ESMA’s main roles in the area of settlement are: developing Level 2 measures and supervisory convergence measures related to the EU Regulation on Central Securities Depositories (CSDR), providing information to the market under the Settlement Finality Directive (SFD) and co-ordinating authorities involved in the supervision of CSDs using Target2-Securities (T2S).
Central Securities Depositories Regulation (CSDR)
Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012 (CSDR) was published in the Official Journal on 28 August 2014, and entered into force on 17 September 2014.
The aim of CSDR is to harmonise certain aspects of the settlement cycle and settlement discipline and to provide a set of common requirements for CSDs operating securities settlement systems across the EU. CSDR plays a pivotal role for post-trade harmonisation efforts in Europe, as it enhances the legal and operational conditions for cross-border settlement in the EU.
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, settelement 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.
CSDR LEVEL 2 MEASURES (published in the Official Journal of the European Union (OJ)):
- Delegated Act (EU) 2017/389 on Cash Penalties and Substantial Importance
- RTS (EU) 2017/390 on CSD Prudential Requirements
- RTS (EU) 2017/392 on CSD Requirements
- ITS (EU) 2017/394 on CSD Requirements
- RTS (EU) 2018/1229 on Settlement Discipline (as modified by RTS (EU) 2020/1212, and RTS (EU) 2021/70 which postponed its date of entry into force to 1 February 2022)
Information on their elaboration can be found in the sections below.
ESMA Draft Technical Standards
CSDR requires ESMA, in close cooperation with the members of the ESCB, to elaborate draft regulatory technical standards (RTS) and draft implementing technical standards (ITS) covering:
- the authorisation, recognition, supervision of CSDs, organisational and prudential requirements for CSDs, access requirements (see “CSD Requirements” in the chart below for the status regarding their elaboration and adoption),
- internalised settlement reporting requirements (for securities transactions settled outside a securities settlement system) (see “Internalised Settlement” in the chart below for the status regarding their elaboration and adoption), and
- settlement discipline measures (see “Settlement Discipline” in the chart below for the status regarding their elaboration and adoption).
The status of ESMA's work on the CSDR Level 2 measures:
Final Report delivered by ESMA to EC
Status of the Technical Standards
Date of application
20 Mar 2014 discussion paper
18 Dec 2014 consultation paper
14 Apr 2014
13 Jan 2015
28 Sep 2015
30 March 2017 (except for settlement discipline-related obligations)
10 March 2019
20 Mar 2014 discussion paper
18 Dec 2014 consultation paper
29 Jun 2015 consultation paper on buy-in
14 Apr 2014
13 Jan 2015
1 Feb 2016
which postponed its date of entry into force
|1 February 2022|
ESMA Technical Advice on the level of penalties for settlement fails and on the substantial importance of a CSD for a host Member State
ESMA also received a mandate in a letter from the European Commission to provide technical advice under CSDR on the level of penalties for settlement fails, and on the substantial importance of a CSD for the functioning of the securities markets and the protection of the investors in a host Member State. This mandate was confirmed by a second letter dated 2 October 2014.
On 18 December 2014, ESMA published a consultation paper on the draft technical advice on the level of penalties for settlement fails and the substantial importance of a CSD for the functioning of the securities markets and the protection of the investors in a host Member State.
On 4 August 2015 ESMA delivered the technical advice and related impact assessment, to the European Commission.
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.
EBA Draft Technical Standards
On 16 December 2015, EBA delivered to the European Commission the final report on the draft RTS on CSD prudential requirements with the related impact assessment.
On 11 November 2016, the EC endorsed the RTS (along with its Annex) on prudential requirements for CSDs and designated credit institutions offering banking-type ancillary services without modification.
Additional information can be found on the EBA website.
CSDR LEVEL 3 MEASURES – ESMA SUPERVISORY CONVERGENCE TOOLS
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 might issue Guidelines, Recommendations, Opinions and Questions and Answers (Q&As).
1. 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. The translations of the guidelines into all official languages of the EU have been published on ESMA website on 8 June 2017.
2. 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. The translations of the guidelines into all official languages of the EU have been published on ESMA website on 8 June 2017.
Notifications from CSDs to ESMA: Further to paragraph 12(b)(ii) of the Guidelines, CSDs should inform, inter alia, ESMA as soon as possible of the actions taken by them following the default of a participant – please refer to the section “Notificaitons to ESMA” below for further details.
3. 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 refer to the translations in all the official languages of the EU and 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.
4. 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 refer to the translations in all the official languages of the EU and 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.
5. Cooperation between authorities. On 11 July 2017, ESMA published guidelines regarding the cooperation between authorities under CSDR (see the translations published in all the official EU languages). 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.
6. Internalised settlement reporting. Further to a public consultation, ESMA published a final report on guidelines on internalised settlement reporting under Article 9 of CSDR (see the translations published in all official EU languages).
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 – A new data validation (INS-018) has been introduced and has been activated in test environment. It is planned to be activated in production environment in September 2022.
The ISO 20022 XSD message for reporting internalised settlement information was approved by the ISO 20022 Securities SEG on 24 September 2018, and the message was officially published on the ISO 20022 website by the Registration Authority on 10 October 2018. You can access the XSD here. For more information on the Message Definition Report, please see the following documents.
The derived message which should be used for the purpose of internalised settlement reporting under CSDR is available at MyStandards platform within the ESMA group publishing space; in order to access this space, a SWIFT account is required.
The minor differences between the base message definition and the derived message definition are described under Section 6.6 of the Technical Guidance for Settlement Internalisers – Report Validation Rules.
7. 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.
The translations of the guidelines into all official languages of the EU have been published on ESMA website on 6 April 2020. They shall start applying on the date of entry into force of the RTS on Settlement Discipline (1 February 2022).
8. Settlement fails reporting. Further to a public consultation, ESMA published a Final Report on Guidelines on settlement fails reporting under Article 7 of CSDR (see the translations published in all official EU languages).
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. When sending reports on settlement fails, CSDs should use the unique SSS ID and SSS name for each SSS they operate, as reflected in this file.
Planned updates to data validations – As part of upcoming system updates, ESMA is planning changes to some of the data validations. These changes are described in the Technical Reporting Instructions version 1.3. The new data validations will start being available in an environment dedicated to testing by September 2022. The application in production is currently planned to take place by December 2022.
ESMA publishes and periodically updates Q&As on the CSDR.
Related Information - Notifications to ESMA
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.
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.
ESMA is responsible for publishing on its website the list of the relevant authorities referred to in Article 12(1) 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.
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 fo the purpose of exchanging information.
Actions taken by a CSD under a default procedure
Further to paragraph 12(b)(ii) of the Guidelines on CSD participants default rules and procedures, CSDs should inform ESMA as soon as possible of the actions taken by them under their default rules and procedures following the opening of an insolvency proceeding against one of their participants.
This information should be sent by CSDs to CSDR.Notifications@esma.europa.eu.
Recognition of third-country (non-EU) CSDs by ESMA
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.
Reports on the implementation of CSDR
On 5 November 2020, ESMA has published its first two reports on the implementation of CSDR covering:
- the provision of CSD cross-border services and handling of related applications, and
- internalised settlement
Settlement Finality Directive (SFD)
The Settlement Finality Directive (Directive No 98/26/EC or 'SFD') aims at reducing the systemic risk associated with participation in payment and securities settlement systems, and in particular the risk linked to the insolvency of a participant in such a system.
The SFD applies to payment and securities settlement systems duly notified to ESMA as well as to any participant in such a system, and to collateral security provided in connection with the participation in a system, or operations of the central banks of the Member States in their functions as central banks.
Additional information can be found on the European Commission webpage on settlement finality.
Further to Article 6 of the SFD:
1. For the purpose of this Directive, the moment of opening of insolvency proceedings shall be the moment when the relevant judicial or administrative authority handed down its decision.
2. When a decision has been taken in accordance with paragraph 1, the relevant judicial or administrative authority shall immediately notify that decision to the appropriate authority chosen by its Member State.
3. The Member State referred to in paragraph 2 shall immediately notify the European Systemic Risk Board (ESRB), other Member States and ESMA.
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).
T2S is the European platform for securities settlement in central bank money.
For additional information on T2S, please see the ECB website.
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.