ESMA's work in the area of post-trading covers all issues related to when the trading of financial instruments is complete, including the infrastructures required for the process. ESMA has three main roles: (1) it works in the scope of new regulations such as EMIR and the CSD regulation; (2) it ensures coordination in areas such as Settlement Discipline and TARGET2-Securities; and (3) it manages direct responsibilities it has been granted in area such as the Settlement Finality Directive.
New Regulations: completing the internal market
The Post-Trading Standing Committee (PTSC) has set up three task forces to develop the relevant draft technical standards that will be required under the European Markets Infrastructure Regulation (EMIR).
1) OTC Derivatives Task Force;
2) CCP Requirements Task Force;
3) Trade Repositories Task Force.
OTC Derivatives Task Force
In view of the draft EMIR proposal, ESMA is required to develop technical standards in order to specify provisions related to the assessment of the clearing obligation, the details to be included in the public register, specifying some aspects related to the exemptions from the clearing obligation and specifying the risk mitigation techniques that would apply when the OTC derivative contracts would not be cleared by a CCP.
CCP Requirements Task Force
ESMA is required to develop technical standards on CCPs organisational requirements, record keeping, business continuity, margins, default fund, liquidity risk controls, default waterfall, collateral requirements, investment policy and the review of models, stress testing and back testing.
Trade Repositories Task Force
ESMA is required to develop technical standards indicating details and type of reports to TRs for different classes of derivatives, details to be included in the application for registration to ESMA and on the information to be provided (and frequency) to the public and certain authorities, notably ESMA, supervisors of counterparties, supervisors of CCPs, relevant ESCB Members, and ACER.
ESMA’s direct responsibilities under EMIR
Following the entry into force of EMIR, ESMA is expected to assume the following responsibilities in the area of post-trading including direct supervision:
• Determination of OTC derivatives subject to the clearing obligation;
• Set-up and maintenance of the register for the clearing obligation;
• Participation in the colleges of CCPs;
• Recognition of third country CCPs;
• Registration and supervision of Trade Repositories; and
• Recognition of third country Trade Repositories.
Further information on EMIR and ESMA's work in this area can be found via the following link.
On 7 March 2012, the Commission adopted a proposal for a Regulation on improving securities settlement in the European Union and on central securities depositories (CSDs).
The CSD Regulation is expected to introduce an obligation of dematerialisation for most securities, harmonised settlement periods for most transactions in such securities, settlement discipline measures and common rules for CSDs.
Around 35 implementing measures, additional to the CSD Regulation, are to be developed, some 25 of which by ESMA including guidelines regulatory technical standards and implementing technical standards. The draft technical standards are expected to cover:
• Settlement Discipline;
• CSD registration; and
• Requirements for CSDs.
The current steps
ESMA is creating a Task Force on CSDs and Settlement Discipline in order to prepare for drafting the implementing measures.
Direct responsibilities of ESMA
Settlement Finality Directive (SFD)
In the directive of 24 November 2010 (2010/78/EU) amending the SFD, ESMA is designated to receive the following notification and information:
• In order for the payment and securities settlement system to be included in the scope of the SFD, member states shall notify the relevant systems and system operators to ESMA. Notification was previously sent to the European Commission.
• Member States shall also inform ESMA of the authorities chosen for receiving immediate notification from the relevant judicial or administrative authority when insolvency proceedings are opened. Information was previously sent to the European Commission
ESMA has set up a register in its web page where this information is publicly made available.
ESMA’s concern around settlement fails is the possible impact of the market turmoil, notably a potential increase of settlement fails (non-delivery of securities at settlement date, usually T+3) due to high volumes, price volatility and/or liquidity strain.
ESMA believes that the lack of harmonisation in settlement discipline regimes throughout Europe impairs a clear view on the number of settlement fails. To have a clearer view on fails, ESMA fosters (i) monitoring settlement fails; (ii) data collecting and reporting; (iii) harmonisation of powers to fine; (iv) standardisation of fining practices; and (v) consideration of other measures against settlement fails.
In 2012, and after some pilots during the summer of 2011, ESMA started collecting bi-weekly data on settlement fails from CSDs via their competent authorities at the national level. This data collection is still preliminary and under testing. Work is being done to ease the analysis of the data received, notably to ensure identification of peaks. Further enhancements are however constrained by the lack of harmonisation of post-trading practices (e.g. differences in the definition of intended settlement date). This may be solved by the upcoming Regulation on CSDs and Settlement, proposed by the European Commission.
TARGET2 - Securities
ESMA conducted a pre-assessment of T2S against ESCB-CESR Recommendations on Securities Settlement Systems jointly with the ESCB. When the development phase will be terminated and T2S services will be launched, an assessment of the impact of T2S against the relevant provisions at that date will be necessary.
ESMA coordinated the preliminary supervisory review of drafts of the T2S Framework Agreement with the competent authorities for the CSDs outsourcing to T2S.
In this respect, ESMA ensured circulation of the relevant information to the competent authorities conducted analysis of drafts of the T2S Framework Agreement and provided preliminary supervisory comments to the ECB before completion of the T2S Framework Agreement.