CSDR regulation: Everything you need to know
The Central Securities Depository Regulation (CSDR) has been implemented both to strengthen and protect central securities depositories (CSDs), and to promote standardisation across European CSDs.
CSDR regulation: Everything you need to know
Overview
CSDR aims to enhance the consistency, safety and efficiency of securities settlements. It introduces new requirements for CSDs and harmonises the disparate national regulations surrounding securities settlement standards in the EU. It was designed to complement existing securities regulations, such as the European Market Infrastructure Regulation (EMIR) for central counterparty clearing houses (CCPs), and the Markets in Financial Instruments Directive II (MiFID II).
What is a CSD and what does CSDR cover?
A CSD is an institution that holds financial instruments including mutual funds, equities, money market instruments and bonds. It also enables these instruments to be transferred electronically through records commonly referred to as “book-entry records.”
CSDR regulates how CSDs and their participants operate. Guidance includes:
- A universally followed set of requirements governing CSDs and other institutions providing securities settlement services.
- Requiring CSDs and CSD participants to offer their clients a choice of either an omnibus client segregated account or an individual client segregated account.
- Cash penalties to prevent settlement fails.
- Dematerialisation of all transferable securities recorded by CSDs before trading on regulated platforms.
- Providing issuers with a choice of CSD regardless of EU member state. Freedom of issuance does not oblige issuers to use a CSD in the state in which they are based.
Who in the securities value chain is impacted?
While CSDR largely imposed obligations on CSDs based in the EU, these regulations also have a knock-on effect throughout the securities value chain, impacting CSD participants, their clients, and end investors.
Take cash penalties for trade fails, for instance. If a trade fails, the counterparty responsible pays a monthly fine. The penalty amount will be calculated by the CSD daily, and sent to the CSD participants, but in many cases CSD members are intermediaries such as Global Custodians or CCPs and they are then required to pass on penalty credits and debits to their clients.
Solving the post-trade transparency challenge
What’s next for CSDR?
CSDR Refit was adopted on 13 December 2023 and published in the Official Journal of the European Union (EU) on 27 December 2023, and entered into force on 16 January 2024. It focuses mostly on settlement discipline, but also introduces a shortening of the settlement cycle.
The regulation set a deadline of 17 January 2025 for ESMA to provide its “draft regulatory technical standards” (RTS) as well as report / assess the opportunities, costs and the modalities for implementing a shortened settlement cycle.
Consultations and proposals are continuing regarding increasing the current penalty rates, and the potential for rolling out mandatory buy-ins (MBIs) on certain transactions and instruments if the penalty regime does not lead to a reduction in settlement fails or if the level of settlement fails has a negative impact on European financial stability.
For more information, ESMA publish their reports and consultations here.
Disclaimer
The information provided on this page does not, and is not intended to, constitute legal or regulatory advice, and is provided for general information purposes only. Information on this website may not constitute the most up-to-date information. Swift does not guarantee the accuracy or correctness of the information on this page. The information on this page should not be relied on or treated as a substitute for specific advice relevant to particular circumstances and is not intended to be relied upon by you in making (or refraining from making) any specific decisions.