The European Commision approves CSDR settlement discipline legislation
On 25 May 2018, the European Commission published the regulatory technical standards (RTS) concerning settlement discipline. The deadline for full compliance is expected to be H2 2020.
With the objective of increasing the efficiency of securities settlement, the European Commission has adopted legislation on settlement discipline, thereby making it mandatory for CSDs to implement a penalty mechanism, buy-in options and procedures to suspend a participant. As a CSD operating under a CSDR authorisation, VP SECURITIES is obliged to implement this new settlement discipline regime.
It is expected that, by H2 2020, the CSDs in the EU will have implemented the new regulation to improve settlement performance. The goal of greater discipline in the post-trade processes following a securities transaction is supported by cash penalties and other deterrents to prevent settlement failure. Cash penalties will be calculated for each trade that fails to settle on the intended settlement date. The size of the cash penalty will depend on the asset type and the value of the transaction. Penalties are calculated on a day-to-day basis until the trade is settled, and they will have a substantial impact.
The new rules also include a buy-in-process that will be initiated after an extended settlement period. Depending on the asset type, the extended period is four to seven days, during which mandatory partial settlement may take place, if possible. The measures in the settlement regime will require significant IT system changes at the level of CSDs, CCPs, trading venues and their participants.
“First of all, this is a major change that has a huge impact on all customers at every CSD in Europe,” says Deputy Head of Post Trade Products Thomas Bo Christensen from VP SECURITIES. “Monitoring and reporting will be a considerable task for us at VP, and we will maintain close dialogue with our customers to ensure a smooth transition to the new regime. VP has already established a project management group to ensure system development and implementation. Market participants will need to implement new policies and adapt business procedures to meet the new rules.”
The new CSDR settlement discipline legislation also mandates procedures to suspend a participant entirely. CSDs, CCPs and trading venues should consult their respective public authorities concerning the suspension of any participant that fails consistently and systematically.
VP was granted authorisation under CSDR by the Danish FSA as of 3 January 2018. VP was among the very first CSDs in the EU to be re-authorised under the European CSD Regulation, and the new settlement regime is part of the new level playing field for CSDs in Europe.
For more information:
Deputy Head of Post Trade Products Thomas Bo Christensen or Customer & Relations Director Henrik Ohlsen.