A shift by European Union markets to halve the time it takes to settle stock trades is a matter of when, rather than if, given that the benefits will outweigh the short-term challenges, the bloc's financial services chief said on Thursday.
Wall Street is shifting from settling stock trades over two business days to one in May, known as T+1, to reduce risk in markets, piling pressure on European markets to follow suit.
"The question is no longer if, but how and when it will happen in the EU," EU financial services commissioner Mairead McGuinness told a conference in Brussels, adding it would not happen within months.
A shift to T+1 would improve market efficiency, increase trading volumes and cut the need for collateral to back trades, but fragmentation of EU stock trading means it would also be a complex undertaking and require a "political steer", McGuinness said.
Given how financial markets in the EU are interlinked with those in Britain and other non-EU countries, the bloc was open to coordinating the timing of moving to T+1, she said.
It was therefore important to keep an "open dialogue" with Britain, which is already considering T+1, she said.
Stephan Leithner, a member of Deutsche Boerse's executive board, said he welcomed the clarification from McGuinness on how the EU will respond to Wall Street's move.
"T+1 is absolutely doable technically," Leithner said, but warned that it must not become a distraction from the EU's efforts to build a deeper capital market.
Without cooperation with Britain and Switzerland, moving to T+1 in the EU would be very challenging, and the bloc should adopt a fast timeline for the shift, Leithner siad.
EU securities watchdog ESMA has already undertaken a public consultation on T+1, and it told the conference that the response on its desirability has been mixed.
ESMA said it will report back before the end of the year.
