European Commission agrees to review CSDR settlement discipline regime

In a report published yesterday, the European Commission concludes that, in broad terms, CSDR is achieving its original objectives to enhance the efficiency of settlement in the EU and the soundness of Central Securities Depositories (‘CSDs’). For most areas, significant changes to CSDR would be premature considering the relatively recent application of requirements. Nevertheless, concerns on the implementation of specific rules have been raised. These concerns include on the cross-border provision of services, access to commercial bank money, settlement discipline or the framework for third-country CSDs. Settlement is part of the post-trade process where a securities transaction is followed through, i.e. ownership of a security is transferred from one party to another, and simultaneously cash is transferred as payment for the security.

The report identifies areas where further action may be required to achieve CSDR’s objectives in a more proportionate, effective and efficient manner. In light of the important issues raised, and as also announced in the 2021 Commission work programme and in the new capital markets union action plan, the Commission is considering presenting a legislative proposal to amend CSDR, subject to an impact assessment that will examine the most appropriate solutions in more depth. The proposal will aim at ensuring an effective post-trading infrastructure, enhancing competition among CSDs, strengthening cross-border investment, thereby contributing to the development of a genuine single market for capital in the EU.

The Commission adopted its report on CSDR, as required under Article 75 of CSDR and Article 81(2c) of Regulation (EU) No 1095/2010 establishing a European Supervisory Authority(European Securities and Markets Authority). It follows a broad consultation exercise, including a Commission targeted consultation, as well as input from the European Securities and Markets Authority (‘ESMA’).

Commenting on the report, Pete Tomlinson, Director of Post Trade at AFME, said:

“It is helpful that the Commission has stated its intention to consider amendments to the mandatory buy-in regime, subject to an impact assessment. Given that amendments may now be made at a later date, it does not make sense for the current rules to be implemented and enforced on 1 February 2022.

“AFME strongly recommends that the Commission and ESMA take action to decouple the implementation of the mandatory buy-in rules from all other aspects of the settlement discipline regime. This would allow other measures, such as the penalties regime, to take effect as planned in February 2022, but avoid implementation of the current buy-in rules, which have been widely acknowledged as being flawed.

“This action should be taken as soon as possible, in order to provide much-needed clarity to all market participants.”

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