CSDR Technical Standards and Technical Advice

Fabrizio Planta, Post Trading Team Leader

September 2015

Not all views expressed necessarily represent formal positions taken by ESMA

Presentation to explain ESMA’s on-going involvement in the drafting of

the CSDR Level 2 requirements

Outline of ESMA’s role in the Level 2 process

Reference to main stakeholder feedback to the ESMA consultation

papers and the related ESMA responses

Questions

CSDR Level 2 Measures

Outline of Presentation

Not all views expressed necessarily represent formal positions taken by ESMA

• ESMA required to elaborate:

31 draft technical standards (21 RTS + 10 ITS)

2 technical advice (EC Delegated Acts)

Level of penalties for settlement fails

Substantial importance of a CSD for a host Member State

• Key issues:

Settlement discipline

CSD requirements

Internalised settlement

• ESMA finalised the draft TA, and delivered this to the EC on 4 August 2015

• ESMA is finalising the draft TS, having analysed the input received during two public

consultations organised between 18 December 2014 – 19 February 2015 (over 100

responses) and 30 June – 6 August 2015 (42 responses)

CSDR Level 2 Measures

ESMA’s involvement: 31 draft technical standards and 2

technical advice

Not all views expressed necessarily represent formal positions taken by ESMA

CSDR Level 2 Measures

Settlement Discipline - Buy-in Process

• Responses to the ESMA Consultation Paper on Buy-in

3 options for the identification of the entity responsible for the execution of the buy-in

Option 1 – trading party

Option 2 – the trading party with payment of the cash compensation by the

participant as a fall back

Option 3 – CSD participant

Limited quantitative information received in support of any of the options

Of those respondents who expressed a preference, the vast majority were in favour of

Option 1, there was extremely limited support for Option 3 and none for Option 2

In general the industry view did not see considerable differences between the risks

attached to Option 2 and Option 3

However quantitative estimations provided to ESMA indicated that the potential

collateral costs were significantly different, with the costs of Option 3 potentially five

times that of Option 2

ESMA is now finalising the proposal for the party responsible for the execution of the

buy-in, taking into account industry feedback

Objective: ESMA is required to specify details of the records on the

CSD services and activities to be retained by CSDs for monitoring CSD

compliance with CSDR

Stakeholder Feedback:

Timeframe for implementation of record keeping requirements,

stakeholders required a minimum of 24 months

Concerns around the use of LEIs

Compatibility with global ISO standards

CSDR Level 2 Measures

CSD Requirements – Record Keeping

Not all views expressed necessarily represent formal positions taken by ESMA

Objective: ESMA is required to specify the reconciliation measures a

CSD must take to ensure the integrity of the issue

Stakeholder Feedback:

Proposed reconciliation timings too frequent

Concerns relating to the suspension of securities for settlement in the

event a CSD fails to solve an undue creation/deletion of securities by

the end of the following business day

CSDR Level 2 Measures

CSD Requirements – Reconciliation Measures

Not all views expressed necessarily represent formal positions taken by ESMA

Objective: Ensuring a CSD’s investments are appropriate

Stakeholder Feedback:

Proposals too demanding with regard to the timeframes for access to

assets and segregation requirements

Concentration limits for CSDs’ investments

The use of derivatives

CSDR Level 2 Measures

CSD Requirements – CSD Investment Policy

Not all views expressed necessarily represent formal positions taken by ESMA

Objective: To clarify the risks to be considered by CSDs when carrying

out a comprehensive risk assessment of an entity requesting access to

the CSD

Stakeholder Feedback:

Concerns related to the extraterritorial reach of provisions for third

country entities

CSDR Level 2 Measures

CSD Requirements – Links and Access

Not all views expressed necessarily represent formal positions taken by ESMA

Objective: Monitor internalised settlement

Stakeholder Feedback:

Overly detailed scope and granularity of reporting

Format of reporting – need for precise templates

Timeframe for applicability of the requirements

CSDR Level 2 Measures

Internalised Settlement

Not all views expressed necessarily represent formal positions taken by ESMA

• Going forward

ESMA is currently working together with the Commission to find a

legally feasible option for buy-in execution that takes into account the

views expressed as part of the recent consultation

The TS on Settlement Discipline including the buy-in requirements may

need to be delayed

The remaining components of the CSDR package will be delivered to

the Commission at the end of September following approval by the

ESMA Board of Supervisors

CSDR Level 2 Measures

Overall Next Steps for ESMA

Not all views expressed necessarily represent formal positions taken by ESMA

• Going forward

Following the delivery of the technical standards to the Commission,

ESMA will elaborate Guidelines covering at least the following issues at

an initial stage:

Standardised procedures and messaging protocols to be used by investment firms to

comply with the measures to limit the number of settlement fails (required under

Article 6(2) of CSDR)

Risks to be considered by CCPs and trading venues when carrying out a

comprehensive risk assessment of a CSD requesting access to their transaction feed

Q&As are also expected in order to ensure supervisory convergence

CSDR Level 2 Measures

Overall Next Steps - continued

Not all views expressed necessarily represent formal positions taken by ESMA

Not all views expressed necessarily represent formal positions taken by ESMA

Thank you