The Joint Trade Associations, a group of 16 industry associations, have written to the European Commission and the European Securities Market Authority (ESMA) regarding the implementation schedule for mandatory buy-in rules under the Central Securities Depositories Regulation (CSDR).
This group states that it supports the European Commission’s intention to consider amendments to mandatory buy-in rules under the CSDR’s settlement discipline regime, which are due to be introduced by 1 February 2022.
The Commission published a report on 1 July which says that the Commission will consider proposing a legislative review of CSDR, subject to an impact assessment.
This impact assessment is expected to run during the second half of 2021.
The Joint Associations welcomed the Commission’s message that it will consider amendments to the mandatory buy-in regime, stating that this is a positive step towards delivering an effective settlement discipline regime (SDR) that achieves its objectives and avoids negative consequences for European capital markets and investors.
The associations warned the Commission against enforcing the current rules and then revising them at a later point.
This, they say, would “risk damaging the competitiveness of EU capital markets and increasing cost for investors, but would also lead to a duplication of efforts and significant unnecessary disruption for market participants”.
The correct approach, they say, will be to enact necessary amendments prior to implementation, following a review of mandatory buy-in rules by co-legislators, notably the European Parliament and Council.
Their letter points out that a considerable number of open questions are still under consideration by the European Commission and ESMA. These must be addressed well in advance of the implementation date, giving market participants sufficient time to make alterations to their systems, processes and contractual arrangements.
Without addressing these questions, market participants will be unable to complete their preparations and fully implement the CSDR requirements, the associations say.
With these concerns in mind, the Joint Associations propose that “the implementation of the mandatory buy-in rules should be urgently disapplied through an appropriate regulatory mechanism that provides legal certainty to market participants”.
This action, they say, should not affect the implementation of other provisions under the SDR which are due to be enacted by February 2022, including application of cash penalties.
This letter follows earlier recommendations advanced by the Joint Trade Associations on the CSDR settlement discipline regime in letters to the European Commission and ESMA on 22 January 2020 and 11 March 2021.
The Joint Associations indicate that they remain fully supportive of the Capital Markets Union project and steps to improve settlement efficiency in Europe. However, this must be done in a way that protects market liquidity, that does not increase costs for issuers and investors, and does not place European capital markets at a competitive disadvantage.
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