EU member states settled their negotiating position on a proposed
update of the central securities depositories regulation (CSDR).
Securities are tradable financial assets such as stocks or bonds.
Central securities depositories (CSDs) play a crucial role in their
registration and safekeeping, as well as, following a trade in
securities, in ensuring its proper settlement, i.e. delivery of
securities to the buyer against the delivery of cash to the seller.
According to European Commission figures, transactions settled by EU
central securities depositories in 2019 reached around €1,120 trillion.
Capital markets are the backbone of our economies. A real
Capital Markets Union depends on safe and efficient settlement of
transactions in securities. The Council wants to simplify the rules
underpinning these settlements while preserving financial stability.
This will make central securities depositories more efficient and
competitive.
Zbyněk Stanjura, Czech minister of finance commented
Lowering barriers for cross-border settlement and improving supervision
Because passporting requirements are burdensome,
they hinder cross-border settlement, thus minimising competition and
reducing choice. Passporting allows a financial firm to operate across
the EU with one single licence. This regulation aims in particular to
increase the provision of cross-border settlement by CSDs.
The proposed new rules – if adopted – clarify that it is the home
member state, i.e. where the CSD is authorised, that will ultimately
decide on the CSD’s application to provide cross-border services. In the
case where the CSD’s activities in at least two other member states are
considered of substantial importance for the functioning of the
securities markets and the protection of investors, a college of supervisors will be mandatorily set up. This will facilitate the exchange of information between supervisors and ease the cooperation between member state authorities. The timeframe
of the passporting process will also be clarified and shortened, in
order to facilitate the provision of a broader scope of services across
the member states.
The proposal also further streamlines rules on so-called “mandatory buy-in”:
where a transaction has failed to settle at the end of a prescribed
period, the buyer of the securities could be forced to repurchase them
elsewhere. The failing party would then be required to meet any price
differential between the original and new transaction and all costs of
the mandatory buy-in. Mandatory buy-in would be a new measure of last
resort, to be activated only in the case where the level of settlement
fails would be substantial in the EU.
The proposal also includes provisions on enabling CSDs’ access to banking-type ancillary services
from other duly authorised CSDs, so as to facilitate settlement in
non-domestic currencies. Furthermore, it also lays down rules ensuring
that authorities in the EU have adequate powers and information to
monitor risks in relation to both EU and third country CSDs, including
by enhancing their supervisory cooperation.
All these clarifications would thus bring the CSDR in line with other financial service legislation.
Background and next steps
On 16 March 2022 the European Commission proposed changes to the
CSDR. The CSDR, adopted in 2014, was part of a broader set of rules to
regulate the financial markets in the wake of the 2008 financial crisis.
It introduced common standards for the institutions responsible for
securities settlement and paved the way for a single market for services
provided by securities depositories.
In 2019 the Commission had undertaken a legally mandated review of the CSDR.
Today’s agreement – reached by EU member states’ ambassadors – will
allow the Council to start negotiations with the European Parliament to
agree on a common text. The European Parliament is still in the process
of adopting its position.