SEC’s Gensler calls for shorter settlement times in currency markets


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Regulators should work to include foreign exchange in the global push to shorten trade settlement times on financial markets, the US’s top securities regulator said on Thursday.

Gary Gensler, chair of the Securities and Exchange Commission, said regulators and market participants should consider narrowing the window to finalise deals to a single day.

His comments, to an event in Brussels, came as Mairead McGuinness, the top EU financial services chief, said it was now a question of “when and how” the bloc shifts securities settlements to a single day.

Settlement is the process of matching and legally transferring assets from sellers to buyers and typically takes place over two days.

The typically mundane activity was thrown into the spotlight by meme stock mania in the US during the height of the coronavirus pandemic, when some brokers including Robinhood blamed the two-day settlement window for their systems being unable to keep up with the volume of trading. 

In May, the US, Canada and Mexico will move from two-day to single-day settlement for stocks, bonds and exchange traded funds. The UK is also exploring moving to one-day settlement, while India moved last year.

“Shortening that currency settlement cycle should be on the table as well because time is money, time is risk there as well,” Gensler said.

“I think it’s appropriate that we work with central banks around the globe,” he added, saying collaboration was needed between the Financial Stability Board, the Bank for International Settlements, the central bankers’ bank, and CLS Group, which runs the plumbing underpinning settlement of foreign exchange markets.

Some banks and asset managers have worried that the shift in securities markets will create problems with interlinked markets that settle on a different timeframe, such as foreign exchange. Banks and customers have often relied on at least one full working day to cover operational issues and timezone differences.

Marc Bayle de Jessé, chief executive of CLS Group, said shortening foreign exchange settlement times was “a topic we have raised together to central bankers as well . . . CLS on its own cannot change that”.

The comments from McGuiness, EU commissioner of financial services and stability, were the strongest yet from a top EU official on the bloc’s plans to modernise the plumbing of its securities markets.

The issue is not “if Europe will make the move to T+1 settlement. Instead, the key issue is when and how we move”, she said, adding: “The direction of travel is very clear towards even shorter settlement.”

She also noted different timings between UK and European markets could come at the expense of market participants, from central securities depositories, issuers and investors. It was “important” to keep an open dialogue with partners elsewhere in Europe, including the UK.

“Co-ordination is key if we want to minimise costs for EU businesses . . . But we are open to discussing how we might try to reach consensus on timing across the European continent,” she added.

“A shorter settlement cycle can help liquidity and the efficiency of the market. It also reduces risks, and lower risks mean less need for collateral,” McGuinness said. 

Lieve Mostrey, chief executive of settlement house Euroclear, said there was “logic” for the EU and UK markets to be synchronised. “Looking at all the transactions that continue to happen between the EU and UK, it will be in the interest for both the EU and UK to align,” she said.

However Andrew Douglas, representing the UK government’s task force, said a move depended on how fast the EU moved. “You can co-operate without necessarily being aligned. We have different drivers in different markets and so some markets will want to move quicker than others,” he said.

Ellesheva Kissin is a reporter at Banking Risk and Regulation, a news service published by FT Specialist.



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