CSDR’s objective is to introduce a European regime governing CSDs. Similarly, EMIR governs CCPs and MiFID governs trading venues and investment firms.
- Minimal harmonised rules governing securities settlement and settlement discipline
- Rules on the authorisation, supervision and passporting of CSDs as well as minimum organisational requirements for CSDs
- Conditions under which CSDs may provide banking services
The CSDR was published in the Official Journal in August 2014 and is gradually entering into force. The authorisation of CSDs in Q1-Q2 2018 will be a major step in its effective implementation. In March 2017, the EU Commission published Regulatory Standards on: (i) authorisation and supervision of CSDs; (ii) prudential requirements for CSDs; (iii) reporting of internalised settlement; and (iv) cash penalties.
Although ESMA published its final draft regulatory standard on settlement discipline in February 2016, the European Commission has not released any Delegated Acts on the topic at the time of writing.
The CSDR contains rules on dematerialisation of securities and on securities settlement systems. In addition, CSDR applies to:
- CSDs, i.e. entities that operate a Securities Settlement System and accept issuance from the issuer and/or hold securities at a centralised level
- Issuers that issue securities in EU CSDs
- Participants to CSDs
- Banks that offer banking services to CSDs
Whilst the CPSS-IOSCO principles already provide details of regulatory nature on infrastructures, including CSDs, the CSDR provides more detailed legislative provisions:
- Settlement: harmonisation of settlement cycles to T+2; dematerialisation of issuances by 2020 and entry into force of 2nd level legislation; harmonisation of settlement discipline rules
- CSDs: provisions on internal organisation including user committees, board members, minimum obligations such as reconciliation, acceptance of issuances from issuers, fair and open access to CSDs
- Banking services: conditions under which CSDs may provide banking services or use banks
- Intermediaries: disclosure of settlement internalisation and use of segregated accounts under certain conditions
It should lead to:
- Changes to the CSD landscape: CSD passporting could lead to a reduction in the number of CSDs operating in the EU, currently at 40. Moreover, as a joint result of T2S and CSDR, the market could either undergo further fragmentation, or more concentration
- Simplification of issuance abroad and facilitated cross-border settlement (key feature of T2S): issuers will be able to issue securities in any EU CSD
- Mandatory buy-ins and higher failed settlement penalties, which may impact market liquidity
- Provision of banking services: the additional prudential rules for CSDs may result in a clearer separation between infrastructure functions and banking services
- Harmonisation and shortening of settlement cycles: this could lead to further use of standardised settlement messaging services
- Mandatory LEI (Legal Entity Identifier) use: the mandatory use of LEI should facilitate record keeping, as well as notary and settlement activities
BNP Paribas Securities Services’ view
We believe that the CSD Regulation is an important step forward for safer and more integrated post-trade infrastructures. It is a crucial element of T2S’ success.
We hope the future regulatory technical standards on settlement discipline will provide for a workable framework, allowing for an appropriate reduction of settlement fails without jeopardising market liquidity.
August 2014 - Publication of CSDR in the Official Journal
March 2017 - Publication of Level 2 measures (excluding settlement discipline) in the Official Journal
September 2017 - Deadline for CSDs to apply for re-authorisation
Q1/Q2 2018 - Expected publication of European Commission delegated acts on settlement discipline
March 2019 - Entry into force of Level 2 legislation on the calculation of cash penalties and internalised settlement
September 2019 - Start of the revision process of Level 1 legislation
Download the regulatory memo: