Industry Approach to CSDR Settlement Discipline Regime
The Joint Associations1 welcome clarification from ESMA that national competent authorities are expected not to prioritise supervisory actions in relation to the application of the CSDR buy-in regime.2
We support the political agreement by the EU legislators on changes to Regulation (EU) No 909/2014 (“CSDR”) that allow for a delay to the implementation of mandatory buy-ins. The Joint Associations advocated for a reassessment of this aspect of the settlement discipline regime as part of the broader CSDR Review. The Joint Associations support a result that achieves the regulatory objectives in an effective and proportionate way, and that avoids significant negative consequences for market liquidity and stability.
While further formal steps need to be taken for the changes in the political agreement to be put into effect and formally adopted and published as EU law, the political agreement reflects the intent of EU legislators that mandatory buy-in requirements in the current CSDR should not go live on 1 February 2022.
The Joint Associations therefore believe that EU legislators do not expect market participants to take further action towards implementation of the mandatory buy-in requirements, due to come into effect on 1 February 2022, including but not limited to the contractual obligations of Article 25 of RTS (EU) 2018/1229 on Settlement Discipline (“CSDR RTS”).
On this basis, those associations that were intending to publish industry standard documentation to facilitate compliance with the mandatory buy-in requirements, will no longer be proceeding with publication.
With respect to all other CSDR settlement discipline measures (i.e., Articles 1 – 20 and 39 – 42 of the CSDR RTS) it is expected that market participants will proceed with implementation in accordance with the relevant regulatory deadline of 1 February 2022. These requirements include rules relating to cash penalties for settlement fails, and requirements relating to the allocation and confirmation process.
The Joint Associations encourage all national competent authorities in the EU to follow the guidance provided by ESMA on 17 December 2021. We stress the importance of ensuring full consistency with ESMA’s guidance to avoid a risk of uncertainty for market participants in any EU jurisdiction.
The Joint Associations welcome the opportunity for further engagement with the regulatory authorities on the important topic of increasing settlement efficiency in European capital markets.
1 The Joint Associations are: AFME, AGC, EAPB, EBF, EDMA, EFAMA, FIA, ICMA, ISDA, ISLA