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The top U.S. securities regulator said Thursday that regulators should work to include foreign exchange in a global effort to reduce trade settlement times in financial markets.
Securities and Exchange Commission Chairman Gary Gensler said regulators and market participants should consider narrowing the time period for completing transactions to one day.
His comments at an event in Brussels come as Mairead McGuinness, the EU's head of financial services, said the question is “when and how” the EU will change securities settlement to a single day. It was carried out as stated.
Settlement is the process of matching and legally transferring assets from seller to buyer, and typically takes place over two days.
This typically mundane activity was thrust into the spotlight by America's meme stock mania at the height of the coronavirus pandemic. At the time, some brokers, including Robinhood, criticized the two-day settlement period because their systems could not keep up with trading volume.
In May, the United States, Canada, and Mexico will move from two-day settlement to one-day settlement for stocks, bonds, and exchange-traded funds. The UK is also considering moving to a one-day settlement, and India moved last year.
“Time is money and time is risk, so shortening currency settlement cycles should also be a consideration,” Gensler said.
“I think it's appropriate to work with central banks around the world,” he added, calling for collaboration between the Financial Stability Board, the Bank for International Settlements, central banks and CLS Group, which operates the infrastructure for plumbing. He said there is. Foreign exchange market settlement.
Some banks and asset managers are concerned that changes in securities markets could cause problems for linked markets that settle on different time frames, such as foreign exchange. Banks and customers often require at least one full business day to cover business issues and time zone differences.
CLS Group CEO Marc Beil de Jesse said reducing foreign exchange settlement times was “a topic that we have also raised with central bankers.” . . CLS alone can't change that. ”
The comments from McGuinness, the EU commissioner for financial services and stability, were the strongest ever by a senior EU official on the bloc's plans to modernize its securities market facilities.
The question is not whether Europe will move toward a T+1 settlement. Rather, the key question is when and how to move,” she said, adding that “the path forward is very clear towards reconciliation in the near term.”
He also noted that the different timing of UK and European markets could come at the expense of market participants such as central securities depositories, issuers and investors. It was “important” to maintain an open dialogue with partners across Europe, including the UK.
“Coordination is key if we want to minimize costs for EU companies… but we are open to discussing how to reach agreement on timing across the continent,” she said. added.
“Shorter settlement cycles improve market liquidity and efficiency. It also reduces risk, and lower risk means less need for collateral,” McGuinness said. Stated.
Liebe Mostley, chief executive of payments firm Euroclear, said there was a “logic” for the EU and UK markets to synchronize. “Given all the deals that continue to take place between the EU and the UK, it would be in the interests of both the EU and the UK to align,” he said.
But Andrew Douglas, head of the UK government's task force, said: “It all depends on how quickly the EU moves forward.” “You can work together without necessarily aligning. Different markets have different drivers, so some markets will want to move faster than others,” he said.
Ellesheva Kissin is a banking risk and regulation reporter. news service Published by FT Specialist.
