Mandatory buy-ins to be a ‘last resort’ under CSDR refit plans

Buy-ins to be a last resort, T+1 to be explored, and CSDs to be pleased to see financial and regulatory burdens reduced as part of drive to improve settlement efficiency.

The European Council has reached a provisional agreement with the European Parliament during trilogue negotiations on a widely anticipated update to the rules on central securities depositories (CSDs). 

With regards to the hot topic of settlement efficiency, the new regulation includes the preconditions for applying the highly controversial mandatory buy-ins which will only be introduced as a “measure of last resort”, where the rate of settlement fails in the EU is not improving and is presenting a threat to financial stability. 

Elsewhere, CSDs will be pleased to see their financial and regulatory burdens reduced under new plans.

In a statement, The Council notes how the rules will make it easier for CSDs to offer services across borders, while also improving cooperation among supervisors. Part of this will occur through a simpler passporting regime, with the new text clarifying and simplifying the rules, and allegedly reducing the barriers to  cross-border settlement. 

The agreement reached today will also make supervision of CSDs more effective by improving cooperation between supervisors. In cases where a CSD’s activities in at least two other member states are considered to be of substantial importance to the functioning of the securities markets and investor protection, a college will be set up to facilitate cooperation and information exchange between member state authorities.

Supervisors will also have access to better information about the activities of non-EU CSDs operating in the EU. 

Today’s provisional agreement still needs to be formally approved by the EU’s member state ambassadors. It will then be adopted by the Council at a forthcoming meeting following legal and linguistic revision of the text. The regulation will enter into force following publication in the EU’s official journal. 

Last week, experts at The Network Forum, discussed the CSDR refit, the opportunities it presents and how a collaborative approach is in place between regulators and the Association for Financial Markets in Europe (AFME).

In a statement following today’s announcement, Peter Tomlinson, director of post-trade at AFME, said: “AFME welcomes the political agreement in today’s trilogue negotiations, which views mandatory buy-ins as a measure of last resort, to be activated subject to assessment and only in the case where the level of settlement fails in the EU has not reduced and is deemed to pose a financial stability risk. AFME supports further focus on all other tools that would be more appropriate to support settlement discipline and efficiency in Europe.

“The CSDR refit legislation in the EU will include a mandate for ESMA to undertake an assessment on the possibility of shortening the settlement cycle in the EU. AFME looks forward to engaging with European authorities and market participants on this topic as part of the new European industry Task Force which was established by AFME earlier this year. The task force will examine all aspects in this debate, including direct economic costs and savings to the industry, as well as factors relating to global alignment and market attractiveness.”

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