CSD Regulation
Reference text: Proposal for a regulation of the European parliament and of the council on improving securities settlement in the European Union and on Central Securities Depositories (CSDS) and amending directive 98/26/EC
Date(s) of application
Summer-Autumn 2013 (initially March 2013) : Adoption advised by the Council and Parliament
1st January 2015: forecasted deadline for implementation of few part of the regulation (T+2…)
The draft European CSD text has the objective of defining the regulatory framework in which the function of Central Securities Depository must be exercised and of improving settlement in Europe.
This text takes the form of a regulation enabling immediate application without requiring transposition into local law.
The draft is based around 6 chapters and an annex specifying the services falling within the scope of the CSD regulation.
Title 1 defines the Central Securities Depository as a legal entity managing a settlement/delivery system and holding either a notarial position or a central securities account management position (article 2).
Beyond this, the Central Securities Depository is authorised to exercise a set of functions strictly listed in annex to the draft text, theoretically instituting a clear demarcation with the banking functions, with an exception system to exercise banking activities associated with settlement/Delivery activities.
However, by requesting a derogation to “the competent authority” a CSD may be allowed to exercise banking services strictly listed in annex C and linked to Settlement activities. The Council supports the idea of defining the local authorities as competent where the ECON commission is in favour of giving a derogatory regime only to the current ICSDs in order for them to adapt themselves to this regulation.
Title 2 has the purpose of improving settlement and associated discipline in Europe:
- By imposing book entry principle for listed securities on regulated markets (article 3),
- By instituting a settlement/delivery cycle taking place a maximum of two days after trading date (T) (article 5). It targets securities not represented by certificates admitted for the operations of the central securities depository and traded on regulated market (and on the MTF and OTF trading platforms). Harmonisation on “T+2” must be effective by 1st January 2015. Over The Counter operations are by definition excluded from the scope.
- By describing measures for management of settlement failures (articles 6 and 7), in particular by implementing penalties and Buy In procedures on demand of the receiving party in a trade in the scope of T+2.
A title “3a” has been added to deal with “internalised settlement”, meaning settlement done in the books of a given custodian. In this case the “internaliser” has to comply with new reporting rules.
Titles 3 and 4 :
- define the framework for issuing licences and for supervision of CSDs defined by the local market authorities reporting to the ESMA,
- introduce the concept of passports for CSDs,
- authorise an issuer to freely choose its central securities depository guarantor of its issue.
Furthermore, a CSD of a third party country recognised by the EMSA will be authorised to operate in the EC.
A clear separation between the banking institutions and the Central Securities Depository is established and conveyed by segregation between the settlement/delivery activities and their translation into cash, which is assured by the banks (central or commercial). It is weakened by the existence of an exemption system which enables a CSD, within its original legal entity, to exercise banking activities associated with the Settlement/Delivery activities.
Transparency rules are instituted (establishment of an independent Users Committee interceding with the Board of Directors of the CSD, non-discriminatory access to participants, etc.).
The last chapters cover sanctions and fix the period for adaptation of CSDs affected by the text at two years from the date of effect.
In addition, article 46 introduce a very complicated conflict of laws concept grounded on a distinction between location of the securities account for proprietary aspects and settlement system applicable law for settlement issues.
Current situation
- 7 March 2012: draft text adopted by the Commission
- 4 April 2012: starting period of Council negociation
- 15 June 2012: progress report for the Danish Presidency
- 13 July 2012: report from European Parliament on the Commission’s regulation proposal (the proposal to prohibit CSDs’ from providing banking services)
- 17 December 2012: Amended draft project presentation to ECON commission.
- 21 décembre 2012 : Final list of amendments (on an initial number of 680 amendments)
- 4 Février 2013 : ECON vote of the amended project (Parliament process only)..
Negociations have begun on April 2012 under Danish Presidency and is not considered as a top prioritiy by the current Irish Presidency.
Next steps
- 20 May 2013 Parliament Plenary vote, trilogue process (Parliament, Council, Commission)
- 2013 S2: ESMA drafts technical standards
- 2015: expected regulation deadline for implementation of certain issues (T+2)
Find out more
Impact study
http://ec.europa.eu/internal_market/financial-markets/docs/SWD_2012_22_en.pdf
SGSS contact: Pierre Colladon & Sylvie Bonduelle
Source: SGSS' Regulatory Review - Main Market Initiatives
