Central Securities Depositories

On 7 March 2012, the EU Commission finally released its proposal for the regulation of CSDs (Central Securities Depositories).

The aim of this draft regulation is to create a pan-EU status for CSDs, common governance rules and allow issuers of financial instruments to choose their location of preference without regard for the nationality of the CSD. The regulation must be seen in a context that is heavily changing, with a review of the MiFID for the trading layer and both the EMIR (Clearing and derivatives) and T2S (the European Central Bank’s central Settlement project). The main features A CSD is defined as a legal entity performing central Settlement services, i.e. operating a Securities Settlement System (SSS), and providing notary services and/or performing central safekeeping. In addition to these “core” services, a CSD may be authorised to provide non-banking type of ancillary services, which are related to the core services only.

  • Authorisation and supervision remains with the competent authority of the home Member State. ESMA will operate a register of CSDs. Third countries’ CSDs may operate in the EU upon recognition of their services by ESMA.
  • Authorised CSDs will be able to offer their services throughout Europe without the need for further authorisation (passporting).
  • A user committee that will advise the board of the CSD and that will be independent from the management of the CSD will be established (no risk committee).
  • CSDs are fully responsible for outsourcing, with the exception of T2S.
  • Issuers shall have free access to the CSD of their choice to issue securities (dismantling of Giovannini Barrier 9).
  • A Settlement period of maximum T+2 (trade date + 2 days) will also apply to all transferable securities that are admitted on regulated markets, MTFs or OTFs as of 1 January 2015.
  • Measures to prevent and to address Settlement fails (e.g. mandatory and harmonised buy-in rules).

In addition, because of the systemic infrastructure role of CSDs, the regulation will introduce strict limitations as to the type of non-pure CSD activities that are performed. CSDs may have to apply for a specific banking licence and decommission their IT.