EU Council revises mandatory buy-in rules
21 December 2022 Europe
Image: artjazz/stock.adobe.com
The Council of the European Union plans to make EU securities settlement more efficient after member states agree on a proposed update for CSDR.
It looks to achieve this goal through simplifying requirements and clarifying authorisation processes related to the Central Securities Depositories Regulation (CSDR).
The Council highlights the “burdensome” requirements of passporting that hinder cross-border settlement, leading to minimised competition and reduced choice.
It says a newly proposed regulation would clarify that it is the home member state — where the CSD is authorised — that will decide on the CSD’s application to provide cross-border services.
Where the CSD’s activities, in at least two other member states, are considered to be of substantial importance for the functioning of the securities markets and the protection of investors, the regulation specifies that a college of supervisors will be set up.
This will facilitate the exchange of information between supervisors and ease cooperation between member state authorities.
The Council also aims to shorten the timeframe for the passporting process and to clarify its provisions, facilitating the delivery of a broader scope of services across the member states.
Significantly, the proposal looks to streamline rules on mandatory buy-ins, highlighting that the regime would be “a new measure of last resort”, to be activated only in the case where the “level of settlement fails would be substantial in the EU”.
In these circumstances, the mandatory buy-in regime will come into effect where a transaction has failed to settle at the end of a prescribed period and the buyer of the securities could be forced to repurchase them elsewhere.
The failing party would then be required to meet any price differential between the original and new transaction and all costs of the mandatory buy-in.
The proposal includes additional provisions relating to CSDs’ ability to access banking-type ancillary services from other authorised CSDs to facilitate settlement in non-domestic currencies.
In addition, the proposal presents rules to ensure that authorities in the EU have adequate powers and information to monitor risks in relation to EU and third-country CSDs, including steps to enhance supervisory cooperation.
Today’s agreement — reached by EU member states’ ambassadors — will allow the Council to start negotiations with the European Parliament to agree on a common text. The European Parliament is still in the process of adopting its position.
Transactions settled by EU central security depositories in 2019 reached approximately €1,120 trillion, according to the European Commission.
It looks to achieve this goal through simplifying requirements and clarifying authorisation processes related to the Central Securities Depositories Regulation (CSDR).
The Council highlights the “burdensome” requirements of passporting that hinder cross-border settlement, leading to minimised competition and reduced choice.
It says a newly proposed regulation would clarify that it is the home member state — where the CSD is authorised — that will decide on the CSD’s application to provide cross-border services.
Where the CSD’s activities, in at least two other member states, are considered to be of substantial importance for the functioning of the securities markets and the protection of investors, the regulation specifies that a college of supervisors will be set up.
This will facilitate the exchange of information between supervisors and ease cooperation between member state authorities.
The Council also aims to shorten the timeframe for the passporting process and to clarify its provisions, facilitating the delivery of a broader scope of services across the member states.
Significantly, the proposal looks to streamline rules on mandatory buy-ins, highlighting that the regime would be “a new measure of last resort”, to be activated only in the case where the “level of settlement fails would be substantial in the EU”.
In these circumstances, the mandatory buy-in regime will come into effect where a transaction has failed to settle at the end of a prescribed period and the buyer of the securities could be forced to repurchase them elsewhere.
The failing party would then be required to meet any price differential between the original and new transaction and all costs of the mandatory buy-in.
The proposal includes additional provisions relating to CSDs’ ability to access banking-type ancillary services from other authorised CSDs to facilitate settlement in non-domestic currencies.
In addition, the proposal presents rules to ensure that authorities in the EU have adequate powers and information to monitor risks in relation to EU and third-country CSDs, including steps to enhance supervisory cooperation.
Today’s agreement — reached by EU member states’ ambassadors — will allow the Council to start negotiations with the European Parliament to agree on a common text. The European Parliament is still in the process of adopting its position.
Transactions settled by EU central security depositories in 2019 reached approximately €1,120 trillion, according to the European Commission.
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