The deadline for the buy-in provisions of the EU's Central Securities Depositories Regulation (CSDR) is expected to be pushed back until November 2020 to allow for technical updates to be completed on the SWIFT messaging framework, according to the International Captial Market Association (ICMA).
The CSDR buy-in provisions, which are currently due to come into force in September 2020, create a mandatory obligation for trading parties to execute buy-ins against counterparties who fail to settle their trades within a required period.
The requirements will apply to trades that are intended to settle on EU international central securities depositories (ICSD) and CSDs.
ICMA's senior director in market practice and regulatory policy team, Andrew Hill, said that although no official delay had been announced by the European Securities and Markets Authority (ESMA), the association “anticipated” one was forthcoming as technology framework around the regulation would not be in place by the original deadline.
Hill explained that the need for a delay is related to the cash penalties element of CSDR, which has the knock-on effect of also delaying the buy-in provisions.
According to Hill, the application of cash penalties on the Target2-Securities (T2S) platform requires an update to the SWIFT messaging protocol that is not scheduled to be released until November.
“Because of the way the settlement discipline package is written, the penalities and the buy-ins go together so if one gets delayed then they both get delayed – it's purely technical,” he said.
Messages related to CSDR cash penalties will be conducted on the ISO 20022 framework between T2S and CSDs and via ISO 20022 or ISO 15022 between CSDs and sub-custodians or participants and clients.
A spokesperson for ESMA said it is aware that CSDR's settlement discipline "requires significant IT developments for market participants, including the adoption of ISO standards the publication of which depends on the SWIFT standard release yearly schedule (November 2020)".
ESMA also confirmed it was "working towards a solutions" with the European Commission but indicated no official decision would be offered this year.
SWIFT did not immediately respond to questions on the matter.
The news of an expected delay comes as ICMA produces plans to update its 'buy-in rules' to support the implementation of the CSDR mandatory buy-in provisions in the international bond markets.
The association’s buy-in rules are part of its report on ‘secondary market rules & recommendations’.
The ICMA rules apply automatically to trades in international securities between ICMA members.
As part of the proposed changes, ICMA intends to consult with members in early 2020 on any proposed revisions.
ICMA says it is also exploring contractual provisions to address the asymmetric treatment to the settlement of the executed buy-in or cash compensation differential and the absence of a pass-on mechanism in the regulation.
On the proposed rule changes, ICMA CEO Martin Scheck said: “Participants in the international bond markets have relied upon the ICMA buy-in rules to manage their settlement risk for decades.”
“The introduction of the CSDR mandatory buy-in regime creates some problematic anomalies and another level of complexity, however, we expect the ICMA buy-in rules to continue to provide a contractual framework and best practice for executing buy-ins, while also addressing some of the issues presented by the regulation.”
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