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ICMA’s European Repo Council reports successful migration of the European bond markets to T+2

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Initial feedback from the International Capital Market Association (ICMA) and the ICMA European Repo Council (ERC) members and operations working groups indicates that that the transition to settlement at T+2 for the European fixed income markets has been largely successful with few issues.

The migration of the standard settlement cycle for cash trading in bonds from settlement at T+3 (Trade date + 3 working days) to T+2 was made in response to the EU Central Securities Depositories Regulation (CSDR) and took effect on 6 October 2014.
Godfried De Vidts, chair of ICMA’s European Repo Council, says: “Feedback from ICMA and ERC members suggests that there were very few issues or incidents on the migration settlement date of 8 October. Netting and pair-offs across trades transacted on 3 and 6 October meant that settlement volumes on 8 October only increased by around 50 per cent. Market-wide efforts to ensure timely affirmation and allocations resulted in only around one per cent of total traded volumes mismatching and subsequently requiring post-trade repair. Settlement efficiency levels have remained high during the migration, with only a negligible uptick in settlement fails on 8 October and there have been no observable issues with agent and clearing funding, bottlenecks, and settlement cycle events.
“From the perspective of the repo markets, the shorter-settlement cycle for underlying securities, and the migration of liquidity for most financing trades from T+2 to T+1, has not posed any immediately observable issues, although the ERC will continue to monitor the situation closely, particularly the impact of increased volumes in same-day collateral and liquidity management.
“This success can be attributed to the significant efforts made by the relevant market trade bodies, the regulated markets (RMs), the multilateral trading facilities (MTFs), and data vendors to ensure a harmonised migration, both on trading venues and in the over-the-counter (OTC) markets, and to raise awareness and preparedness amongst market participants.  A number of issues remain to be resolved, but ICMA and ERC will continue to work closely with their members and the various international market bodies to reach agreed standards and practical solutions. We will also continue to monitor closely the ongoing effect on settlement efficiency, both for outright cash trades and Securities Financing Transactions, not least as other regulatory initiatives begin to impact these markets.”

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