There will be greater focus in 2025 on European competitiveness, with regulators needing to strike the right balance between fostering growth, competition and innovation in clearing on one hand and maintaining regulatory oversight and financial stability on the other. Central clearing will play a key role in this debate, which will be essential for advancing the region’s capital markets, and we look forward to Emir 3.0 helping in this regard.

Whilst there will be continued focus on top-down changes, we will continue to advocate for market-led approaches which strengthen the existing competitive framework, particularly in cash equities clearing, allowing participants to prioritise initiatives which enhance their operational and capital efficiencies.    

Aligned with this vision, we are committed to supporting Cboe Europe Derivatives, providing participants with the opportunity to benefit from significant cost savings and capital efficiencies by enabling clearing of a wide range of pan-European equity index derivatives and single stock options through a single CCP, challenging the status quo of how this market has been historically cleared. We are also confident that our pioneering central clearing service for European securities financing transactions (SFTs) in equities and ETFs will resonate with market participants.  

Lisa Danino-Lewis, chief growth officer, CLS    

In 2024, we’ve witnessed a continuation in the buy-side’s emphasis on adhering to best practices for mitigating settlement risk to meet regulatory expectations and to ensure robust risk management practices. As a result, CLSSettlement has experienced notable growth from the fund community, with nearly 80% of top-tier investment managers now accessing the service.    

The transition to a T+1 settlement cycle in North America this year highlighted the need for efficient and automated processes both pre- and post-trade, fostering a broader conversation on optimising post-trade workflows to handle growing complexities. This conversation is especially relevant as cross-border transactions grow in volume and as asset managers expand their investment in international markets. Looking ahead to next year, we anticipate that the buy-side will maintain a strong focus on best practices for FX risk mitigation, particularly in response to market volatility stemming from ongoing geopolitical risks and the continued trend for FX to be traded as an asset class.

Kaisha Schnoll, assistant vice president, STP Investment Services    

In 2025, discussions around the UK and EU’s transition to a T+1 settlement cycle are expected to intensify. The UK has outlined a roadmap targeting Q4 2027, but despite ample time to prepare, significant actions are likely to commence soon. Whether the UK moves in sync with the EU or independently, substantial preparation will be necessary to ensure a smooth transition.    

The UK Accelerated Settlement Taskforce (AST) is reviewing current infrastructure to guide regulators and policymakers in this shift. Its forthcoming report will outline the roadmap, including a target completion date, necessary steps, and operational requirements.   

Accelerated settlement offers benefits like reduced counterparty risk, enhanced liquidity, and alignment with the US. However, risks remain, including compliance challenges under the Central Securities Depositories Regulation (CSDR), tax complexities, cross-border trading, and CSDR penalties, all of which heighten concerns among market participants.    

To adapt, market participants will need to streamline processes using technologies like blockchain and real-time data analytics. Institutional investors and brokers may adjust more easily, but smaller firms could face difficulties, necessitating investment in new infrastructure or reliance on third-party service providers. Despite these challenges, T+1 aims to enhance resilience and strengthen the UK and EU’s global financial standing.

The post The TRADE predictions series 2025: Post-trade and the shift to T+1 appeared first on The TRADE.

Giovanni Sabatini

Sabatini has a wealth of experience working in securities markets, both in the private and public sector. He has served as a member of the European Economic and Social Committee and held roles within the International Organization of Securities Commissions – IOSCO, the European Banking Federation and the European Central Securities Depositories Association (ECSDA).  

In his role, Sabatini will coordinate the work of the industry, acting as the link between market participants.  

ESMA announced last month that it would prepare for a move to T+1 in the EU by Q4 2027 – in line with the UK. Published in the watchdog’s final T+1 recommendations, ESMA recommends that the migration to T+1 occurs simultaneously across all relevant instruments – with a coordinated approach across the continent “desirable”.   

The watchdog recommends 11 October as the optimal date for the switch   – considering the difficulties of going live of such a substantial project in November and December. The regulator also wishes to avoid the first Monday of October as the transition date, as it is the first Monday after quarter-end.   

The UK taskforce has, too, selected 11 October as the recommended date for the switch – due to be confirmed when the final report is published in January 2025.  

In a report, ESMA highlighted the increased efficiency and resilience of post-trade processes that a move to T+1 would facilitate, “achieving the objective of further promoting settlement efficiency in the EU, contributing to market integration and to the Savings and Investment Union objectives”.   

Shortening the settlement cycle in the EU “will undoubtedly change the way in which markets function today”, the report stated, affecting entities throughout the transaction and settlement chains with varying levels of impact.   

A separate report, published by the T+1 technical group of the UK accelerated settlement taskforce, outlines 43 ‘principal recommendations’, covers critical post-trade activities that firms must be able to complete efficiently in a T+1 environment. They cover the areas of success criteria, settlement, FMIs, static data, corporate actions, securities financing and FX.   

There is also 14 ‘additional recommendations’, which assess environmental issues that need to be addressed if the UK is to maximise the efficiency gains that T+1 could deliver – but are not essential to successful implementation.   

The post ESMA names T+1 lead as 11 October 2027 earmarked for co-ordinated switch with UK appeared first on The TRADE.

“We are thrilled to be joining LCH CDSClear’s FCM member base for US participants,” said Jason Swankoski, global head of strategy and product, derivatives clearing, at Morgan Stanley & Co in a statement on Wednesday.

“We look forward to this collaboration as we continue to invest in our services and expand our product offering.”

LCH said the move will enable Morgan Stanley’s clients to benefit from margin offsets and operational efficiencies by accessing a broader range of cleared CDS products.

“We are delighted to welcome Morgan Stanley to LCH CDSClear as a new FCM,” said Marcus Robinson, head of LCH CDSClear, part of LSEG Post-Trade, in a statement.

“This will provide the bank and its clients with new opportunities to achieve significant capital, margin and operational efficiencies. As we extend LCH CDSClear’s clearing capabilities to even more market participants, we are committed to creating a truly global service with a single pool of liquidity for the cleared CDS market with client access either via FCMs or the EMIR clearing model. This is just the next step on an exciting journey, as we expand our support worldwide.”

BNP Paribas Securities Corporation became the first US futures commission merchant to join the LCH CDSClear service in February as part of the clearing house’s expansion into US credit derivatives.

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Vikesh Patel

With this approval, the pan-European clearing house will introduce a service for European SFT transactions in cash equities and ETFs, which includes central clearing, settlement and post-trade lifecycle management.

The service is available to principal lenders, special participant lenders (UCITS and non-UCITS) and borrowers, with settlements conducted across 19 European Central Securities Depositories (CSDs).

The service also supports key regulatory initiatives including EMIR, CSDR and the Securities Financing Transactions Regulation (SFTR), with the aim to help promote transparency, market integrity and the competitiveness of European capital markets.

“We are delighted to have received regulatory approval to expand into European SFT clearing, marking a significant milestone in our goal to introduce innovative, robust, and comprehensive clearing solutions across multiple asset classes in Europe,” said Vikesh Patel, president of Cboe Clear Europe.

“We greatly appreciate the support of our regulators as we deliver on our commitment to launch innovative services which we believe enhance efficiencies for European market participants and help foster the growth of the region’s capital markets.”

The concept of central clearing of SFTs is not new and has been tried before with varying degrees of success. In Europe, there have been multiple failed attempts to successfully introduce and maintain SFT clearing.

Eurex Clearing announced it was shutting down its Securities Lending CCP service in 2021 following low clearing volumes and a prioritisation of other businesses. 

Other attempts included efforts from EuroCCP – which now operates as Cboe Clear Europe after being acquired by Cboe Global Markets in 2020. However, the group now believes it has the correct recipe for success.

The new service seeks to transform the existing bilateral process between securities lenders and borrowers into a centrally cleared model, with Cboe Clear Europe acting as the counterparty to both sides of each transaction.

The clearing house added that it believes this enables participants to reduce their risk-weighted asset exposures associated with SFTs and supports the growth of this key market.

Elsewhere, the service looks to bring a range of capital and operational advantages, including savings from cross-margining between cash equities and SFTs, greater settlement efficiencies, elimination of agent lender disclosures, and improved practices around fees management and corporate actions.

The Bank of New York Mellon Corporation and JP Morgan will be utilised by the service as tri-party collateral agents, while Pirum will serve as the transmitter of new trade instructions and post-trade lifecycle events on behalf of clients.

“We are excited to build out this new clearing eco- system in collaboration with market participants and are already in advanced discussions with a wide variety of firms, including banks, asset managers, broker-dealers, and agent lenders – representing beneficial owners like pension funds and UCITS – to help ensure a smooth launch in the coming weeks and months,” said Jan Treuren, senior director, product at Cboe Clear Europe.

“Initially, the service will cover key European markets, with plans to expand the offering based on client demand and market developments.”

The post Cboe Clear Europe gets regulatory green light to launch securities financing transactions clearing appeared first on The TRADE.

Published in the watchdog’s final T+1 recommendations, ESMA recommends that the migration to T+1 occurs simultaneously across all relevant instruments – with a coordinated approach across the continent “desirable”.  

In a report, ESMA highlighted the increased efficiency and resilience of post-trade processes that a move to T+1 would facilitate, “achieving the objective of further promoting settlement efficiency in the EU, contributing to market integration and to the Savings and Investment Union objectives”.  

Shortening the settlement cycle in the EU “will undoubtedly change the way in which markets function today”, the report stated, affecting entities throughout the transaction and settlement chains with varying levels of impact.  

Regarding potential dates, ESMA recommends 11 October 2027 as the optimal date – considering the difficulties of going live of such a substantial project in November and December. The regulator also wishes to avoid the first Monday of October as the transition date, as it is the first Monday after quarter-end.  

ESMA said it will continue to work with the European Commission and the European Central Bank on work related to rules on settlement efficiency, adding that “all actors of the financial system will need to work on harmonisation, standardisation, and modernisation to improve settlement efficiency”.  

It is expected that existing CSDR and settlement discipline regulation will need to be amended, in order to “have the legal certainty and to foster the necessary improvements in post-trading processes”, the watchdog said.  

The move aligns with the proposed move to T+1 in the UK – which was announced in September. Last month, 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.   

“T+1 will allow EU capital markets to keep up with the evolution of other markets, putting an end to costs linked to the current misalignment of settlement cycles,” the report stated. “This will directly benefit the EU asset management industry, will contribute to the harmonisation of corporate event standards in the EU and will more generally contribute to the competitiveness of EU capital markets.” 

ESMA added that the costs and benefits related to the shortening of the settlement cycle have been difficult to quantify, however the benefits of risk reduction, aligning with global markets and margin savings represent key objectives for the EU capital markets.  

Andrew Douglas, chair of the T+1 Taskforce Technical Group, commented on the announcement, stating: “The UK Taskforce has always promoted a combined migration with UK, EU and CH moving together as our preferred solution and so on behalf of the UK Taskforce, I welcome this announcement of the European migration date for 11 October 2027. 

“We have worked closely with ESMA over the past 12 months sharing our progress and I am confident that this relationship will continue to develop as we look at how we can develop joint migration plans.”

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The updated risk tools seek to support firms as they prepare for the expansion of US Treasury clearing in 2025 and 2026.

Developed for the Fixed Income Clearing Corporation’s (FICC) Government Securities Division (GSD), the calculator functionality offers users estimated calculations of potential cross-margining reductions at FICC as well as other enhancements.

DTCC added that by providing users with access to new tools, firms can enhance their understanding of GSD’s risk management and margin requirements capabilities.

“FICC is the leading provider of trade comparison, netting and settlement for US Treasury transactions, and we continue to innovate and provide increased transparency to meet the needs of the industry as the markets evolve,” said Laura Klimpel, managing director, head of DTCC fixed income and financing solutions.

“FICC is laser-focused on providing the highest level of service and value to our diverse set of clients.”

The cross-margining VaR calculator allows users to estimate the potential cross-margin reduction on a sample portfolio containing GSD cash positions and CME Group futures which are based solely on FICC’s cross-margining methodology.

Market participants are able to determine whether they can take advantage of greater margin savings on a combined portfolio, including eligible positions at GSD and future contracts.

These tools can be used collectively by traders to calculate all available margins across multiple accounts using portfolio management to offset trades, which helps with capital efficiencies, alongside helping reduce the need for unnecessary position liquidation.

“Our risk management team is focused on creating new capabilities that support greater transparency for market participants. These enhancements represent a significant step forward to better understanding and managing members’ obligations while ultimately safeguarding the Treasury Market,” said Tim Hulse, managing director, financial risk and governance at DTCC.

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Andrew Batchelor

Andrew Batchelor, head of ForexClear, LCH, said: “Over the past 18 months, financial institutions from Europe, Asia and the US have joined us and chosen to clear their FX trades with us, and we have seen record volumes across our products.

“We remain committed to extending our leading clearing services to the global FX market and offering further margin, capital and risk management optimisation opportunities as the service continues to grow.” 

There are currently 22 member banks, 22 clearing brokers, and 88 clients active on LCH ForexClear. 

Read more: Quantile and LCH ForexClear go live with FX Smart Clearing service 
 
“Commerzbank is delighted to join LCH ForexClear, which enables us to further expand our global FX platform business through an optimised capital usage and allows us to benefit from operational efficiencies,” said Marius Jublin, global head of our FX forwards trading. 

“In addition, ForexClear offers the opportunity to effectively manage bilateral credit exposures and participate in established risk-mitigating industry initiatives.”

The post Commerzbank joins LCH ForexClear as clearing member appeared first on The TRADE.

Robert Allen, president of FMX Futures Exchange

Having opened on 23 September, the FMX Futures Exchange is the first US interest rate futures exchange to launch with a fully operational, globally connected trading system, allowing for potential capital savings driven by clearing partner LCH’s cross-margin capabilities.

BGC Group and ten global investment banks and market-making firms announced a partnership in April 2024 to create FMX Holdings which includes the exchange, as well as a spot foreign exchange platform, and a US cash treasuries platform.

“We are pleased ION connected to the FMX Futures Exchange. The combination of the FMX Futures Exchange with LCH will provide clients with choice, innovative execution technology, and potentially significant cross-margin capabilities,” said Robert Allen, president of FMX Futures Exchange.

ION supports FMX across its cleared derivatives front-, middle-, and back-office platforms, allowing banks and brokers using ION’s technology stack to offer clients advanced execution capabilities and clearing services on the new exchange from day one.

Read more: Fireside Friday with… ION’s Edoardo Pacenti

“The joint effort with FMX Futures Exchange demonstrates once again the effectiveness of ION’s front-to-back product strategy: the powerful combination of modern, integrated solutions across execution and clearing removes the technical barriers often hindering market readiness and participation,” said Francesco Margini, chief product officer for cleared derivatives at ION Markets.

The post ION connects to FMX Futures Exchange to bolster execution and post-trade clearing appeared first on The TRADE.

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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