France Debates One-Day Settlement Cycle
August 25, 2010
The French government is at odds with the country’s central bank and securities watchdog over whether France should reduce its settlement cycle for all securities traded on a regulated market to one day from three days.
The Finance Commission of the French National Assembly, a committee of one of the two chambers of the French Parliament, proposed in June to cut the settlement cycle to one day (T+1). The Senate, the other chamber of the Parliament, is expected to vote on the proposal next month and could decide to opt for T+2 instead.
The French government believes that a T+1 timetable will reduce both short-selling activities and counterparty risk. However, France’s central bank, Banque de France, and its securities commission known as Autorité des Marchés Financiers (AMF) last week wrote to the Finance Commission outlining their opposition to the planned change. They urged lawmakers to consider a more conservative T+2 timetable, according to two operations executives at brokerage firms in Paris. Settlement refers to the exchange of cash for securities.
In June, the Association for Financial Markets in Europe (AFME), the trade group representing the largest brokerages in Europe, also said that a move to T+1 would affect settlement efficiency and be ineffective at preventing short selling. “Reducing the settlement cycle from T+3 to T+1 would serve to destabilize post-trading systems and processes in France and beyond,” wrote the AFME in a statement at that time.
France’s potential move to a shorter settlement cycle falls in line with the European Commission’s desire to reduce the settlement timeframe for securities traded on regulated markets to T+2; Germany also follows a two-day timetable. So far, the U.S has so far been unsuccessful in reducing the settlement cycle to T+1 from T+3.
In a statement issued to Securities Technology Monitor on Wednesday, Denis Peters, a spokesman for Euroclear SA said: “If the European authorities agree that they want to move to a default settlement standard of T+2, and provided market participants support this, then the central securities depositories of Euroclear are prepared to do so.”
Peters added that all of the depositories in the Euroclear family of depositories have the technical ability to settle trades in an even shorter timeframe. At issue, said the two operations executives in Paris, is whether fund managers, banks and brokerage firms can process their transactions in French securities faster.
Owned by Euroclear SA, Euroclear France, France’s central securities depository, settled a total of 11 million transactions valued at 38 trillion euros in the first half of 2010. The depository, formerly known as Sicovam, does not break out how any figures by asset class.
Euroclear SA, also the parent of international securities depository Euroclear Bank and national securities depositories in the U.K. & Ireland, France, the Netherlands, Belgium, Finland purchased France’s national securities depository known as Sicovam in 2001.
