Responding to the proposed changes from the European Commission to the Central Securities Depositories Regulation (CSDR), Pete Tomlinson, Director of Post Trade at the Association for Financial Markets in Europe, said:
“AFME members continue to support the objective of improving settlement efficiency in European capital markets in a proportionate and effective manner. AFME therefore welcomes today’s decision from the Commission to avoid immediately introducing mandatory buy-ins.
“In particular, the proposed two-step approach is practical as it will provide the opportunity to assess the impact of the penalties regime and other measures. AFME remains confident this will result in a reduction in settlement fails. The proposal to clarify and simplify passporting rules is also helpful and we hope this will support increased cross-border issuance and promote further competition amongst CSDs.
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“However, it is not clear from today’s proposals how the Commission intends to assess whether or not settlement efficiency has reached ‘appropriate levels’. AFME recommends that a clear framework is established to measure this to provide greater certainty to market participants.
“AFME does not believe mandatory buy-ins are appropriate for any asset class or transaction type and will have disproportionate negative consequences on market liquidity and efficiency that could undermine the attractiveness and competitiveness of EU capital markets.
“Other tools may be more effective at achieving the settlement efficiency objective and should be considered as a second step, should this be necessary, instead of mandatory buy-in provisions. These could include increasing penalty rates or measures to increase use of partial settlement.”
Source: AFME
ICMA welcomes revised mandatory buy-in framework under CSDR
ICMA welcomes the proposal from the European Commission for a revised mandatory buy-in framework under CSDR, which takes into account a number of the concerns previously raised by ICMA and the wider industry, not least the potential negative effects of the regime, both in normal and stressed market conditions. For example, the inclusion of a pass-on mechanism and the provision for symmetrical payments of the buy-in differential are welcomed enhancements to the previous proposal.
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It is also encouraging that the application of the mandatory buy-in regime will be subject to an assessment by the Commission as to its appropriateness in the light of the evolution of settlement efficiency in the EU, allowing the opportunity for cash penalties, as well as other initiatives focused on improving settlement efficiency, some time to make an impact.
However, ICMA would stress the importance of a robust approach to assessing not only settlement efficiency rates that importantly differ across different instruments and transaction types, but also the precise causes of settlement fails, with recognition of the extremely fragmented post-trade landscape that is a particular and longstanding characteristic of EU capital markets.
ICMA would further caution that a regulatory, one-size-fits-all buy-in regime could be counterproductive for markets that already benefit from contractual buy-ins or other well-established remedies for settlement fails, for instance bond markets.
Source: ICMA
