ESMA launches second CSDR consultation paper

ESMA (the European Securities and Markets Authority) has today released a second consultation paper on CSDR (Central Security Depository Regulation) with a focus on the mandatory buy-in regime that it affects in the event of a fail.

The second consultation paper comes after the first consultation paper revealed serious misgivings from the market about the buy-in operation. The general consensus was that CSDs themselves should not be involved in the buy-in phase and that rather, buy-ins should be executed at the trade level.

This was a view that was made clear in an interview with ECSDA (the European Central Securities Depository Association) two weeks ago: CSDR, mandatory buy-ins and CSDs

In its second consultation paper, ESMA offers up three options, with a list of strengths and weaknesses for each:

  1. Trading level execution
  2. Trading level execution with fall back execution
  3. CSD participant level execution

Another response from the industry was that the buy-in regime should be postponed. The settlement landscape is rapidly evolving as the post 2009 G20 financial reform programme is implemented, with numerous regulations and directives impacting upon the settlement landscape. The single settlement platform for Europe, T2S (Target2-Securities) went live last week and as ICMA explained in an interview a few weeks ago (The impact of mandatory buy-ins under CSDR) it would be a good idea to let the single settlement platform bed in and gauge the impact that this has on fail rates, before getting heavy-handed with the introduction of mandatory buy-ins.

The Level 1 text of CSDR says of mandatory buy-ins:

ESMA shall, in close cooperation with the members of the ESCB (European System of Central Banks), develop draft regulatory technical standards to specify (1) the details of operation of the appropriate buy-in process including the timeframes to deliver the financial instruments, (2) the circumstances under which the extension period could be prolonged, (3) the timeframe that renders buy-in ineffective for operations composed of several transactions, (4) a methodology for the calculation of the cash compensation when buy-in fails or is not possible, (5) the conditions under which a participant is deemed consistently and systematically to fail to deliver the financial instruments, and (6) the settlement information a CSD shall provide to CCP and trading venues to enable them to process the buy-in.

You can view ESMA’s second consultation paper on CSDR here: