settlement – ECSDA

ECSDA publishes its Settlement efficiency considerations

In November, one year and a half after the implementation of the Settlement Discipline Regime, the ECSDA Settlement Working Group is releasing this discussion paper to share its preliminary analysis about the main root causes of settlement fails in Europe, as far as visible at the level of CSDs and reported through a survey by their participants. The intention is to share some initial recommendations to improve the settlement efficiency in Europe.

The deep attention of CSDs to settlement efficiency is driven by one of their main missions which is to support market efficiency and financial stability. Settlement fails stand in the way of efficiency by generating undue costs, creating further frictions for the connected transactions and ultimately being a driver of systemic risk. If a participant is expecting to receive securities or cash on the intended settlement date but is not receiving them because of a settlement fail from its counterparty, there is a risk that the affected participant is also unable to meet its obligations with other counterparties. That might result in a potential “domino effect” and be a cause of systemic risk.

However, in our view, allowing for a lower level of fails is preferable to aspiring to full efficiency, as it might lead to an unreasonable level of rigidity in financial markets and result in high costs (for pre-funding in addition to the necessary ecosystem technology upgrades). A certain level of tolerance is instrumental to the well-functioning financial markets aspiring for high levels of liquidity and settlement velocity.

This paper is, therefore, looking at how to reduce the number of fails, while not reducing the volume and value of transactions to be settled.

Read the full document.

ECSDA issues its updated CSDR Penalties Framework

Today, 28 April 2023 ECSDA issued the update of the ECSDA CSDR Settlement fails Penalties Framework.
The change takes into account the postponement of the collection of payment by CSD participants giving them an additional day to collect the payment from the underlying customers:

PFoDs Trade Date (TD) – from 15th to 16th Day
Payment Date – from 17th to 18th Day

ECSDA CSDR Penalties Framework last updated 28/04/2023

ECSDA issues 2023 penalties calendar

The European Central Securities Depositories Association (ECSDA) issues the 2023 calendar, which can be found below.

In the calendar, you will find highlighted the key dates of the penalties life cycle as follows:

End of appeal period – 10th PBD
Monthly report – 14th PBD
Payment date:
a. 17th PBD until February penalties, e.g., March payment
b. 18th PBD from March penalties, e.g., April payment

The payment date will be postponed by 1 PBD, from March penalties, e.g., April payment, as a result of the activity in the Calendar TF with industry associations.

We take the opportunity to thank AFME, EACH, AGC, EFAMA, IA Members, and other associations participating in the Industry Settlement Fails Penalties Calendar task force and look forward to working with you in the future.

We wish you a happy year-end holiday!

The ECSDA team

ECSDA Board elects WG Chairs

On 29 November, the ECSDA Board meeting remotely elected the Chair of the Policy and the Settlement Working Groups.

The Policy WG will now be chaired by Chiara Rossetti, Senior Manager, Regulation for Euronext Securities Milan.

As a member of the ECSDA Policy Working Group since 2012, Chiara Rossetti has shown a strong commitment to the development of the advocacy activities of the Association. As Vice-Chair, she has been proactively engaged in the coordination of the various activities of the Policy Working Group, thanks also to the experience she gained in other post-trade industry working groups.

Ms Chiara Rossetti stated that it was an honour to have the opportunity to chair the Policy WG and to succeed the former chairs.

Mr Jesús Sánchez, Head of Settlement Services, SIX, will Chair the Settlement WG.

Mr Sánchez spent all his career in the settlement area and is well known within the settlement expert community in Europe as he is a member of several technical and steering groups of T2S. He is the Chairperson of the Market Settlement Efficiency group, since 2020.

Mr Sánchez stated that he is eager to have the opportunity to share his experience.

Congratulations to both of them!

The ECSDA Board seized the opportunity to thank Mr Italo di Lorenzo, former Chair of the WG for his commitment to the Policy WG as member and Chair and to Tim Werner, Clearstream, and Mathilde Joannet, Euroclear, respectively Chair and Vice Chair of the Settlement WG for their legacy to the work of the Settlement WG.

ECSDA response to ESMA consultation on the amendment on Article 19

ECSDA welcomes the ESMA initiative of consulting the relevant stakeholders on the change of the dedicated penalties collection and distribution process for cleared transactions, as currently foreseen under Article 19 of Commission Delegated Regulation (EU) 2018/1229 (CDR).
ECSDA is generally supportive of the ESMA proposal. In addition, the following elements are essential for CSDs:

that further light is shed on the interaction between CSDR Article 7(11) and the changed Article 19 (and eventually, recital 22),
receiving the information on the timeline for the entry into force of the regime as soon as possible, and
that the date of activation of the regime is foreseen on the first business day of the month.

In the interest of clarity, we suggest structurally clarifying the treatment of CCP transactions and penalties in CSDR itself, ideally as part of the CSDR Refit exercise.

Read the full response.

SKDD to join T2S in 2023

On 19 May, the ECB announced that SKDD, the Croatian CSD, will migrate to Target 2 Securities in 2023.

See the full release.

New Timeline for February Penalties process

After extensive evaluation and considering wide-ranging discussions of recent days, the CSDs have agreed in principle on a process for February penalties. Below we outline the timeline for the February penalties process and some of the elements that CSDs took into account.

Acknowledging the AFME proposal of last Friday (March 11), the CSDs confirmed their agreement and possibility to proceed with collection and distribution for payment date on 13 April.

The resulting timeline of the process:

*The dates decided by the CSDs are communicated by them to the participants.

Useful documents:

Dates for reporting of Monthly Net amounts. (Last updated on 31 March 2022. The overview of the CSD preferences is updated intra-day, upon reception of information; we hope to complete the document on 18 March, at the latest. Please refer to the relevant CSD communication as the ultimate source of information.)

ECSDA April calendar for March penalties (for Easter holidays). (Last updated on 30 March 2022.)

CSDs activate their settlement penalties mechanisms

1 February 2022 is the day of the entry into force of the Central Securities Depositories (CSD) Regulation (Regulation (EU) 909/2014) settlement penalties requirements. The requirements can be found on the website of the European Securities and Markets Authority. Most European CSDs are activating the mechanism on that day.

Many answers to the CSD participants’ questions on how the requirements will be implemented by CSDs can be found in the ECSDA Penalties Framework. Its version dated 5 October 2021 will be used for the set-up of the CSDs’ mechanisms as of 1 February 2022 and provides many answers to the frequently raised questions. More information about how the individual CSDs are applying settlement penalties requirements is provided by their website.

ECSDA uses the opportunity to remind the key milestones of the monthly reporting and collection/distribution process.

To ensure that the penalties processes are running smoothly, CSDs will be following the indicative timeline of the monthly process outlined below. Should the monthly reports be delayed for some reasons (e.g. a delay on the CSD side for a technical reason or a T2S delay), the CSD will only proceed with the subsequent steps of the monthly process after the participants receive the monthly reports. Section 12.2 of the Framework describes the handling of exceptions.

Source: ECSDA Penalties framework.

If an appeal based on a daily report is required, it should be addressed to the CSD as soon as practically possible, to be taken into account on time before the monthly payment request is sent to a participant. (For T2S CSDs, no change is possible after the 10^th Penalties Business Day. The end of appeal for cross-CSD penalties is also be shorter than for intra-CSD; please refer to the communication of the individual CSD.) The amounts mentioned in the monthly report must be the ones collected and distributed. Penalties subject to an appeal submitted on time will be removed before the monthly report is sent, thus these will not appear on the penalties monthly reports. After the monthly process has been concluded, no further adjustments for the penalties received and distributed should be done by CSDs.

We encourage CSD participants to refer to the basics of the appeal mechanism, e.g. in the ECSDA Framework and the individual CSDs´ governing documents to limit queries and appeals to the extent possible. CSDs particularly ask the participants to verify the validity of reason for appeal before submitting it. This would avoid drawing upon the highly solicited CSD expert attention without a valid reason and ensure more efficient treatment of valid appeals.