Central Securities Depositories

The main objective of CSDR is to increase the safety and efficiency of securities settlement and settlement infrastructures (CSDs) in the EU by providing, among others, for the following:

• Shorter settlement periods;
• Settlement discipline measures (mandatory cash penalties and ‘buy-ins’ for settlement fails, settlement fails reporting);
• An obligation regarding dematerialisation for most securities;
• Strict prudential and conduct of business rules for CSDs;
• Strict access rights to CSD services; and
• Increased prudential and supervisory requirements for CSDs and other institutions providing banking services ancillary to securities settlement.

Additional information can be found on the European Commission webpage on CSDs and its two CSDR-related FAQs.

For more details on this on-going review, launched by the European Commission in 2020, please see the European Commission website. In addition to publishing four reports on the implementation of certain aspects of CSDR (see below), in May 2021 ESMA wrote a letter to the European Commission to present proposals for the review. The EC legislative proposal was published on 16 March 2022 and is now being discussed by the European Parliament and Council.

CSDR applies primarily to (1) CSDs, including (2) third country CSDs, but also to (3) settlement internalisers (see below).

ESMA Technical Advice on the level of penalties for settlement fails and on the substantial importance of a CSD for a host Member State

On 4 August 2015 ESMA delivered to the European Commission a technical advice on the level of penalties for settlement fails and on the substantial importance of a CSD for a host Member State and related impact assessment. This followed a consultation paper published on 18 December 2014.

On 11 November 2016, the EC adopted the Commission Delegated Act (along with its Annex) for the calculation of cash penalties for settlement fails and the operations of central securities depositories in host Member States without modification.

  * Intragroup transactions are exempted In relation to the exchange of collateral for OTC derivatives contracts that are not cleared by a central counterparty (CCP), the Commission Delegated Regulation 2016/2251 contains the following provisions:

1. Counterparties have to exchange both initial and variation margin. These provisions reduce counterparty credit risk, mitigate any potential systemic risk and ensure alignment with international standards.
2. List of eligible collateral for the exchange of margins, the criteria to ensure the collateral is sufficiently diversified and not subject to wrong-way risk, as well as the methods to determine appropriate collateral haircuts.
3. Operational procedures related to documentation, legal assessments of the enforceability of the agreements and the timing of the collateral exchange.
4. Procedures for counterparties and competent authorities related to the treatment of intragroup derivative contracts.

In order to contribute to the objective of ensuring supervisory convergence, and a level playing field with regard to the implementation of CSDR and of the related Level 2 measures, ESMA issues Guidelines, Recommendations, Opinions and Questions and Answers (Q&As).

Guidelines

Access to trading feeds. On 18 December 2014, ESMA published a consultation paper on draft guidelines on the access to the trading feeds of CCPs or trading venues by a CSD. The final report including the guidelines has been published on 23 March 2017.

CSD participants default rules and procedures. On 31 May 2016, ESMA published a consultation paper on draft guidelines on CSD participants default rules and procedures. The final report including the guidelines has been published on 23 March 2017.

Indicators on substantial importance. On 1 June 2017, ESMA published guidelines on the process for the collection, processing and aggregation of the data and information necessary for the calculation of the indicators to determine the substantial importance of a CSD for a host Member State. Please also refer to the  accompanying reporting templates, which aim at facilitating the reporting of data by CSDs to the competent authorities, and subsequently by the competent authorities to ESMA.

Indicators on most relevant currencies. On 1 June 2017, ESMA published guidelines on the process for the collection, processing and aggregation of the data and information necessary for the calculation of the indicators to determine the most relevant currencies in which settlement takes place. Please also refer to the  accompanying reporting templates, which aim at facilitating the reporting of data by CSDs to the competent authorities, and subsequently by the competent authorities to ESMA.

Cooperation between authorities. On 11 July 2017, ESMA published guidelines regarding the cooperation between authorities under CSDR. The purpose of the guidelines is to ensure consistent, efficient and effective supervisory practices within the EU in respect of cooperation arrangements between supervisory authorities for:

• the consultation of authorities involved in the procedure for authorising CSDs under the CSDR; and
• the communication between the home and host authorities in relation to a CSD wishing to provide cross-border services.

Allocation and confirmation requirements for investment firms and their professional clients: standardised procedures and messaging protocols. Further to a public consultation, ESMA has published a final report including the final guidelines which sets out how investment firms should ensure the requirements set out in Article 6(2) of CSDR and Article 2 of the RTS on Settlement Discipline are complied with.
 
In particular, investment firms should agree with their professional clients on the communication procedures and messaging protocols to be used between them, in order for the necessary settlement information to be timely provided to the investment firm. Subject to a written contractual agreement between them, the guidelines also clarify the degree of flexibility that is left to the parties to organise their communication.
 
Settlement fails reporting. Further to a public consultation, ESMA published a Final Report on Guidelines on settlement fails reporting under Article 7 of CSDR.

As of 1 February 2022, CSDs are required to send monthly and annual reports on settlement fails to the national competent authorities and relevant authorities; national competent authorities will then send the settlement fails reports to ESMA. ESMA has made available Technical Reporting Instructions and related XML Schema to be used for the settlement fails reports, which CSDs are encouraged to read to reduce rates of file rejection. This is without prejudice to any additional guidance that national competent authorities may provide to CSDs in their jurisdictions.

CSD Register (Article 21 of CSDR)

This register lists:

• CSDs authorised under Article 16 of CSDR
• third-country CSDs recognised under Article 25 of CSDR
• parties allowed by Member States under Article 31 of CSDR to provide certain core services and related information.

Updates to this list should be sent by competent authorities to CSDR.Notifications@esma.europa.eu using this template.

List of competent authorities responsible for the authorisation and supervision of CSDs (Article 11 of CSDR)

Pursuant to Article 11(1) of CSDR, each Member State shall designate the competent authority responsible for carrying out the duties under CSDR for the authorisation and supervision of CSDs established in its territory and shall inform ESMA thereof. In order to keep the lists up to date, Member States are requested to inform ESMA of any changes by sending an e-mail to designatedNCA@esma.europa.eu​.

List of relevant authorities (Article 12 of CSDR)

ESMA is responsible for publishing on its website the list of the relevant authorities referred to in Article 12(1) of CSDR.

List of key relevant provisions of the corporate or similar law of Member States (Article 49 of CSDR)

In accordance with Article 49(1) of CSDR, Member States shall communicate to ESMA a list of the key relevant provisions of their corporate or similar law, under which securities are constituted.

Updates to this list should be sent by Member States to CSDR.Notifications@esma.europa.eu using this template.

Reports on the implementation of CSDR (Article 74 of CSDR or ad hoc)

ESMA has published the following reports on the implementation of CSDR:

• Provision of CSD cross-border services and handling of related applications (November 2020 and January 2024)
• Provision of banking-type ancillary services under CSDR (July 2021)
• Use of Fintech by CSDs (August 2021)
• See below for internalised settlement.

Sanctions and other measures taken under CSDR​

Competent authorities must report to ESMA the following:

• according to Article 61(7) of CSDR, any administrative sanction or administrative measure or a criminal sanction that it has disclosed to the public, at the same time as the public disclosure, which will be published in the ESMA Sanctions Register.
   
• according to Article 62(1), last paragraph, of CSDR, all administrative sanctions imposed but not published. ESMA will make them available in a central database to other competent authorities for the purpose of exchanging information.

A template Memorandum of Understanding (MoU) has been agreed between the Bank of England (BoE) and EEA NCAs on the cooperation and communication framework regarding the supervision of EEA CSDs that apply for recognition in the UK and which are deemed by the BoE to be non-systemic to UK financial stability.

Third-country CSDs need to be recognised by ESMA to offer certain services to EU participants and issuers, fulfilling certain requirements. Main applicable provisions are Article 25 of CSDR, Article 46 of the RTS on CSD Requirements and Annex 1 thereto. ESMA has issued guidance for third country CSDs, and also published the names of CSDs that have applied for recognition in the List of applicant TC-CSDs as well as the list of recognised third-country CSDs in the CSD Register. Information requests in this regard may be sent in English to ESMA at CSDR.Notifications@esma.europa.eu.

Equivalence decision by the EC. Prior to recognition, the EC must adopt an implementing act determining, amongst other issues, that the legal and supervisory arrangements of the relevant third country imposes legally binding requirements which are equivalent to those contained in CSDR. So far, the EC has adopted Commission Implementing Decision (EU) 2020/1766 of 25 November 2020 determining, for a  limited period of time, that the regulatory framework applicable to central securities depositories of the United Kingdom of Great Britain and Northern Ireland is equivalent in accordance with Regulation (EU) No 909/2014 of the European Parliament and of the Council.

Cooperation arrangements between ESMA and third-country authorities. Some cooperation arrangements must also be in place between ESMA and the relevant third-country authorities whose legal and supervisory frameworks have been recognised as equivalent. So far, ESMA has signed a Memorandum of Understanding with the Bank of England.

ESMA will not actively supervise third-country CSDs, but following recognition will defer to the third-country CSD’s home supervisor to undertake the day-to-day supervision of that CSD.

The CSD Register published by ESMA (cf. above) includes as necessary the third-country CSDs recognised under Article 25 of CSDR.

• RTS (EU) 2017/391 on Internalised Settlement
• ITS (EU) 2017/393 on Internalised Settlement

ESMA's Level 2 preparatory work:

CSDR Q&As (cf. above)

Guidelines on Internalised settlement reporting: further to a public consultation, ESMA published a final report on guidelines on internalised settlement reporting under Article 9 of CSDR.

Settlement internalisers will be required by national competent authorities to submit quarterly reports as per CSDR from July 2019, which will then be sent by the national competent authorities to ESMA.  ESMA has made available Technical Guidance for Settlement Internalisers – Report Validation Rules (and related XML files), which settlement internalisers are encouraged to read to reduce rates of file rejection. This is without prejudice to any additional guidance that national competent authorities may provide to settlement internalisers in their jurisdictions.

Planned updates to data validations – New data validations (INS-019, INS-020, INS-021, INS-022) and updated data validation (INS-065) will be introduced in test environment in July 2023. It is planned to activate them in production environment on 29 November 2023.

Where required by the relevant provisions, settlement internalisers should use the Issuer CSDs LEIs if available - please see the following List.

ESMA has published a report on Internalised settlement (November 2020).

▸ List of designated authorities, payment systems and securities settlement systems

Any updates to this list should be sent to sfd_insolvency@esma.europa.eu in the form of modifications made visible directly into the Excel spreadsheet.

Pursuant to Article 10(1) of the SFD, in order for payment and securities settlement systems to be included in the scope of the SFD, Member States shall notify the relevant systems and system operators (as well as corresponding contact details) to ESMA and inform it of the authorities chosen in accordance with Article 6(2), addressing it to SFD_insolvency@esma.europa.eu (the contact details will be shared with the authorities but not published on this website).

Pursuant to Article 6(3) of Directive 98/26/EC (SFD), Member States shall, upon the opening of insolvency proceedings in their jurisdiction against a participant or a system operator, immediately notify the European Systemic Risk Board (ESRB), other Member States and ESMA. 

For ESMA, such notifications should: 

• be sent to sfd_insolvency@esma.europa.eu
• indicate, in the subject of the email, "Notification pursuant to Article 6(3) of SFD on the opening of insolvency proceedings against a participant in a system/a system operator",
• include, to the extent possible, the name(s) of the system(s) to which the participant is connected.  

In its role of coordinator of competent authorities for the supervision of CSDs, ESMA cooperates with the Eurosystem, in which the ECB having primary responsibility vis-à-vis T2S, leads and coordinates the oversight activities related to T2S, overseers of CSDs participating in T2S, central banks of issue for currencies settled in T2S, competent authorities for the supervision of those CSDs which have signed the T2S Framework Agreement.