The Central Securities Depositories Regulation (CSDR)

The Central  Securities Depositories Regulation (CSDR)

July 6, 2021

The third phase of the CSDR, the Settlement Discipline Regime (SDR) has been delayed to February 2022. The industry is in consultation with EU Commission/ESMA to discuss key roadblocks to implementation around buy-ins and other items. The announcement that the UK will not implement SDR signals a divergence in rule making between the EU and the UK.

Explore our insights and what this might mean for your firm.

Recent Developments

Pershing continues to actively engage with key industry players and industry associations on developments relating to the SDR, which is currently due to apply from February 2022. Specifically, we are actively engaged with AFME and are also participating on the proposal for regulatory change so that the penalties mechanism is the key lever for driving settlement efficiency and the buy-in process is amended to be the optional right of the purchaser rather than a mandatory obligation for non CCP-cleared transactions.

ESMA has recently stated in a letter to the Commissioner for Financial Services dated 20 May 2021 that it supports an enhanced regime regarding third country (TC) recognition with a requirement for TC-CSDs to notify ESMA regarding services provided in the EEA, and broadening the scope of the TC-CSD recognition regime by also covering the provision of settlement services in the EEA. In a post-Brexit regulatory landscape, this is an attempt by the EU to ensure a level playing field and fair competition between EEA CSDs and TC-CSDs, with regard to settlement services in respect of financial instruments constituted under the law of an EEA State.


The Central Securities Depositories Regulation (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 is designed to support the achievement of the objectives of Target2Securities (T2S) system 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 CSDR applies to all European CSDs and to all market operators in the context of securities settlement. Trading parties, central counterparties (CCPs), clearing and settlement agents (which are members of the CCPs and CSDs) 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. It should be noted that 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.*

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


Phase 1 and 2 – Omnibus/Segregated Accounts and Internalised Settlement Reporting

Phase 1, where providers are required to offer the option of individual segregated accounts, and Phase 2, the requirement to report internally settled trades have both been implemented. The list of authorised CSDs for CSDR can be found here.

Phase 3 – Settlement Discipline Regime (SDR)

The SDR introduces a number of measures to prevent settlement fails by ensuring that all transaction details are provided to facilitate settlement, as well as further incentivising timely settlement by cash penalty fines and buy-ins. This is the most contested aspect of CSDR with industry concerns that mandatory buy-ins could affect liquidity and costs. In addition, CSDs are required to provide functionality to participants to ensure harmonisation and automation of settlement processes across all European Economic Area markets to improve settlement efficiency.

Other Future Requirements

Article 3 Book-entry form: Any issuer established in the EU that issues or has issued transferable securities which are admitted to trading or traded on trading venues, is required to arrange for such securities to be represented in book-entry form (electronically). Any new security must be issued in book-entry form by January 2023, and all securities must be in book-entry form by January 2025.

Linda Gibson, Director of Regulatory Change (July 2021)

The industry is still waiting for the outcome of consultations with the EU Commission regarding potential amendments to the SDR with the EU Commission very much in listening mode. Any outcome from the consultations are not likely to result in legislation changes, if at all, until Q4 2021. This leaves the industry in a difficult spot with regard to planning the implementation of SDR as they are unsure what requirements of the SDR will be required to be delivered for the February 2022 deadline. Pershing EMEA is currently planning on the basis that there will be no change to the deadline or requirements but is retaining flexibility in its plans.

We watch this space regarding ESMA’s proposal for enhanced regime regarding third country (TC) recognition. The proposal has the potential to effectively overturn the UK Government’s previous position that it would not implement the SDR requirements in the UK.

*Note ESMA in a letter to the Commissioner for Financial Services dated 20 May 2021 proposes that CSDR should be amended in order to ensure T2S (which currently entirely out of scope of CSDR) is included.