CSDR New settlement discipline regime

The new settlement discipline regime significantly impacts VP Securities and implies penalties for failing transactions for settlement participants.

The implementation of the CSD Regulation (CSDR), which is aimed at harmonising the regulatory environment for securities settlement within the EU, is gradually taking shape. CSDR not only impacts CSDs, but also any market participants involved in securities settlement. In this article, we focus on the implementation of the CSDR settlement discipline regime.

VP Securities


The European Parliament and the Council approved CSDR in July 2014. Since then, different bodies, including the ECB (the European Central Bank), ESMA (the European Securities and Markets Authority) and ECSDA (the European Central Securities Depository Association), as well as European CSDs and other market participants, have worked to implement the new regulatory regime.

On 13 September 2018, the European Commission officially published the Regulatory Technical Standards (RTS) on settlement discipline.

One of the main objectives of the RTS is to improve the safety and efficiency of securities settlement, particularly of cross-border transactions, by ensuring that buyers and sellers receive their securities and money on time and without risks. To achieve this objective, the RTS provides for a set of measures to prevent and address failures in the settlement of securities transactions, commonly referred to as the CSDR settlement discipline regime.

As a CSD operating under a CSDR licence, VP Securities is obliged to implement the new settlement discipline regime. This will have an extensive impact on both our customers and on VP Securities.

The ECSDA settlement discipline framework

Through its CSDR Working Group, ECSDA has established a framework which aims to ensure that all CSDs implement the settlement discipline measures on a harmonised basis across the EU. The framework is based on the provisions of CSDR (Articles 6 and 7), the RTS and T2S CSDR Task Force documents, and constitutes a market practice for CSDs. The framework is still “work in progress” and may be subject to changes due to various working assumptions, which are currently being clarified in ongoing discussions within ECSDA and in consultation with ESMA.

The framework builds on the following four key pillars:

Pillar I. Measures to prevent settlement fails:

  • Trade allocations and confirmations
  • Automation of CSDs’ settlement processes and reporting of “manual interventions”
  • Settlement instructions’ mandatory matching fields
  • CSDs’ settlement functionalities aimed at preventing settlement fails, e.g. bilateral cancellation, hold & release and partial settlement

Pillar II. Requirements to monitor and report settlement fails:

  • CSDs are required to monitor and analyse settlement fails and CSD participants’ settlement efficiency
  • Reporting of settlement efficiency/fails to competent authorities and the general public.

Pillar III. Requirements for CSDs to charge cash penalties to participants that cause settlement fails:

  • For matched settlement instructions failing to settle on the intended settlement date, CSDs are required to perform daily penalty calculations and monthly reporting, and collection and re-distribution of penalties to CSD participants.

Pillar IV. Rules requiring a mandatory buy-in:

  • Trading parties are required to initiate mandatory partial settlement and buy-in after a specific period of time – the extension period – after the intended settlement day.

The CSDR settlement discipline legislation also includes procedures to suspend a participant that fails consistently and systematically to deliver the financial instruments on the intended settlement date. Suspension is an extreme measure that can only be used as a last resort solution to a serious problem and can only be executed after careful consideration of the circumstances in each case, and in close consultation with the respective competent authority.

CSDR Settlement Discipline Scope

The new settlement discipline regime has a deferred implementation of 24 months, thereby establishing the compliance deadline of 13 September 2020.

Implementation of CSDR is an ongoing and quite far-reaching process at VP that started when we applied for the licence to operate as a CSD under CSDR and is an integrated part of our strategy to establish full European functionality. The next step is to ensure compliance with the provisions concerning settlement discipline. We are dedicated to ensuring the necessary system development and implementation. As we move closer to the implementation deadline in 2020, we are intensifying our dialogue with our customers and the market participants to ensure a smooth transition to the new regime – for example by setting up relevant working groups,” says Morten Sprange Thomsen, Head of Post Trade Products at VP Securities.

Morten Sprange Thomsen continues: “Implementing the new settlement discipline measures will be an important task for us at VP. Among other things, we will develop a new penalty mechanism for VP settlement and ensure integration with the T2S Penalty Mechanism. The measures require an extensive reporting task, and that the CSDs are a ‘clearing hub’ for the collection and re-distribution of the penalties. Furthermore, as part of the new regime, participants will need to implement system changes to ensure integration towards VP, and adapt business procedures to comply with the new rules. At VP we will seek to ease the implementation burden for our customers by ensuring minimum system changes and close dialogue with our stakeholders.”

CSDR licence

Currently, 10 European CSDs have been granted a licence under the European CSD Regulation. VP was granted a licence under CSDR by the Danish FSA as of 3 January 2018 and was one of the very first CSDs in the EU to be re-authorised under CSDR.

Kristoffer Kjelsø Sønderlev

Head of Custody & Settlement Products

+45 2279 3689
Follow me

With Euronext Securities on T2S you achieve a single point of access to Nordic and European distribution and settlement

- Kristoffer Kjelsø Sønderlev, Head of Custody & Settlement Products