CSDR – SDR A first positive signal from ESMA


On 14 July 2021, many professional associations had written jointly to the European Comission (EC) and ESMA* to request that the current mandatory buy-in regime not be implemented in February 2022 (only penalties would apply) and that this decision be formalized as soon as possible to allow the industry to halt its preparatory work. ESMA has just given an encouraging first signal.

In a letter dated 23 September 2021** addressed to the European Commission (EC), the European regulator formalised its position on the implementation of settlement disciplines (in particular penalties and mandatory buy-in).

Recalling the context - a process of revision of CSDR - which includes the settlement disciplines (SDR) and should lead to a proposal at the end of 2021 -, ESMA makes the following observations:

  • The implementation of the mandatory buy-in faces two major challenges:

               -The current regime is the subject of many unanswered questions (the list is available on the ESMA  website)

               -And it may be subject to review (it is one of the items selected by the European Commission for further analysis); the existence and scope of the improvements will not be known before the end of 2021

  • The tight schedule could also result in additional costs; the actors concerned having to adapt initially to the current regime of the takeover and then to its replacement      

  • On the other hand, the implementation of penalties does not appear to be a major problem. It can therefore be done on the expected date (February 1, 2022) and thus contribute to an improvement of the settlement efficiency.

Therefore, ESMA indicates being in favour of a postponement of the mandatory buy-in in order to take the time to consider this part of the settlement disciplines. In addition, the EC is requested to formalise the decision to separate the application of the penalties from the mandatory buy-ins as soon as possible and at the latest by the end of October. Finally, it indicates that it is at the disposal of the Commission.

We can only rejoice at this letter which shows that ESMA has heard the alerts reported by the associations on the difficulty of being ready (given the many unknown remaining) and the likelihood of further adjustments should the mandatory buy-in regime be changed.

Above all, the industry was waiting for a strong signal to stop its preparation work. We are on track!