The post trade dimension of the Capital Markets Union

13 May 2015 – The CMU initiative of the European Commission is likely to affect all financial markets players, infrastructures included. ECSDA’s response to the Commission Green Paper includes four recommendations from a CSD perspective.

  1. The very first priority of the Commission should be to ensure that recently adopted EU laws are consistently implemented. This includes monitoring, preventing and addressing divergences in the transposition and implementation of EU rules into national law. For example, ensuring that national authorities apply the conditions for the authorisation of a CSD consistently across all EEA markets within the framework of the CSD Regulation will be important to avoid gold-plating and potential competitive distortions during the authorisation process in early 2016.
    Similarly, in the field of insolvency law, the European Commission can play a role in reducing inconsistencies by encouraging a more harmonised interpretation and implementation of existing EU laws in the field of insolvency procedures (Settlement Finality Directive, Financial Collateral Directive, Winding-up Directive). Such convergence in implementation would be beneficial without requiring a substantial harmonisation of insolvency procedures (which is probably unrealistic given that such area of the law remains primarily a national competence).
  2. Second, current and future legislative proposals should be assessed against the CMU objectives prior to being adopted by the EU legislator. New legislation must be geared towards supporting well-functioning and internationally attractive financial markets. CSDs fear that some recent EU legislative proposals could undermine the success of the CMU project if they are not properly recalibrated. This is for example the case of some technical standards under the CSD Regulation (CSDR) which could create new obstacles for the cross-border issuance and/or trading of securities within the single market.
  3. Third, EU initiatives in the post trade sector should focus on public sector barriers which prevent efficient cross-border securities transactions. Most private sector barriers have been removed over the past ten years, and progress has often been hampered by remaining legal and fiscal restrictions.
    For example, ECSDA understands that the European Commission is considering the possibility of issuing a legislative proposal on the harmonisation of securities laws, including rules related to securities ownership. ECSDA believes that such legislation should only be proposed if (1) it focuses on the book entry principle instead of attempting to achieve widespread harmonisation of material aspects of securities law, (2) it includes conflicts of law rules based on the PRIMA rule and (3) it follows a horizontal approach, clarifying the role and responsibilities of all account providers in the securities chains and ensuring a consistent approach for account segregation requirements at intermediaries and market infrastructures.
    As regards possible legislation on the recovery and resolution of financial market infrastructures other than CCPs, ECSDA is not convinced that it is required to specify details of CSD recovery plans, especially given that the contents of recovery plans are addressed by international Principles and EU technical standards, and given that recovery anyways requires a certain degree of flexibility and discretion on the part of the CSD to be effective. Nonetheless, if separate EU legislation on the recovery and resolution of CSDs is ever to be considered by the European Commission, ECSDA recommends that it should focus primarily on resolution by public authorities, and in particular on cross-border resolution scenarios, rather than on recovery.
  4. Finally, achieving the objectives of the Capital Markets Union will not always require regulation, as market-driven solutions will sometimes be more effective, for example in the fields of investor education or cross-border investment funds processing.

Read the full ECSDA response to the CMU Green paper