10 March 2017

CSDR implementing measures published in the OJ

Parameters for the calculation of cash penalties for settlement fails and the operations of CSDs in host Member States

To ensure that cash penalties imposed on failing participants act as an effective deterrent, the parameters for the calculation of the level of cash penalties should be closely related to the value of financial instruments that fail to be delivered, and to which appropriate penalty rates should be applied. The value of the financial instruments underlying the transaction should also be the basis for the calculation of the level of cash penalty where the settlement fail is due to a lack of cash. The level of cash penalties should provide incentives to failing participants to promptly settle transactions that failed to be settled. In order to ensure the effective achievement of the objectives pursued by the imposition of cash penalties, the adequacy of the parameters for their calculation should be monitored on an ongoing basis and adjusted, as necessary, on the basis of the impact of those penalties on the market.

The parameters for calculating cash penalties should be adapted to the specificities of certain trading venues, such as SME growth markets as defined in Directive 2014/65/EU of the European Parliament and of the Council (1). Cash penalties for settlement fails should not hinder access by small and medium enterprises (SMEs) to capital markets as an alternative to bank lending. In addition, Regulation (EU) No 909/2014 allows SME growth markets the flexibility not to apply the buy-in process to settlement fails until up to 15 days after the intended settlement date. Consequently, cash penalties for settlement fails in financial instruments traded on SME growth markets may apply during a longer period of time than for other financial instruments. Given the length of application of cash penalties, lower liquidity and specificities of SME growth markets, the penalty rate for settlement fails of transactions in financial instruments traded on such trading venues should be set at a specific rate that should provide incentives for timely settlement but should not affect their smooth and orderly functioning. It is also appropriate to ensure that settlement fails of transactions in certain financial instruments, such as debt instruments traded on such venues, are subject to a lower penalty rate than similar debt instruments traded on other markets.

Regulatory technical standards on certain prudential requirements for central securities depositories and designated credit institutions offering banking-type ancillary services

A CSD should design scenarios for restructuring of its activities or winding-down that are adapted to its business model. However, in order to obtain a harmonised application of the requirements on restructuring or winding- down in the Union and to ensure that prudentially sound requirements are satisfied, the discretion on the design of such scenarios should be limited by well-defined criteria. Where there is a failure in the safekeeping of securities on behalf of a participant, such a failure would materialise as either a cost to the participant or as a cost for the CSD that would face legal claims. Therefore, rules for the calculation of the regulatory capital for operational risk already take into account the custody risk. For the same reasons, custody risk for securities held through a link with another CSD should not be subject to any additional regulatory capital charge but should be considered as part of the regulatory capital for operational risk. Similarly, custody risk faced by a CSD on own assets held by a custodian bank or other CSDs should not be double- counted and no additional regulatory capital should be required.

Given the nature of the activities of CSDs, a CSD assumes business risk due to potential changes in general business conditions that are likely to impair its financial position following a decline in its revenues or an increase in its expenses and that result in a loss that should be charged against its capital. Given that the level of business risk is highly dependent on the individual situation of each CSD and it can be caused by various factors, the capital requirements of this Regulation should be based on a CSD's own estimate and the methodology used by a CSD for such an estimate should be proportional to the scale and complexity of the CSD's activities. A CSD should develop its own estimate of the capital required against business risk under a set of stress scenarios in order to cover the risks that are not already captured by the methodology used for operational risk. In order to ensure a prudent level of the capital requirements for business risk when making a calculation based on self- designed scenarios, a minimum level of capital, should be introduced in the form of a prudential floor. The minimum level of required capital for business risk should be aligned to similar requirements for other market infrastructures in related Union Acts such as Commission Delegated Regulation on capital requirements for central counterparties

Regulatory technical standards further specifying the content of the reporting on internalised settlements

In accordance with Regulation (EU) No 909/2014, settlement internalisers are to report on settlements that they internalise. In order to provide a good overview of the scope and of the extent of internalised settlements it is necessary to specify further the content of such reporting. The reports on internalised settlement should provide detailed information on the aggregated volume and value of settlement instructions settled by settlement internalisers outside securities settlement systems specifying asset class, type of securities transactions, type of clients, and issuer central securities depository . A settlement internaliser should only report internalised settlements where it has executed a settlement instruction by a client of the settlement internaliser in its own books. A settlement internaliser should not report subsequent alignments of book-entry positions to reflect the settlement of instructions by other entities in the holding chain of securities, as these do not qualify as internalised settlement. Similarly, a settlement internaliser should not report transactions executed on a trading venue and transferred by the trading venue to a central counterparty for clearing or to a CSD for settlement.

Regulatory technical standards on authorisation, supervisory and operational requirements for central securities depositories

It is important to ensure appropriate authorisation and supervision of a CSD. As such, a list of the relevant authorities issuing the most relevant Union currencies in which settlement takes place to be involved in the process of authorisation and supervision of a CSD should be defined. This should be based on the share of the currencies that those authorities issue in the total value of settlement instructions against payment settled annually by a CSD and on the share of settlement instructions against payment settled by a CSD in a Union currency compared to the total value of settlement instructions against payment settled in that currency across all CSDs in the Union.

A CSD applying for authorisation should provide the competent authority with the relevant information to demonstrate that it has the necessary financial resources at its disposal and adequate business continuity arrangements for the performance of its functions on an ongoing basis. In addition to receiving information on the core activities, it is important for the competent authority to receive information on the ancillary services that the CSD applying for authorisation intends to offer to enable the competent authority to have a complete overview of the applicant CSD's services.

To promote an effective bilateral and multilateral exchange of information between competent authorities, the results of the review and evaluation by one authority of the activities of a CSD should be shared with other competent authorities where this information is likely to facilitate their tasks, without prejudice to confidentiality and data protection requirements and in addition to any cooperation arrangements provided in Regulation (EU) No 909/2014. An additional exchange of information among competent authorities and relevant authorities or authorities in charge of markets in financial instruments should be organised allowing for a sharing of the findings of the competent authority in the course of the process of review and evaluation.

Implementing technical standards with regard to the templates and procedures for the reporting and transmission of information on internalised settlements

 In accordance with Regulation (EU) No 909/2014 settlement internalisers and competent authorities are to report and transmit information on internalised settlements using standard forms, templates and procedures. Standard forms, templates and procedures also need to be used when competent authorities inform the European Securities and Markets Authority (ESMA) on any potential risk resulting from the settlement activity.

Implementing technical standards with regard to standard forms, templates and procedures for authorisation, review and evaluation of central securities depositories, for the cooperation between authorities of the home Member State and the host Member State, for the consultation of authorities involved in the authorisation to provide banking-type ancillary services, for access involving central securities depositories, and with regard to the format of the records to be maintained by central securities depositories

In order to ensure a harmonised approach regarding the processing of complaints concerning the access of participants to CSDs, the access of issuers to CSDs, the access between CSDs, and the access between a CSD and another market infrastructure, standard forms and templates should be used, specifying the identified risks and the assessment of the identified risks that justify a refusal of access.

In order to facilitate the consultation by the competent authority of a CSD with other authorities involved referred to in Regulation (EU) No 909/2014 prior to granting or refusing authorisation to provide banking-type ancillary services, it is necessary to provide for an effective and structured process for consultation. To facilitate the timely cooperation of the authorities concerned and allow each of them to provide a reasoned opinion concerning the application, the documents and data attached to an application should be organised according to common templates.

Commission Delegated Regulation (EU) 2017/389 of 11 November 2016 supplementing Regulation (EU) No 909/2014 of the European Parliament and of the Council as regards the parameters for the calculation of cash penalties for settlement fails and the operations of CSDs in host Member States

Commission Delegated Regulation (EU) 2017/390 of 11 November 2016 supplementing Regulation (EU) No 909/2014 of the European Parliament and of the Council with regard to regulatory technical standards on certain prudential requirements for central securities depositories and designated credit institutions offering banking-type ancillary services

Commission Delegated Regulation (EU) 2017/391 of 11 November 2016 supplementing Regulation (EU) No 909/2014 of the European Parliament and of the Council with regard to regulatory technical standards further specifying the content of the reporting on internalised settlements

Commission Delegated Regulation (EU) 2017/392 of 11 November 2016 supplementing Regulation (EU) No 909/2014 of the European Parliament and of the Council with regard to regulatory technical standards on authorisation, supervisory and operational requirements for central securities depositories

Commission Implementing Regulation (EU) 2017/393 of 11 November 2016 laying down implementing technical standards with regard to the templates and procedures for the reporting and transmission of information on internalised settlements in accordance with Regulation (EU) No 909/2014 of the European Parliament and of the Council

Commission Implementing Regulation (EU) 2017/394 of 11 November 2016 laying down implementing technical standards with regard to standard forms, templates and procedures for authorisation, review and evaluation of central securities depositories, for the cooperation between authorities of the home Member State and the host Member State, for the consultation of authorities involved in the authorisation to provide banking-type ancillary services, for access involving central securities depositories, and with regard to the format of the records to be maintained by central securities depositories in accordance with Regulation (EU) No 909/2014 of the European Parliament and of the Council

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