We witnessed the ongoing implementation of CSDR and its impact on central securities depositories (CSDs), reached a major milestone in the journey towards global adoption of T+1, and navigated new challenges as emerging technologies like Generative AI prompted fresh opportunities and risks – to name but a few hurdles negotiated in 2024. Europe’s market infrastructure largely bore these developments well, and will continue to do so.
Already, as the new year starts, we must assess what fresh obstacles 2025 has in store and – perhaps most critically – evaluate how best to maneuver them. Below, we examine the key trends and challenges set to shape the coming year and beyond.
CSDs Must Collaborate
Over recent years, CSDs have demonstrated their ability to adapt to challenging geopolitical environments while continuing to support financial stability. This has been driven, in part, by consolidation and closer collaboration with platforms like TARGET2-Securities (T2S), which have made cross-border settlements nearly as seamless as domestic ones. This has also contributed to a significant advancement in the establishment of Europe’s Capital Markets Union (CMU).
Looking ahead, CSDs are expected to take on an even greater role in the CMU’s development. Unlike the US, which operates under a single regulatory framework and a unified CSD model, Europe’s diversity necessitates a network of interconnected and interoperable CSDs. The focus must be on further harmonization across tax and legal systems, while removing remaining barriers to cross-border efficiency.
Collaboration among regulators, market participants, and CSDs will be critical to achieving this vision. With the right support, CSDs can drive a more connected and competitive financial market across Europe, fostering innovation and efficiency while maintaining robust competition.
Taking on T+1
One of the most significant shifts on the horizon is the move to T+1 settlement cycles across the EU, Switzerland, and the UK. The change promises to enhance efficiency and reduce systemic risk. But it will also require considerable transformation at the operational level. This should already be in motion, but firms must shift into a higher gear with regards to their preparation in 2025.
Ensuring CSD interoperability will be crucial to meeting the faster settlement timelines, and harmonizing post-trade processes will be essential if we are to witness a smooth transition by 2027. Progress has been made, as seen with the recent Cox IPO which saw the option of applying a T+1 settlement cycle to issue trades, showing that T+1 settlement is feasible. However, scaling this across Europe’s fragmented markets presents challenges. Effective collaboration among the EU, UK, and Switzerland will be vital to achieving the full benefits of this shift.
CCP Consolidation Afoot
Over the course of 2025 and beyond, we anticipate continued consolidation among central counterparties (CCPs), as they strive to diversify and enhance revenue streams. This trend is driven by the need to achieve economies of scale and improve service offerings. With the definition of Level 2 requirements for Active Accounts under EMIR 3.0, we also expect a shift of euro interest rate swaps flow from the UK to the EU.
Meanwhile, following the US' decision to expand the range of products under the clearing obligation, Europe may adopt similar measures. This would enable CCPs to diversify their clearing services, benefiting their clients. However, the transition to T+1 settlement cycles will reduce available collateral for CCPs, impacting their revenue base and necessitating greater efficiency. Simplifying clearing processes will therefore be essential in handling compressed timelines. The drive for efficiency could also encourage other markets to adopt interoperability, offering clients significant advantages. In addition, the move to T+1 may prompt members to channel more flow through CCPs to leverage netting efficiencies.
Lastly, EMIR 3.0 introduces a new supervisory framework that will require a period of stabilization and alignment. National Competent Authorities and ESMA will need to find a balance to ensure shorter approval times without increasing the burden on CCPs.
Balancing Regulation and Innovation
The regulatory landscape for FMIs in Europe is growing increasingly complex. Frameworks like the Securities Financing Transactions Regulation (SFTR) and Central Securities Depositories Regulation (CSDR) demand greater transparency, reporting, and settlement discipline. While necessary, overregulation risks stifling systems that are already functioning well.
In addition, the regulatory ripple effects of decisions made by the next US administration will inevitably impact Europe’s post-trade environment. Harmonization will be essential to maintaining competitiveness. Market infrastructure providers and firms ultimately need to retain the flexibility to adapt without being burdened by excessive regulatory demands, allowing them to focus on fostering innovation and efficiency.
Repo Market Evolution Continues
The European repo market is undergoing a meaningful transformation, shaped by macroeconomic pressures and operational advancements. Central banks, particularly the ECB, are taking center stage with policies like quantitative tightening (QT) and adjustments to interest rates. These measures could ease collateral scarcity over time but also raise liquidity concerns.
Demand for high-quality liquid assets (HQLA) remains strong, prompting market participants to refine collateral transformation and optimization strategies. The balance between cash-driven and securities-driven repos will depend on economic conditions and investor priorities. Floating-rate repos, while niche, may gain traction as tools for managing interest rate exposure over the coming months.
Technological innovation will play a pivotal role in modernizing repo operations. Automation, electronic trading platforms, and integrated infrastructures are set to enhance speed and precision, helping to address the demands of a T+1 settlement cycle. Collaborative efforts across markets will be essential to navigating these changes and ensuring the repo market’s continued stability and efficiency.
Collaboration Is Crucial
As we start 2025, the need for greater collaboration emerges as the cornerstone of Europe’s financial evolution. For CSDs and CCPs, this means cooperation across regulators, market participants and the infrastructure providers themselves. The repo market, too, must embrace cross-border collaboration and technological innovation to meet the demands of a more interconnected, efficient landscape.
Whether navigating the transition to T+1 settlement or addressing macroeconomic pressures, Europe’s financial infrastructure can only flourish through collective effort, paving the way for a stronger and more efficient market in the years ahead.