Described as “the average positioning of IA member firms’ views”, the timeline put forward is one of the more aggressive, with most task forces and associations more on board with 2027.   

The IA did add however, that should one or more jurisdictions only be able to transition at a later date before the end of 2027, and can commit to this before the end of 2025, the others should move their transition date back to align.   

The trade body added In the event the UK opts to move to a T+1 security settlement cycle ahead of Europe, there should be a “safe-harbour” exemption on UK traded and settled exchange traded products – including ETFs, ETNs and ETCs – which should remain on a T+2 secondary market settlement cycle until the EU transitions, at which point the exemption should expire.   

Should the EU transition first, a similar “safe harbour” should apply. This should also apply to Eurobonds. 

“In the US, the 15 months set out in February 2023 for a May 2024 go-live was sufficient, with settlement rates achieved by the broader market being higher than prior to the transition,” the IA said in its paper.  

“Whilst the UK, EU and Swiss market infrastructure may be more complicated, it is our view that many of the lessons learnt, system upgrades and process changes that firms undertook for the US transition can be applied in a UK, EU and Swiss context, making T+1 transition achievable by Autumn 2026, 24 months from now.” 

The UK has all-but committed to 2027 now, with Europe’s top markets watchdog subsequently signalling its intentions for moving EU markets to a T+1 settlement cycle through a statement outlining both the urgency of acting and the preference for aligning with the UK and Switzerland. 

“In a period when jurisdictions are aiming to demonstrate and boost the competitiveness of their capital markets, the ecosystem’s ability to enact a fast but orderly transition to T+1 settlement is crucial,” the IA concluded. 

The paper outlines a range of considerations across the UK, EU and Switzerland. One other point was that there should be a recommendation, but not a regulatory requirement, to transition the mutual fund subscription and redemption settlement cycle to T+2 from the common T+3/4 in the UK and other popular EEA fund jurisdictions to coincide with the UK, EU and Swiss transition to T+1 in capital markets.

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The European Securities and Markets Authority (ESMA) acknowledged the benefits of reducing settlement times but highlighted how harmonisation, standardisation and modernisation will be needed and will require investments.

Harmonisation within Europe is a top regulatory priority at present as the continent looks to improve its competitiveness on the global stage. Subsequently, ESMA has concluded that in the context of needing an efficient and competitive market “it is urgent to act if the EU wants to avoid prolonging and amplifying the negative impacts of the misalignment with major jurisdictions internationally.”

ESMA noted that Europe would likely need to amend CSDR to mandate a harmonised shortening of the settlement cycle in the EU.

With regards to a timeline ESMA acknowledged the high level of interconnectedness between the EU capital markets and those in other jurisdictions in Europe, highlighting how a coordinated approach across Europe is “desirable”.

The regulator added that alongside other European groups, it considers it “necessary to accelerate every aspect of the technical work needed to pave the way to any future move to T+1 in the EU.” 

ESMA, in close coordination with national competent authorities, and sub-groups from the European Commission and European Central Bank, have therefore agreed to establish a governance structure, incorporating the EU financial industry, as soon as possible to oversee and support the technical preparations of any future move to T+1.  

“In order not to lose momentum, details of the governance structure will follow shortly. It will be important that this governance is inclusive and ensures balanced sectorial and geographical representation,” said ESMA in its statement.

ESMA’s public stance was revealed just a day after the European T+1 Industry Task Force voiced support for a co-ordinated move to T+1 in the EU, acknowledging the benefits of an aligned approach across the entire European region, including the EEA, the UK and Switzerland.   

The task force stated that this followed a range of views being expressed as to whether the date identified for the UK transition, H2 2027, could also be a feasible implementation date for the EU. 

The task force did, however, emphasise that depending on the exact definition of what regulatory, technical and operational changes will be required, a transition period of between 24 and 36 months will be required to accommodate the complexity of the market infrastructure in Europe.  

Established in 2023, the European T+1 Industry Task Force comprises of 21 trade associations involved in European capital markets, bringing together a range of industry stakeholders who would be impacted by a move to T+1 settlement for securities traded and settled in the EU.

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In a new report, the task force stated that this followed a range of views being expressed as to whether the date identified for the UK transition, H2 2027, could also be a feasible implementation date for the EU.

Read more: Inside the UK’s blueprint for the move to T+1 settlement

The task force did, however, emphasise that depending on the exact definition of what regulatory, technical and operational changes will be required, a transition period of between 24 and 36 months will be required to accommodate the complexity of the market infrastructure in Europe.

“The task force is supportive of a move to T+1 in the EU, and recognises the potential benefits in terms of efficiency improvements and risk reduction,” said the task force in a report.

“It is clear that a move to T+1 would be a complex, multi-year undertaking, and requires the collaboration of all industry stakeholders to ensure that we do not introduce new risks or damage the existing efficiency, liquidity and functioning of EU securities markets.”

In the report, the task force also provided a range of further suggestions to ensure the industry can move to T+1 safely and efficiently, including a maximum possible notice period for transition.

For a successful transition, the task force highlighted that public authorities should consider a temporary suspension of cash penalties over the implementation period.

On the same topic, the group added that public authorities should avoid implementing complex changes to the CSDR cash penalty rules in advance of the transition to T+1.

Elsewhere, the task force stated that ESMA should consult as planned on “measures to reduce settlement fails” and make a determination as to whether further regulatory changes are necessary to support enhanced settlement efficiency, and which of these changes, if any, should be sequenced before a move to T+1.

Key findings also included that changes to the daily timetable for trading, clearing, settlement, and ancillary processes will be required to preserve current efficiencies.

In addition, pre-settlement matching was noted as being essential to identify and remediate potential issues as soon as possible.

Established in 2023, the European T+1 Industry Task Force comprises of 21 trade associations involved in European capital markets, bringing together a range of industry stakeholders who would be impacted by a move to T+1 settlement for securities traded and settled in the EU.

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Jorge Tenreiro

Specifically, the watchdog concluded that Cumberland DRW had operated as an unregistered dealer since “at least March 2018 through to present” in more than $2 billion of crypto assets offered and sold as securities.
 
This was “in violation of the registration requirements of the federal securities laws that are designed to protect investors,” said the regulator in an official announcement.

Cumberland operates 24 hours a day, seven days a week and refers to itself one of the world’s leading liquidity providers in crypto assets. 

“The federal securities laws require all dealers in all securities to register with the Commission, and those who operate in the crypto asset markets are no exception,” said Jorge Tenreiro, acting chief of the SEC’s crypto assets and cyber unit (CACU).

“Despite frequent protestations by the industry that sales of crypto assets are all akin to sales of commodities, our complaint alleges that Cumberland, the respective issuers, and objective investors treated the offer and sale of the crypto assets at issue in this case as investments in securities, and Cumberland profited from its dealer activity in these assets without providing investors and the market with the important protections afforded by registration.”

The SEC’s complaint specifically charges Cumberland with violating section 15(a) of the Securities Exchange Act, seeking permanent injunctive relief, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties.

The post Cumberland DRW charged for operating as unregistered crypto dealer by SEC appeared first on The TRADE.

Andrew Douglas

In September the AST published its proposed recommendations for a transition to T+1 in the UK, calling for market feedback on its automation-heavy approach.

The report outlines 43 ‘principal recommendations’ and 14 ‘additional recommendations’ which are open for consultation from any and all participants in the UK equity market until the end of this month (October 2024).

Within the report are several ‘LEL’ markers – which Douglas interestingly revealed to a gathered roundtable this week is an acronym referring to ‘lessons learnt from the US’. 

Having the advantage of an example has been useful, agreed panellists, with support from the regulatory community pinpointed as a principal key to success across the board.

In addition, Douglas explained, moving second has allowed for a range of cautionary tales: “For example, FX wasn’t really considered in the US but we have a work group specifically looking at FX and what the impact on that would be, and we also had the advantage of seeing what the impact of T+1 has been on stock lending so we can be smart after the event and do things differently.”

The US’ shift is demonstrably helping to pave a way, identifying where things could be done differently.

Notably, Douglas highlighted the weight of advice from US Securities Exchange Commission chair Gary Gensler who advised that other regions should “pick a date and stick to it” – an approach the UK’s Taskforce is embracing seriously. 

Speaking to potential roadblocks for a UK shift, Thomas Hansen, vice-chair of the European repo and collateral committee at the International Capital Market Association (ICMA), said: “It’s a plumbing issue akin to the UK’s current problems with its water supply – the plumbing is old but [it has to be done], you have to start somewhere.” 

He added: “The industry as a whole has had to become more efficient in its settlement process, front-to-back but it’s been very different the way we’ve solved this in different segments of the market […] overall it’s a massive challenge and obviously not everyone is going to be positioned the same way.” 

Read more: UK settlement taskforce pencils in October 2027 for T+1 switch

Once the AST’s recommendations are finalised in December, the report states that it is expected that “the recommendations, and their compliance, will be treated as a post-trade code of conduct setting expectations of behaviour of all UK market participants and as such, could be used for supervisory purposes”.
 
When it comes to striking the right balance as to how many so-called ‘rules’ the market must adhere to, Douglas emphasised that the key issue lies in “over regulation versus over reliance on market practices”. 

In essence, when it comes to motivations to adhere, Douglas was succinct, explaining “if you don’t do these things, you won’t be fit for purpose”. 

Read more: Transition to T+1 ‘harder than expected’ finds Citi report

Despite major trepidation, the shift to T+1 in the US was largely hailed a success as the industry saw affirmation rates remain comfortably high and fail rates stay reasonably low.

This success has been largely pinned down to one key factor – the big push made by the industry to pre-emptively adapt workflows and future-proof processes, as well as the implementation of highly alert, round-the-clock ‘war rooms’ and ‘command centres’.

When asked about the notion of a safety net in the UK following the shift, the panel confirmed that there are no ‘press in case of emergency’ buttons available, and rather it will become a case of learning on the job, with those who prepare to fail bearing the brunt. 

“Markets are nimble, they do sort things out, they do find a way to function,” asserted Corinna Mitchell, General Counsel at Symphony.

The post Inside the UK’s blueprint for the move to T+1 settlement appeared first on The TRADE.

The watchdog also charged the bank with “failing to supervise” the head of its US Treasuries trading desk who allegedly made “hundreds” of illegal trades over that period.

The firm was ordered to pay $6.5 million to the SEC, $6 million to FINRA to resolve ‘related charges’, and entered into a deferred prosecution agreement with the US Department of Justice and agreed to pay a total sanction of more than $15 million.

Mark Cave, associate director in the SEC’s division of enforcement, said: “Manipulative and deceptive trading undermines the integrity of our markets. Broker-dealers and other firms cannot ignore their employees’ manipulative conduct and must take meaningful steps to detect and prevent it. Today’s action results from our continuing commitment to combating illicit trading.” 

Specifically, a former TD Securities trader was found to have spoofed the US Treasury cash securities market through entering orders with no intention of executing to obtain more favourable execution prices on other orders which were taking place simultaneously which he did intend to execute. 

After these intended orders were filled (profiting TD Securities) the trader in question allegedly then cancelled the other orders.

The SEC has ruled that the firm “lacked adequate controls and that it failed to take reasonable steps to scrutinise the trader after receiving warnings of his potentially irregular trading activity”. 

Read more: JP Morgan hit with record $920 million penalty after admitting eight-year spoofing scheme 

Following the findings, TD Securities has consented to the entry of the SEC’s order finding that it violated an antifraud provision of the federal securities laws as well as having failed to reasonably supervise the trader in question.

The SEC confirmed that it had received assistance from the Fraud Section of the DOJ’s criminal division and FINRA throughout the investigation.

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The CTP for shares and exchange traded funds ETFs will initiate in June 2025 with plans for a decision on by the end of 2025.

This in keeping with the previously confirmed timeline wherein ESMA confirmed it would be no more than six months after the launch of the selection procedure for bonds.

“Today’s announcement on the launch dates of the first selection procedures for the CTP for bonds and equities aims to foster a successful competition with multiple solid offers in transparent and fair selection procedures,” said ESMA.

Specifically, the “reasoned decision” on the selected applicant will adhere to the rules applicable to concession contracts (outlined in the Financial Regulation – EU, Euratom 2018/104636), which prescribes the steps and timelines to follow.

Read more: ESMA publishes new public consultations as Mifir review continues

Contract notice and procurement documents will be published on the EU Funding & Tenders Portal on the respective launch dates.

“Prospective applicants are invited to register and familiarise themselves with the Portal. In the coming weeks, ESMA intends to share additional guidance on the assessment of exclusion criteria,” confirmed the watchdog. 

Last December, Etrading Software confirmed plans to bid to become the consolidated tape provider (CTP) for both the UK and EU as the UK’s Financial Conduct Authority and European Securities Markets Authority (ESMA) continued with data consolidation plans.

The move followed news that the Bloomberg, MarketAxess and Tradeweb JV for a CTP bid had been scrapped due to “various developments”.

Following confirmation, it would enter the tender process to become the UK’s consolidated tape provider for fixed income, Ediphy has also confirmed its intention to bid for the European fixed income tape as well.

Last year a JV between major exchanges across Europe announced the incorporation of the new company, EuroCTP, through which the participants aim to bid to become the EU’s equities and ETF consolidated tape (CT) provider.

Read more: Battle lines are drawn over European consolidated tape project

Throughout the application periods, ESMA has confirmed it will be available to field questions from prospective bidders with applicants “granted as much time as possible, within the boundaries of EU procurement rules, to provide details on their projects”.

The post ESMA to pick bond CTP by July 2025 appeared first on The TRADE.

The CTP will focus on enhancing transparency, liquidity and participation in UK fixed income markets, set to operate as an industry utility, built with an ‘at reasonable cost’ philosophy.  

Read more: FCA moves to consult with industry on UK consolidated tape model as back and forth continues

“The [fairCT] initiative remains open to engaging with others,” confirmed the group, and will focus on the FCA’s priority to lower the costs of accessing trading data and market participation.

In addition, Ediphy has confirmed its intention to bid for the European tape as well. 

The market has been expecting that the UK would prioritise a fixed income consolidated tape first due to the opaque nature of the asset class compared to others such as equities.

With bond trading in the UK currently fragmented and liquidity spread across numerous trading venues and various lit and dark trading protocols, the CT is set to right some key complexities.

Read more: If you build it, will they come? 

Chris Murphy, chief executive of Ediphy, said: “Our approach is fundamentally different from other contenders. First, we aim to return any economic value generated by the consolidated tape provider over its costs and reasonable returns to the users of the tape. Second, we have built this initiative as a collaboration between multiple participants representing all stakeholder groups. 

“No other potential tape provider brings this diversity of experience nor delivers as fully on the alignment of product and customer needs, as proposed under the FCA Consumer Duty commitment.”

The post Ediphy-led consortium enters the race for UK consolidated tape provider appeared first on The TRADE.

“We confirm the EU Commission’s investigation and are fully cooperating. We do not comment on ongoing investigations,” said Deutsche Boerse when approached by The TRADE.

Specifically, the inspection relates to potential violations of EU antitrust rules linked to financial derivatives that prohibit restrictive business practices – Article 101 of the Treaty on the Functioning of the EU, and Article 53 of the EEA Agreement (both include reference to directly or indirectly fix purchase or selling prices or any trading conditions). 

The TRADE understands that the alleged actions which led to the raid include undercutting fees to out price competitors, and price dumping.

Unannounced investigations such as these are a preliminary investigatory step, confirmed the regulator, speaking about the process for inspecting suspected anticompetitive practices. 

“The fact that the Commission carries out such inspections does not mean that the companies are guilty of anticompetitive behaviour nor does it prejudge the outcome of the investigation itself,” asserted the European Commission. 

There is no legal deadline for completing inquiries into anticompetitive conduct, reminded the watchdog in an announcement today. The duration of the investigation depends on factors including case complexity and the extent to which companies in question cooperate with the EC.

“The Commission officials are accompanied by their counterparts from the relevant national competition authorities of the Member States where the inspections are conducted,” asserted the watchdog in an announcement.

The Commission is also carrying out unannounced antitrust inspections at the premises of other companies active in the financial services sector in two member states, The TRADE understands.

More to follow…

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The additional minimum pricing increment or ‘tick size’ will apply to the quoting of certain NMS stocks, while the reduction in access fee caps will be linked to protected quotations of trading centres.

In addition, the new rules seek to increase the transparency of exchange fees and rebates and accelerate the implementation of rules that will make information about the market’s best priced, smaller-sized orders publicly available.

According to the watchdog, the changes have been designed with a mind to reduce transaction costs and improve market quality for all investors and to help ensure that orders placed in the national market system reflect the best prices available for all investors.

“A lot has changed – in technology and business models – since we last took a comprehensive review of the national market system rules in 2005. Thus, it is incumbent upon us to update our national market system rules,” said Gary Gensler, SEC chair.

“The reforms we adopted will help promote greater transparency, competition, fairness, and efficiency in our $55 trillion equity markets. That goes to the heart of the SEC’s mission. The reforms are pro-investors. They are pro-capital formation.”

Read more: The SEC’s equities overhaul: Necessary plumbing changes or a liquidity drain?

Tick sizes

Trading volume related to NMS stocks have experienced a marked increase since the adoption of Rule 612 of Regulation NMS in 2005, however, they have been constrained by the minimum pricing increments under the rule.

“The tick size proposal, in name only, is simple and one-dimensional, but in practice, there are changes to rebates, there are changes to pricing tiers, there are changes to odd lot data that’s being disseminated,” Eric Stockland, managing director, electronic trading for BMO Capital Markets, told The TRADE in August last year.

“This is like a big plumbing change and it’s going to impact institutions directly and affect what algos they use, what their implementation costs are, and just the way that stocks are even quoted and traded.”

Various NMS stocks could potentially be priced more competitively if not constrained by the market-wide minimum pricing increment of $0.01.

The adopted amendments to Rule 612 establish a new, additional $0.005 minimum pricing increment for quotations and orders in NMS stocks that are priced at, or greater than, $1.00 per share.

“The tick size for all NMS stocks will be based on the time weighted average quoted spread for the relevant NMS stock during a specified three-month evaluation period and thereafter assigned for a six-month period,” the SEC confirmed in a statement.

Access fees

The SEC has also adopted amendments to address distortions associated with access fees and rebates under the existing access fee caps, potential conflicts of interest, and increase the transparency of exchange fees, rebates, and other forms of remuneration.

The new rules reduce the access fee caps for protected quotations in NMS stocks that are priced $1.00 or more to $0.001 per share.

The SEC added that for protected quotations in NMS stocks priced less than $1.00 per share, the access fee cap will be 0.1 percent of the quotation price per share.

In addition, Rule 610 will now require exchanges to make the amounts of all fees, rebates, and other forms of remuneration determinable at the time of execution.”

Elsewhere, in a bid to bolster information about the best prices for smaller-sized orders, the SEC has accelerated the implementation of previously adopted definitions related to round lots and odd-lot information.

Definitions for this were approved in 2020 by the SEC, however, their implementation has been delayed.

The SEC has also adopted an amendment to the odd-lot information definition to require the identification of the best priced odd-lot orders that are available in the market.

The amendments will become effective 60 days after the publication of the adopting release in the Federal Register.

For Rule 612, Rule 610, and the round lot definition, compliance will begin on the first business day of November 2025. For odd-lot information, the compliance date will be the first business day of May 2026.

“These changes are about improving competition and efficiency in the market. We can debate the details and talk about the nuance, but ultimately, institutions benefit from a more efficient market,” added Stockland when speaking to The TRADE last year.

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