The Securities and Exchange Commission in February 2023 finalized a rule to accelerate the settlement cycle to T+1 — settling a trade one business day after it is executed — from T+2, or two business days.
The compliance deadline for the move is May 28, the Tuesday after Memorial Day weekend. The shift has broad backing from industry stakeholders, but the lift is heavy.
Lowering risks for market participants and clearinghouses reduces the likelihood that any one entity's failure spreads risk to the financial system, making the system safer for everyone, Gensler said during his remote address to the European Commission. The move will also help better unify the U.S. market structure, where Treasuries, options and mutual funds are already largely settle in one day, he added.
For institutional players, Gensler said the shift to T+1 will free up liquidity that might otherwise be trapped in unsettled trades.
As European officials consider a T+1 move of their own, Gensler said that although the challenges in Europe are different than those in the U.S. — Europe has dozens of regulated markets and 14 clearinghouses — it would still be net positive.
He likened the U.S. shift to upgrading its market plumbing from bronze to copper. "For those of you debating this in Europe, I think your market plumbing would benefit from copper as well," he said.
At an earlier point in the Jan. 25 event, EU financial services commissioner, Mairead McGuinness, told the audience in Brussels that moving to T+1 is all but certain.
"When it comes to T+1, the question is no longer if, but how and when it will happen here in the EU," she said.