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Settlement

Settlement

Settlement

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 will enhance the legal and operational conditions for cross-border settlement in the EU.

Key elements

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);
  • 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.

European Commission FAQs

Level 2 measures implementing CSDR

ESMA Draft Technical Standards

CSDR requires ESMA, in close cooperation with the members of the ESCB, to elaborate  draft regulatory technical standards (RTS) and implementing technical standards (ITS) covering:

  • the authorisation, recognition, supervision of CSDs, organisational and prudential requirements for CSDs, access requirements (between a CSD and its participants, by issuers to CSDs, between CSDs, and between CSDs and other market infrastructures) (see CSD Requirements in the chart below for the  status  regarding their elaboration and adoption),
  • internalised settlement reporting requirements (covering 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 Level 2 measures implementing CSDR:

Measures

Consultations

Public

Hearings

Final Report delivered by ESMA to EC

Status of the Technical Standards

Date of application

CSD Requirements

20 Mar 2014 discussion paper

 

18 Dec 2014  consultation paper

14 Apr 2014

 

 

13 Jan 2015

28 Sep 2015

Endorsed without modification by the EC on 11 Nov 2016

Published in the OJ on 10 March 2017

 

 

30 March 2017 (except for settlement discipline-related obligations)

Internalised Settlement

10 March 2019

Settlement Discipline

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

Under review by the EC Proposal: 2-year phase-in after publication in the OJ

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.

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.

Following the elapse of the objection period for the European Parliament and the Council, all Level 2 measures (except for the technical standards on settlement discipline) have been published in the Official Journal of the European Union (OJ) on 10 March 2017.

 

Level 3 measures – Supervisory convergence by ESMA

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).

 

CSDR Guidelines

On 18 December 2014, ESMA published a consultation paper on draft guidelines on the access to CCPs or trading venues by a CSD.

On 31 May 2016, ESMA published a consultation paper on draft guidelines on CSD participants default rules and procedures.

 

CSDR Q&As

ESMA has published its first set of Q&As on the CSDR, following the publication in the OJ of the CSDR Level 2 package (except for settlement discipline measures which are still pending). The focus of this set of Q&As is on CSD requirements provisions, which will trigger the launch of the CSD authorisation process. 

Additional questions relating to the implementation of CSDR should be sent to ESMA following the procedure described here, using ESMA Q&A tool.

Information published by ESMA under 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. Where a Member State designates more than one competent authority, it shall determine their respective role and shall designate a single authority to be responsible for cooperation with other Member States’ competent authorities, the relevant authorities, ESMA, and EBA, where specifically referred to in CSDR.

ESMA is responsible for publishing on its website a list of the competent authorities designated in accordance with Article 11(1) of CSDR.

In accordance with Article 49(1) of CSDR, Member States shall ensure that a list of the key relevant provisions of the corporate or similar law of the Member States, under which securities are constituted, is published on its website.

Updates to the above lists should be sent to: CSDR.Questions@esma.europa.eu using these templates:

Template - CSDR Competent Authorities

Template - Key Provisions of Corporate Law

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 as well as 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.

 

Information published by ESMA under SFD:

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 to ESMA.

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 in accordance with the SFD.

Updates to the above lists should be sent to SFD_insolvency@esma.europa.eu using these templates:

Template - Designated payment and securities settlement systems

Template - Designated authority to notify opening of insolvency proceedings

 

Notifications to ESMA regarding the opening of insolvency proceedings

Under Article 6(3) of the SFD, when insolvency proceedings are opened against a system operator or a participant, the Member State shall inform the other Member States, ESMA and the ESRB.

Notifications to ESMA should be sent to SFD_insolvency@esma.europa.eu.

TARGET2-Securities (T2S)

T2S is the European platform for securities settlement in central bank money.

18 CSDs, representing 16 markets, are now settling securities transactions on the pan-European platform. On 20 June 2015 T2S became operational. Four central securities depositories (CSDs) from Greece (BOGS), Malta (Malta Stock Exchange), Romania (Depozitarul Central) and Switzerland (SIX SIS) were connected to T2S. On 31 August 2015, the Italian CSD (Monte Titoli) also started using the T2S platform. On 13 September 2016 five new CSDs have joined (Euroclear Belgium, Euroclear France, Euroclear Nederland, VP Lux (Luxembourg) and VP Securities (Denmark)). Lately, 6 February 2017 was the first operational day on T2S for the clients of six CSDs from Austria (OeKB CSD), Germany (Clearstream), Hungary (KELER), Luxembourg (LuxCSD), Slovakia (CDCP) and Slovenia (KDD).

The next and final migration wave is planned for 18 September 2017.

For additional information on T2S, please see the ECB website.

ESMA’s role

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.