[ I N D E P T H | R E G U L A T I O N ]
Since its inception in 2014 , the Central Securities Depositories Regulation has set out to “ harmonise certain aspects of the settlement cycle and settlement discipline ,” establishing a common framework for CSDs across the EU . The new Settlement Discipline Regime , introduced in February 2022 , sought to expand on that mission , targeting failures in the settlement of securities transactions – introducing cash penalties for parties at fault , new monitoring and reporting measures , and the proposal of the controversial mandatory buy-in mechanism . It ’ s no secret that the European market is a very fractured and complicated landscape , and a more uniform playing field would be beneficial not just to those within the EU , but the global system as a whole . However , an attempt at a onestop-shop solution has seemingly thrown up more challenges than there were to start with – at least to begin with , anyway . The latest data from the European Securities and Markets Authority ( ESMA ) shows that despite an initial decline in settlement fails in February this year , fails have since steadily risen in the months since then , with equities settling somewhere between an 8-10 % fail rate and bonds a 3-4 % fail rate , in terms of percentage of value in June 2022 . An increase in fails is not what anyone in the industry would have wanted to see or expected following the introduction of the regulation , however teething issues have arisen throughout the custody chain , with process discrepancies and penalty miscommunication commonplace at every level . “ At the time of the launch , all parties - including T2S , CSDs and intermediaries - experienced problems and delays ,” says Roberto De Paolis , global markets management at BNY Mellon . “ In the subsequent months , the situation has improved significantly , but there are still
Slow out the blocks :
Industry still acclimatising to life under CSDR
Delays , amendments , lockdowns , war – CSDR ’ s Settlement Discipline Regime began life at a time when unprecedented events have become the norm . Confusion , miscommunication and errors have plagued the regulation ’ s early days , but are its most challenging days now behind us ? Global Custodian ’ s Chris Lemmon investigates .
some structural problems . Nonetheless , the market generally views the CSDR settlement penalties mechanism as a positive development .” Pardeep Cassells , head of financial products at AccessFintech , adds that these structural problems have had a knock-on effect on market participants : “ There ’ s a lack of trust now in the information that ’ s being communicated – and it ’ s going to be really difficult to
56 Global Custodian Fall 2022