Impacts of Central Securities Depositories Regulation

Impacts of Central Securities Depositories Regulation

July 2021

This summary covers the elements of CSDR that will likely have the most impact. Please be sure to bookmark this page as we will continue to update it with new information and commentary.

CSD Authorisation

By 30 September 2017, existing EU CSDs must have applied for authorisation under CSDR with their national competent authorities. The actual date of authorisation depends on the national competent authorities, and varies by CSD.


Most CSDs will have to modify elements of their processing to become CSDR compliant before they can be granted the necessary authorisation. The resulting changes may have operational impacts on CSD participants and their clients.


When a CSD has received its authorisation, Article 38 of CSDR mandates that the CSD and the participants of the CSD offer to their clients a choice between different types of securities accounts at the CSD, i.e. either a segregated account or an omnibus account. The Article further requires that the CSD and its participants disclose to their clients the level of protection and the costs associated with the different types of securities accounts.


Internalised Settlement Reporting


From 30 March 2019, all custodians and other intermediaries located in the EU will have to provide to their national competent authorities a quarterly report that includes data as to the volumes and values of internalised settlement that they have effected during the past quarter, with the first report to contain data relating to the second quarter of 2019.

The European Securities and Markets Authority (ESMA) published a consultation paper on proposed additional guidelines on internalised settlement reporting on 10 July 2017, and published final guidelines on 28 March 2018. The first internalised settlement report from BNY Mellon was submitted to the competent authorities in July 2019.


Settlement Discipline


On 13 September 2018, the last remaining piece of CSD Regulation (CSDR), a delegated regulation setting out regulatory technical standards on Settlement Discipline, was published in the Official Journal of the European Union (EU). This delegated regulation will enter into force on 1 February 2022.


All parties in the settlement chain involved in transactions in European markets will be impacted by the settlement discipline, including where the trading parties are not located in the EEA. The regulatory obligations will affect both the receiving and delivering parties in a failing transaction.


The delegated regulation introduces two main objectives to be implemented through three sets of measures:

  1. A set of measures to prevent settlement fails by improving matching and settlement rates, and then:
  2. Two sets of discipline measures to address settlement fails: cash penalties and mandatory buy-ins.


A. Settlement Fail Prevention


The first set of measures, fail prevention, requires professional clients to communicate in writing with their investment firm the allocation of securities for a transaction, including a defined set of transaction details within set timeframes, and to ensure that those details are passed onto custodians in the settlement instructions.


CSDs will also introduce a number of new functionalities in order to reduce settlement fails, such as bilateral cancellation, hold and release mechanisms, and partial settlement.


B. Cash Penalties


The second set of measures, cash penalties, requires that CSDs calculate penalties for late settlement that result either from late matching (i.e. LMFP1) or failed settlement (i.e. SEFP2) due to a lack of securities or cash. These will be calculated at the end of each business day where an instruction fails to settle, from intended settlement date (ISD) until actual settlement date (ASD) and reported back to its participants on a daily basis. In both cases, the penalties will be debited to the party at fault and credited to the other party to the transaction.  The party deemed to be at fault for late matching is the party that sends in the instruction last.  In the case of late settlement the party deemed to be at fault is whoever prevented settlement from occurring, either due to insufficient securities or cash.  Daily penalty rates will range from 0.1 basis points for debt instruments to 1.0 basis points for liquid shares. Settlement failures due to lack of cash will be charged based on official interest rates. 


On at least a monthly basis CSDs will collect cash penalties by aggregating the debit and credit amounts and will process a net cash amount to the net receiving participants.


C. Mandatory Buy-ins


The third set of measures covers the introduction of a mandatory buy-in for transactions still failing at the end of the extension period. The extension period is dependent on the asset type traded, and is: ISD+4 for liquid shares; ISD+7 for other financial instruments; ISD+15 for transactions on an SME growth market. CSDs will not have any active role in the buy-in execution. The responsibility for initiating the buy-in will sit exclusively with the receiving party3. The Receiving Trading Party will have the obligation to source the securities from elsewhere, and any additional costs (price variation, foreign exchange rates, corporate events and buy-in agent fees) will be passed onto the Failing Trading Party. If the buy-in cannot be executed, for example, due to a lack of liquidity in the market, then a cash compensation amount will be paid. The Receiving Trading Party will also need to report the result of the execution of the buy-in to the CSD. CSDs will pass on information on buy-ins to the relevant National Competent Authority.


Book Entry


Article 3(1) of the regulation requires issuers to ensure that securities are maintained on a book-entry system, and that the physical certificates are either held in dematerialised form, or immobilised in a vault.  This will be implemented for all new issues of transferable securities from January 2023, and from January 2025 for all existing issuances.



1 Late matching Fail Penalty (LMFP): penalty that applies due to the matching taking place after the ISD.


2 Settlement Fail Penalty (SEFP): penalty that applies due to the non-settlement of a matched transaction on or after its ISD.


3 For cleared trades, the buy-in is effected by the CCP. For non-cleared trades, the buy-in is effected by the receiving trading venue member, or the receiving trading party if traded off-exchange.


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