European Commission endorses CSDR push-back

The endorsement comes two months after the ESMA stated it would postpone enforcing the CSDR settlement discipline regime following an industry-wide lobby.

The European Commission has endorsed the recommendation to delay the implementation the settlement discipline regime (SDR) set out under the Central Securities Depository Regulation (CSDR) to February 2021. 

In a statement, the European Commission said the delay would allow market participants to transition to new ISO messaging protocols and the TARGET2 Securities (T2S) penalty mechanism, which focuses on the daily calculation and reporting of penalties for settlement fails, which are both set to be released in November. 

“The need to have a reasonable buffer to cover for potential operational complexities after the go live as well as to avoid an overlap with operational issues at the turn of the year, it seems appropriate to set the date for the entry into force of Commission Delegated Regulation (EU) 2018/1229 at 1 February 2021,” the European Commission stated.

The endorsement comes two months after the European Securities and Markets Authority (ESMA) stated it would postpone the SDR following an industry-wide lobby to allow sufficient time for market participants and authorities to make the necessary IT system changes, to develop and update the relevant ISO messages, and to put in place the legal arrangements. 

However, the securities watchdog has also denied a formal request to defer the mandatory buy-in regime and phase in new rules for failed settled trades, stating the new February go-live date will give market participants enough time to prepare. 

The SDR has been met with industry-wide criticism, with the buy-in aspect undoubtedly the most prominent concern of market participants. Buy-ins, which are presently used at discretion as they can create unpredictable costs, are used for market participants to manage settlement risk in the case of failed trades, as the buyer goes to market to source the bonds from another party.

A study from ICMA in November last year found the majority of asset managers and pension funds surveyed expect a negative impact on bond market efficiency and liquidity as a result of the rules, when they come into force later this year.