Post-trade and the functioning of financial markets
Post trade refers to the processes that take place after a securities trade has been executed. These include trade confirmation and matching, in which counterparties and their intermediaries confirm the details of a trade; clearing, which determines what each party owes and, in centrally cleared markets, transfers counterparty risk to a central counterparty; and settlement, the final exchange of securities against cash
Settlement is generally structured on a delivery versus payment (DvP) basis, so that securities and cash change hands simultaneously, removing the risk that one party delivers without receiving the other side of the transaction. It takes place through central securities depositories (CSDs), which provide the notary function that records securities on issuance, the central maintenance of the issue, and the settlement service itself, and is protected by settlement finality rules that make a transfer order irrevocable once it enters a system, even if a participant later becomes insolvent. Settlement fails are subject to cash penalties under the EU's settlement discipline regime, intended to encourage timely settlement.
Settlement is followed by custody and asset servicing, including the safekeeping of securities, the processing of corporate actions such as dividend and coupon payments, and the exercise of shareholder rights, typically through a chain of intermediaries between the issuer and the end investor. Together, these activities ensure that securities and payments are transferred safely and efficiently and that investors' assets are properly held and administered.
Although largely invisible to end users, post trade services underpin financial markets by providing the legal and operational certainty needed to complete transactions reliably and at scale.
The role of banks in securities settlement and asset servicing
Banks play a key role in the EU's post trade ecosystem by supporting securities settlement and providing custody, asset servicing and collateral management services. They also provide market participants with access to key financial market infrastructures, including central counterparties (CCPs) and central securities depositories (CSDs), typically as clearing members and as direct participants in CSD settlement systems. In some cases, banks also settle client transactions directly on their own books rather than through a CSD, acting as settlement internalisers, a role subject to its own EU reporting and monitoring requirements given its potential effect on the transparency of settlement activity.
As custodians, banks safekeep clients' assets and administer them throughout their life cycle, processing corporate actions, collecting income, handling tax procedures such as withholding tax reclaims, and facilitating the exercise of voting rights. They also act as collateral agents, including in tri party arrangements that allow counterparties to post and manage collateral efficiently, and supply the liquidity and securities financing, for example through repo and securities lending, that allow settlement to complete on time, a function that becomes more demanding under a shortened settlement cycle.
Through these activities, banks help ensure that securities transactions are completed safely and efficiently, investors' assets are properly administered and financial markets function effectively.
EBF priorities
1. Promote market integration, innovation and interoperability in MISP (CSDR, DLT PR, SFD)
The post trade elements of the MISP cover the review of CSDR, the DLT Pilot Regime and the transformation of the Settlement Finality Directive into a directly applicable Regulation.
On CSDR, the EBF calls for greater transparency and comparability of CSD fees to support genuine competition, a clear separation between CSDs' core and ancillary services to preserve a level playing field with custodian banks, and proportionate, well contextualised monitoring of internalised settlement rather than rules that overstate its risk relative to settlement through CSDs.
On the DLT Pilot Regime, the EBF supports raising the quantitative limits on DLT based settlement, including the cap on DLT Settlement Schemes, to give the regime commercial scale as it approaches a permanent framework.
On the Settlement Finality Regulation, the EBF supports harmonising core definitions such as the moment of finality, and extending protections to recognised third country systems through a single EU wide registration process rather than one repeated in each Member State.
2. Review of the Shareholder Rights Directive (SRD) II
The Shareholder Rights Directive (SRD II) sets EU rules on shareholder identification, the transmission of information through the custody chain, and the exercise of shareholder rights, including at general meetings. As the European Commission reviews the framework, the EBF is engaging to reduce cross border frictions in the custody chain, promote more standardised and digital communication between issuers, intermediaries and shareholders, preserve companies' flexibility to choose their general meeting format, and encourage more proportionate and transparent proxy advisor practices.
3. Promote a successful implementation of T+1
The EU's transition from a T+2 to a T+1 settlement cycle takes effect on 11 October 2027. By shortening the period between trade execution and settlement, T+1 will reduce counterparty risk and margin requirements, and encourage greater automation, while helping align EU markets with other major jurisdictions. The EBF supports a coordinated and orderly implementation across EU and EEA markets, in parallel with the United Kingdom and Switzerland, and serves on the Secretariat of the European T+1 Industry Committee to support industry wide preparations.