Policy paper

Accelerated Settlement Taskforce – Terms of Reference

Updated 28 March 2024

This was published under the 2022 to 2024 Sunak Conservative government

Context

When trades are made on financial markets, there is typically a time lag between ‘trade date’ – when a buyer and seller agree to the terms of the trade – and ‘settlement date’ – when the buyer receives the securities (such as shares or bonds) they have purchased and the seller receives the proceeds.

This lag is known as the ‘settlement period’, or ‘settlement cycle’. During this time period a number of checks take place, such as confirming that the buyer has sufficient funds and that the seller has the securities to complete the trade, and details are exchanged between the parties to prepare for settlement. This aims to avoid the possibility that the trade could fail to settle. However, this time lag also exposes both parties to risk.

The settlement period has shortened in recent decades in line with the capabilities of modern technology. The most common standard at present is ‘T+2’ – which requires most trades to be settled two days after trade date, with some exceptions. This has been the case in the UK and the EU since 2014, and in the US since 2017.

Other jurisdictions have recently proposed a further acceleration of the settlement period. The US and Canada intend to move to a ‘T+1’ standard by 2024, which would require most trades to settle the day after trade date. India has already begun a gradual rollout of ‘T+1’ in the share trading market. There is also a live debate on whether a further shortening to ‘T+0’, or ‘same-day’ settlement is possible or desirable in the future, perhaps using new innovations such as distributed ledger technology.

It is important that the UK also considers whether accelerated settlement would be beneficial, what challenges it would pose and how it could be implemented in the UK. This includes a potential move to a new standard ‘T+1’ settlement period and any other future developments to the settlement cycle, such as ‘T+0’, or the use of distributed ledger technology.

An exploration of these potential developments will also need to include an assessment of whether the UK’s settlement discipline and efficiency arrangements are currently performing effectively and are suitable for accelerated settlement, as this will be an important factor in determining the success of any acceleration of the settlement cycle.

The government has appointed Charlie Geffen to lead an industry taskforce to examine these issues and recommend an approach that works for the UK. Charlie was previously Senior Partner at global law firm Ashurst and is currently a Senior Adviser at consultancy Flint Global. The Taskforce will be guided by the objectives below.

Objectives

1. Explore the case for moving to an accelerated settlement cycle, such as ‘T+1’, in the UK, and outline how this could be implemented.

The Taskforce should weigh the benefits and costs to both UK and overseas market participants of a transition to an accelerated settlement cycle, including how this could promote UK competitiveness and growth.

It should assess the challenges of implementing such a change and how these could be overcome. This should include any preparations that UK firms need to make in the short to medium term in response to the planned moves by other jurisdictions.

It should examine the changes that would be necessary to facilitate accelerated settlement across the industry and consider how accelerated settlement could drive wider improvements and modernisation of practices in UK capital markets. This should include examining international best practice.

The Taskforce should consider whether there is likely to be a longer term move to ‘T+0’ and consider the implications of seeking to implement ‘T+1’ given this general trajectory.

Any recommendations should include the mechanism for implementation – for example, whether the changes would require legislation or regulator rules. This should also include recommendations on the scope of any changes, such as the types of trades that should be included and any exemptions.

2. Evaluate current settlement performance across the UK sector and assess potential improvements and reforms.

This should include assessing the UK’s settlement discipline and settlement efficiency arrangements, examining whether there is a need to improve settlement performance and recommending measures that could be implemented to do so.

The Taskforce should also look at whether current settlement discipline and efficiency arrangements need reform in order to facilitate an accelerated settlement cycle.

3. Engage with the wider FS sector in undertaking the above work

The Taskforce should identify and engage relevant stakeholders, both in the UK and overseas, which have an interest in these issues, particularly those likely to be affected by any recommended changes. It should communicate openly with these stakeholders and take on board their feedback.

The Taskforce should also engage with any related public bodies it deems would be appropriate for this work, such as the Digitisation Taskforce.

4. Provide recommendations, including how any changes should be implemented by industry, regulators and government, and what the appropriate timetable should be.

This should include a suggested overall timescale as well as a plan for each stage of implementation. The timetable should balance an appropriate level of ambition with the need to provide the industry with adequate time to prepare for any changes.

Governance and timetable

The Taskforce will be chaired by Charlie Geffen. It will be for the Chair to decide the composition of the Taskforce and to determine the processes that will be followed in order to pursue the objectives above. The Chair is asked to provide an interim public report on the taskforce’s initial findings by December 2023, and a full report with recommendations by December 2024. These recommendations could include actions for government, the UK financial services regulators and industry participants.