The Central Securities Depositories Regulation (CSDR)

The Central  Securities Depositories Regulation (CSDR)

September 21, 2017

Background

The Central Securities Depositories Regulation (CSDR) is one of the key regulations adopted in the aftermath of the financial crisis. CSDR is part of the wider EU regulatory reforms, including the European Market Infrastructure Regulation (EMIR) and Markets in Financial Instruments Directive II (MiFID II), which are providing a review of the entire securities and capital markets structure, with a view to improving the functioning and stability of the financial markets.

Overview

CSDR introduces new measures for the authorisation and supervision of EU Central Security Depositories (CSDs) and sets out to create a common set of prudential, organisational, and conduct of business standards at a European level. A large part of CSDR facilitates the objectives of Target2Securities (T2S) regulation by the introduction of a securities settlement discipline regime. This harmonises operational aspects of securities settlement, including the provision of shorter settlement periods; mandatory buy-ins; and cash penalties, to prevent and address settlement fails. The new rules also stipulate that CSDs will need to apply for authorisation from their national competent authorities.

The CSDR applies to all CSDs and to all market operators in the context of securities settlement. Members of the European System of Central Banks and other national or public bodies that perform similar services, which would otherwise qualify as CSDs are exempt from certain requirements under the CSDR, including those relating to authorisation. Trading parties, central counterparties (CCPs) and trading venues will also be impacted and will have to directly comply with some of the measures, in particular the introduction of mandatory buy-in regime and cash penalties for settlement failures.

Key Objectives

  • To harmonise the different rules applicable to the CSDs in Europe
  • To establish a level playing field among these CSDs
  • To increase the safety of securities settlement and the settlement infrastructures in the EU
  • To increase the efficiency of security settlement through introducing a true market for the operations of national CSDs
  • To increase safety of CSDs through applying high prudential requirements in line with international standards
  • To create an integrated market for securities settlement with no distinction between national and cross-border securities transactions

Implementation Timeline

The regulation entered into force across all member states on 17 September 2014, although a number of provisions apply at a later date. Key dates include:

September 2017: CSDs must have applied for and submitted applications for authorisation to their national competent authorities

May 2018: CSDs and their participants are to comply with the new CSDR requirements detailed in the Regulatory Technical Standards (RTS)

30 March 2019: RTS on Internalised Settlement apply

1 June 2019: RTS on Settlement Discipline requirements apply