T+2 to the faster T+1 settlement system, which means trades will now clear within one day. This will be processed smoother and cheaper, and thus European markets shall shine brighter on the international front.

What is T+1? Why Does it Matter?
Simply, T+1 settlement means that trading system in which trade is settled one day after its generation. This simply means accelerating the time cycle of the change in ownership of stocks, bonds, or other securities from one party to another. As of now, many European markets are operating under the T+2 settlement system under which settlement of trades takes two days. Everything will move faster and risks associated will be minimized by shifting to T+1.

Of course, the European Union is taking its best efforts to ensure this transition takes place. They are doing so in the hope of staying in line with other significant markets such as that in the United States, which have already embraced T+1. This change can be seen as a way to avoid becoming a laggard and, therefore, attract more global investors into the European markets.

Why are the Asset Managers so keen?
Benefits of the change are to be expected, not only on the markets’ side but also for the investors who will entrust them with their money. Representatives of the European Fund and Asset Management Association, known as Efama, are cheering the decision. Members of that association are the national asset management associations in Europe, and they welcome the plan in its entirety. Naturally, being out of kilter with the US market creates problems and extra costs.

This is firstly because deviation from key markets, like the US, incurs unnecessary costs. Take the example of a European investor trading in the US; he has to wait one day extra for his trades to settle compared to a US investor. Of course, costs like this can add up very quickly, but it falls on the end-investors-the people putting their money into these markets. Such a delay may also render European products less attractive to global investors over time while, ultimately undermining overall competitiveness in the region.

Europe’s Big Move: The Plan for T+1
An attempt to address this challenge has been made by the European Commission in collaboration with the major EU markets and banking regulators, by a joint statement. The statement is of relevance as it indicates that the continent means business and intent to rush technical work that will make T+1 settlement a reality. Policymakers would love to roll the ball and have planned to establish governance structure to oversee transition.

The main essence is in terms of timing. According to Efama, coordination with other European markets is most significant. EU markets are deep in interconnection, so one change in one place can create ripples throughout others. Hence, it is important that the transition has to be smooth and at the right time. Coordination will be very helpful so that there are no confusions set in, and all the European markets are coordinating.

Efama sees true pan-European T+1 most realistically happen end-2027. This covers the EU, but not only the EU, since also the UK and Switzerland are part of it with their own markets, but still well connected with the rest of Europe. Establishing a time horizon in view, European policymakers can focus efforts to ensure that all technical work will be conducted and that the markets are prepared for the new big change.

Why is the Shift Important?
The shift from T+2 to T+1 is not merely a matter of keeping pace with the US; it is a matter of risk reduction and efficiency. Under the present system at T+2, there is two days between when the trade is made and when it is settled. In this period, something could go wrong, such as a party failing to meet their obligation in the deal. This risk diminishes dramatically when settlement time is trimmed to just one day.

Faster settlement time would also see investors receiving their money or assets sooner. For example, if an investor is selling a stock, he doesn’t have to wait two days for his cash; he gets it the next day. That fast turnaround will make European markets more attractive, especially to global investors who are efficiency-conscious and looking for lower risks.

The Benefits for Investors
Lower costs, fewer shocks on the way to a more seamless experience in trading, could mean much to everyday investors once the market moves to T+1. Faster settlement of trades reduces risk, leading to cost savings that should eventually be felt down the line by the end-investor. Moreover, and perhaps just as important, synchronizing with global markets means European investors will not experience either delay or extra cost when trading abroad.

It is also refreshing for asset managers because this change could make European products more competitive. Currently, investors might turn their headsets to the US or other markets that implement T+1, which is faster and more efficient. This change can make the European asset managers offer more attractive-if not quite, at least as appealing-products to investors across the world.

What’s Next?
Actually, T+1 is still a couple of years from being implemented, but the actual laying of groundwork by the European Commission and regulators will be in play to ensure readiness for the transition. It is a very tough exercise in coordination with multiple markets, but the end goal is clearly faster, safer, and efficient trading for everyone.

Therefore, asset managers, investors, and policymakers will keep combining their efforts and making a smooth transition. Well, time is enough to get the details ready in place, with visions toward the end of 2027.

Therefore, the move to T+1 settlement is the most significant in the progression of European markets. Change will be for the betterment of investors, with reduced risks and competitiveness of Europe in the global map. Asset managers are excited about the future, and with the right planning and coordination, the transition should be successful.