On 7 March 2012, the European Commission (the Commission) published its ‘Proposal for a Regulation on improving securities settlement in the European Union and on central securities depositories (CSDs) and amending Directive 98/26/EC’ (the CSDR). This puts in place the final component of the Commission’s three-part regulatory framework on securities market infrastructures, alongside MiFIDII/R and EMIR.
The Regulation aims to harmonise the timing and conduct of securities settlement in the EU and creates common EU rules governing Central Securities Depositories. The Regulation is intended to be complimentary to the Target2 Securities project of the Eurosystem which is intended to create a common platform for borderless securities settlement services. In particular, the Regulation will:
Dematerialise securities - remove paper-based securities by requiring securities to be issued in electronic book-entry form;
Require settlement on a T+2 basis - with the introduction of penalties to disincentivise settlement failures
Require recording of all securities in book entry form - all transferable securities admitted to trading on any regulated market, MTF or OTF or transferred following a financial collateral arrangement (as defined under the Collateral Arrangements Directive), will have to be recorded with a CSD before being traded;
Introduce a common authorisation and prudential regime for CSDs - including rules on organisational and operational risk, governance, conduct of business and outsourcing;
Provide a harmonised passporting regime for authorised CSDs - to ‘passport’ their services within Member States across the Union and become a participant in a securities settlement system of another CSD without discrimination;
Introduce rules for open vertical access between CSDs and other market infrastructures - such as CCPs or trading venues, including the right to receive transaction feeds from those infrastructures and obligation to grant them access to their securities settlement systems
Enact rules for third country equivalence and CSD recognition - thus enabling third country CSDs to provide services in the EU;
Establish a harmonised supervisory regime - for the activities of CSDs and encourage compliance through a deterrent civil sanctioning regime against legal and natural persons in breach of the Regulation.
A political agreement for a final Level 1 text was reached between the European Parliament and Council of the European Union on 18 December 2013. This agreement was formally adopted by the European Council's Permanent Representatives Committee on 27 February 2014 and the European Parliament during its plenary session on 15 April 2014. The text will now fall to be published in the Official Journal of the European Union and will enter into force 20 days later. Application of the CSDR's provisions will be on a phased basis commencing with timely trade settlement on 1 January 2015.
Level 2 technical standards are currently being developed by ESMA and the European Commission and are anticipated to be completed by Q4 2014.
Key Legislative Documents
Final Text of the CSDR (February 2014)
Consultations and legislative process
ESMA draft Technical Standards for the Regulation on improving securities settlement in the European Union and on central securities depositories (March 2014)
Proposal for a Regulation on improving securities settlement in the European Union and on central securities depositories (CSDs) and amending Directive 98/26/EC (March 2012)