CSDR News on Asset Services | EU lawmakers postpone implementation of CSDR’s compulsory membership provisions


The European Commission has postponed the implementation of the mandatory redemption provisions of the Central Securities Depository (CSDR) Regulation after months of speculation, as well as industry demands to push back the execution date of February 1, 2022.

The mandatory redemption provision creates an obligation for trading parties to execute redemptions against counterparties that fail to settle their trades within a required time frame.

During the year, arguments in favor of postponing the buy-back rules were strongly expressed by industry, with a suggestion that the rules should even be made voluntary.

In recent months, it has been widely assumed that the postponement will be announced this month. This was even brought up directly by the European Commission, during a fireside conversation with Jennifer Robertson, acting unit head of the committee.

At the Association for Financial Markets in Europe (AFME) 14th Annual Virtual Conference last month, Robertson reported: “With a legislative proposal currently slated for January, it doesn’t take a lot of math to figure out that the idea that the European Commission is unlikely to adopt and negotiate with subsequent publication of a CSDR review before February 1, 2022. “

Calls for mandatory buy-back provisions to be delayed and increased during the COVID-19 pandemic, due to the great concern that the introduction of the Settlement Discipline Scheme (SDR) buy-back element under the CSDR ” would present a significant risk to Europe’s recovery from the COVID-19 crisis and will likely have a disproportionate impact on small and medium-sized companies and less liquid securities ”, an opinion issued by AFME in February 2021.

AFME was also part of the associations claiming that the redemption rule should be a discretionary right of the recipient party, and not an imperative obligation. AFME says it supports a phased approach and that the revised procurement rules should be postponed to a later date.

In March 2021, an alliance of 14 professional organizations called for a deadline for joining the CSDR, this included the International Capital Markets Association (ICMA), the International Securities Lending Association (ISLA), the AFME, the International Swaps and Derivatives Association and the European Fund and Asset Management Association.

ISLA’s Adrian Dale, head of regulation and market practices, pointed out that the one-time buyback proposal “could be seriously detrimental to market liquidity”, if applied to securities financing transactions, adding that securities lending, in particular, “helps reduce settlement defaults by providing an alternative route to access securities if traditional routes are broken.”

Earlier this year, the ICMA said the repurchase requirement would “negatively impact the efficiency and liquidity of the European bond market,” noting that a “significant body of evidence suggests that this will ultimately lead to a increased costs for market players and in particular end investors ”. .

As the February 2022 deadline quickly approached, the European Securities and Markets Authority also recommended a postponement of the redemption rules to the European Commission no later than September.

ESMA supported delaying the entry into force of the redemption requirements, although it indicated that other disciplinary requirements for settlement, such as the reporting of settlement failures and the cash penalty regime. , could be enacted by the February 1 deadline, as planned.

However, Daniel Carpenter, head of regulation at Meritsoft, a Cognizant company, says that despite the postponement of mandatory buyout rules, “time is still running out and companies must be prepared to comply with the penalty rules when they enter. in effect in February. 2022. Time will tell how far a “penalties only” CSDR will go to address the industry-wide problem of settlement failures, but the additional cost implications certainly focus minds on prevention and control. more effective failure management. ”

“While many members of the industry will welcome the Commission’s decision on buybacks, preparation must continue at a brisk pace if companies are to meet the other requirements of the new rules when they come into effect in February.” , adds Carpenter.

Discussing his views on this week’s postponement, Pablo Portugal, AFME’s Director General of Advocacy, said: “We warmly welcome the agreement of EU lawmakers to postpone the implementation of the provisions of compulsory membership in the CSDR.

“The mandatory buy-back rules have been widely recognized as flawed and disproportionate. Their impact would lead to wider spreads and less liquidity, which would mean more expensive and less efficient capital markets for European issuers and investors.

He adds: “The planned review of the CSDR in 2022 should fundamentally reconsider mandatory buyouts and lead to a more proportionate regime that supports European capital markets. “

In addition, Mairead McGuinness, EU Commissioner for Financial Stability, Financial Services and Capital Markets Union, tweeted that she “welcomed the agreement” to amend the CSDR to “allow postponement of compulsory redemptions “.


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