FIA EPTA supports the position set out by the European T+1 Industry Taskforce in their High-Level Remarks. As independent market makers, we highlight the fundamental impact any move to so-called “atomic settlement” would have on our members’ existing business models which involves continuous market making and liquidity provision. Our members actively hold themselves out as being willing to deal on own account to buy and sell financial instruments (including short selling) continuously throughout the day with the ability to handle inventory management after trading has occurred. A number of different methods are used to handle inventory management including buying in the secondary markets, creating in the primary market and relying on borrow markets to facilitate provision of risk transfer and risk management on an ongoing basis. Atomic settlement would require all trades to be pre-funded/pre-positioned which would not be economically viable for market makers who stand ready to buy and sell a wide range of financial instruments across varying market conditions.
If EU authorities decide that moving to a shorter settlement cycle is indeed the right step, then some changes are needed to improve post-trade efficiency and reduce post-trade complexity in order to mitigate risk and reduce settlement failures. In our view, these steps are necessary to reduce cost and complexity in Europe more broadly and would ideally be taken regardless of whether the EU decides to reduce settlement cycles.
We stress the importance of ensuring the timetable for transitioning to shorter settlement cycle is aligned with the UK and Switzerland, if they choose to reduce settlement cycles in their own markets. Furthermore, if the UK chooses to move to a T+1 settlement cycle it is imperative that the EU also do the same, adopting a similar timetable, to prevent regional dislocation. We urge ongoing regional coordination on this issue.
