CSDR consultation responses show majority in favour of buy-ins becoming voluntary
19 March 2021 Belgium
Image: Horváth Botond/adobe.stock.com
Responses from the European Commission’s Central Securities Depositories Regulation (CSDR) consultation found that 51 out of 91 respondents said the buy-in regime should change from a mandatory requirement to a voluntary one.
Responses from the consultation, which ran from 8 December last year to 1 February this year, also showed that 14 respondents requested the buy-in regime be retained while 26 either did not respond or were neutral.
Meanwhile, 69 respondents felt that a revision of the settlement discipline regime, which the buy-ins come under, is necessary with only seven in disagreement.
“The early summary from the commission clearly shows that the majority of respondents are in favour of discretionary buy-ins rather than mandatory,” says Paul Baybutt, senior product manager, securities services, HSBC.
According to Baybutt, this cannot be achieved as the regulation currently stands so he says it comes as no surprise that the majority of respondents also note the regulation will require revision.
Baybutt explains: “Many respondents believe a mandatory buy-in regime would impact market liquidity, particularly for thinly traded securities. A large section of the respondents also think that the application of the penalties regime, rather than a mandatory buy-in regime, is sufficient to improve settlement efficiency.”
The consultation invited stakeholders to provide input on the implementation of CSDR.
At the time of publishing the consultation, the EC said recent developments, in particular, the pressure put on markets by the COVID-19 pandemic, should also be taken into account.
Last week, 14 trade associations sent a co-signed letter to EU regulators suggesting that the global financial industry will be hard-pressed to amend internal processes to comply with “essential” changes to CSDR settlement discipline regime in time for the February 2022 deadline.
The mass lobbying effort, which included the International Securities Lending Association, the International Capital Market Association and the International Swaps and Derivatives Association, called for the buy-in rules at the centre of the market’s long-standing concerns to be held back from the implementation schedule until it’s fit for purpose.
“The implementation of the CSDR mandatory buy-in regime is a significant undertaking for the entire financial market, not only in Europe, but globally,” the letter read. “This involves not only extensive system developments, but also major client outreach across multiple markets and jurisdictions to undertake contractual papering and remediation in line with the requirements set out in Article 25 of CSDR.”
CSDR aims at increasing the safety and improving settlement efficiency as well as providing a set of common requirements to ensure the safety of EU CSDs. It requires the commission to prepare a report on its implementation and submit it to the European Parliament and the Council, if necessary with proposed legislative changes.
In February, the European Association of CCP Clearing Houses also called for a revision to the date of entry into force of the CSDR settlement discipline regime SDR in its responses to the European Commission’s consultation.
The Association for Financial Markets in Europe also voiced its concerns, suggesting the introduction of CSDR mandatory buy-in element of the settlement discipline regime presents a
“significant risk to Europe’s recovery from the COVID-19 crisis and will likely disproportionately impact on small and medium-sized enterprises and less liquid securities”.
The comments were made in a position paper by the association highlighting the risk of mandatory buy-ins to Europe’s economic recovery from the pandemic and calling for the measure to be removed from the upcoming CSDR.
Responses from the consultation, which ran from 8 December last year to 1 February this year, also showed that 14 respondents requested the buy-in regime be retained while 26 either did not respond or were neutral.
Meanwhile, 69 respondents felt that a revision of the settlement discipline regime, which the buy-ins come under, is necessary with only seven in disagreement.
“The early summary from the commission clearly shows that the majority of respondents are in favour of discretionary buy-ins rather than mandatory,” says Paul Baybutt, senior product manager, securities services, HSBC.
According to Baybutt, this cannot be achieved as the regulation currently stands so he says it comes as no surprise that the majority of respondents also note the regulation will require revision.
Baybutt explains: “Many respondents believe a mandatory buy-in regime would impact market liquidity, particularly for thinly traded securities. A large section of the respondents also think that the application of the penalties regime, rather than a mandatory buy-in regime, is sufficient to improve settlement efficiency.”
The consultation invited stakeholders to provide input on the implementation of CSDR.
At the time of publishing the consultation, the EC said recent developments, in particular, the pressure put on markets by the COVID-19 pandemic, should also be taken into account.
Last week, 14 trade associations sent a co-signed letter to EU regulators suggesting that the global financial industry will be hard-pressed to amend internal processes to comply with “essential” changes to CSDR settlement discipline regime in time for the February 2022 deadline.
The mass lobbying effort, which included the International Securities Lending Association, the International Capital Market Association and the International Swaps and Derivatives Association, called for the buy-in rules at the centre of the market’s long-standing concerns to be held back from the implementation schedule until it’s fit for purpose.
“The implementation of the CSDR mandatory buy-in regime is a significant undertaking for the entire financial market, not only in Europe, but globally,” the letter read. “This involves not only extensive system developments, but also major client outreach across multiple markets and jurisdictions to undertake contractual papering and remediation in line with the requirements set out in Article 25 of CSDR.”
CSDR aims at increasing the safety and improving settlement efficiency as well as providing a set of common requirements to ensure the safety of EU CSDs. It requires the commission to prepare a report on its implementation and submit it to the European Parliament and the Council, if necessary with proposed legislative changes.
In February, the European Association of CCP Clearing Houses also called for a revision to the date of entry into force of the CSDR settlement discipline regime SDR in its responses to the European Commission’s consultation.
The Association for Financial Markets in Europe also voiced its concerns, suggesting the introduction of CSDR mandatory buy-in element of the settlement discipline regime presents a
“significant risk to Europe’s recovery from the COVID-19 crisis and will likely disproportionately impact on small and medium-sized enterprises and less liquid securities”.
The comments were made in a position paper by the association highlighting the risk of mandatory buy-ins to Europe’s economic recovery from the pandemic and calling for the measure to be removed from the upcoming CSDR.
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