What is CSDR?
The Central Securities Depositories Regulation (CSDR) entered into force on 17 September 2014 and aims to harmonize the authorization and supervision of central security depositories (CSDs), across the EU and to improve settlement discipline in the securities settlement systems (SSSs) that CSDs operate.
Coupled with TARGET2-Securities (T2S), the harmonization and level playing field objectives of CSDR aims to make cross-border settlement processing and safekeeping more efficient and secure through:
- Shorter settlement periods;
- Settlement discipline measures (mandatory cash penalties and ‘buy-ins’ for settlement fails);
- Dematerialization for most securities;
- Strict prudential and conduct of business rules for CSDs; strict access rights to CSD services; and
- Increased prudential and supervisory requirements for CSDs and other institutions providing banking services ancillary to securities settlement.
The regulation’s settlement discipline measures impose obligations on:
- Trading venues, to establish procedures that enable confirmation of trade details on the date of execution;
- Investment firms to put in place measures to limit settlement fails; and
- CSDs to establish incentives to encourage timely settlement on the SSS that they operate.
It also introduces penalty fees for failing transactions and forced mandatory buy-ins where a failing participant does not deliver the financial instruments to the receiving participant within four business days after the intended settlement date.