Nicosia: The Cyprus Securities and Exchange Commission (CySEC) has stepped up preparations for the European Union's transition to a T+1 securities settlement cycle, issuing new guidance aimed at ensuring regulated entities are ready for a significant operational change.
According to Cyprus News Agency, in Circular 780, published on Wednesday, the regulator outlined new regulatory requirements and supervisory expectations ahead of the shift to T+1 settlement, under which securities transactions must settle one business day after trade execution rather than the current two-day cycle. The move follows amendments to the EU Central Securities Depositories Regulation (CSDR) through Regulation (EU) 2025/2075 and forms part of broader efforts to align European markets with international settlement standards already adopted in major jurisdictions.
CySEC stated that the shorter settlement cycle is expected to strengthen market resilience while reducing counterparty and operational risks. However, it warned that the transition will require extensive preparation across the trading and post-trading ecosystem. The new requirements apply to a broad range of market participants, including central securities depositories, central counterparties, custodians, brokers, intermediaries, asset managers, and investors involved in transactions covered by Article 5 of the CSDR.
Among the key challenges identified by the regulator are significantly compressed processing timelines, which will leave institutional investors, intermediaries, and fund administrators with less time to allocate, confirm, match, and settle trades. CySEC also highlighted the growing importance of automation, noting that manual processing and operational inefficiencies could substantially increase settlement risks in a T+1 environment.
The regulator further warned that firms will need to manage liquidity, collateral, and funding requirements earlier in the trade lifecycle to ensure the timely availability of cash and securities for settlement. Cross-border transactions may also become more complex due to differences in time zones, foreign exchange execution schedules, and pre-funding requirements, the Circular noted.
To assess the market's preparedness, CySEC is encouraging all affected regulated entities to participate in two industry surveys running in parallel until June 9. The first survey, coordinated through national competent authorities and the European Securities and Markets Authority (ESMA), will provide regulators with supervisory insight into firms' readiness levels. Responses will be accessible only to CySEC and ESMA. A second survey, conducted by the EU T+1 Industry Committee (EUIC), aims to gauge industry-wide preparedness across EU member states.
The questionnaires seek information on settlement performance, system and process readiness, third-party dependencies, testing plans, and key implementation risks. CySEC Chair Dr. George Theochardies described the transition as a "significant operational change" that requires firms to review and adapt systems, controls, and processes throughout the trading and post-trading chain. "The new Circular refers to clear requirements for regulated entities to assess the impact on their activities sufficiently in advance to ensure a smooth and timely transition that enhances market resilience," Theochardies said.