March 7, 2012 - The European Commission is promising to shake up cross-border securities settlement in the EU by cutting settlement timeframes and establishing a common regulatory framework for the region's 30+ central securities depositories.
The proposals call for the harmonisation of settlement to a T+2 timeframe and the introduction of financial penalties for market participants who fail to deliver their securities on time. Issuers and investors will also be required to keep an electronic record for virtually all securities, and to record them in CSDs if they are traded on stock exchanges or other regulated markets.Commissioner for internal market and services Michel Barnier says transactions worth over one quadrillion euro were settled by CSDs across the EU in the last two years. However, costs of cross-border settlement are as much as four times higher than in domestic markets while settlement fails are up to 10% more likely.
He says the shake-up will bring more safety and efficiency to securities settlement in Europe and help to minimise settlement fails in cross-border trading: "Today's proposal will introduce, in line with our international partners, common standards across the Union for securities settlement and CSDs to ensure a true single market for the services provided by national CSDs."
Under the rules, European CSDs will be granted a 'passport' to provide their services in other member states, but will first have to comply with strict organisational, conduct of business and prudential requirements to ensure their viability and the protection of their users. They will also have to be authorised and supervised by their national competent authorities.
The European CSD lobby group Ecsda greeted the announcement as a "good basis for discussion", but urged a rewrite of measures relating the ring-fencing of CSD operations from other third party services, such as banking.
Soraya Belghazi, secretary general of ECSDA, states: "Rather than disrupting the existing market structure in post-trade, Ecsda thinks that financial stability can be enhanced by tight regulation of the limited credit function of some CSDs and by the adoption of an effective resolution regime for market infrastructures."
She adds that the overhaul of corporate structures entailed by the restrictions could could make it more difficult for CSDs to establish links with other CSDs.
Ecsda will have plenty of opportunities to press its case as the proposal is now passed to the European Parliament and the Council for negotiation and adoption.
