From “MIFID/MIFIR- CSD hearing before ECON,” Steven Maijoor, 24 March 2015:
CSDR
Let me in the remainder of my contribution talk briefly about CSDR. ESMA has been drafting more than 30 measures under CSDR. Despite the challenging timeline and the complexity of matters at hand, here we have also consulted extensively: we have held two full consultations, received spontaneous input, and discussed all important issues with stakeholders in several roundtables.
We have done this in very close cooperation with central banks. The overall input to our Consultation Paper was quite positive and showed progress from the earlier Discussion Paper. As regards settlement discipline, notably penalties and buy-in, there are still important challenges.
Cash penalties and buy-in are the most difficult topics. They raise complex technical issues and stakeholders provided significant comments to the consultation paper. The main points for buy-in relate to who should execute the buy-in when the transaction is not cleared by a CCP or executed on a trading venue. The CSD? Its participants? The trading counterparties? Level 1 is unfortunately unclear here and leaves to ESMA the definitions of “the details”.
ESMA proposed that the settlement system, being the CSD and participants, should be the framework in which the buy-in should apply. Some CSDs and banks are pushing for the buy-in to be executed at trading level: by the clients, or the clients of the clients, of the participant. They claim, which seems a fair point, that if they face the risk of the cost of the buy-in, they will demand guarantees and collateral to their clients to cover that risk, rendering the system more expensive, which seems contrary to the objective of the Regulation. However, if the launch of the buy-in is left to the discretion of the ultimate clients, who will be in many cases outside the Union and outside the reach of EU supervisors, this will cause obvious enforceability problems which may render the whole buy-in regime inapplicable. ESMA is, therefore, facing here an interesting conundrum, which is our current priority.
The full speech is available here.