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.

The ever increasing demands on collateral in the post financial crisis regulatory landscape have, increasingly, called into question whether or not there is sufficient collateral of sufficient quality to safely and efficiently oil the cogs of the post-trade world. Collateral has taken centre stage and the industry, almost universally, has been discussing potential shortfalls prior to the implementation of key regulatory mandates such as central clearing of trades.

“This piece of market regulation, buried among what is primarily meant to be settlement regulation, will have a profound and dramatic impact on liquidity and pricing for the European capital markets,” says an ICMA Impact Study for CSDR Mandatory Buy-ins[1].

Central banks have never lent money to anyone without collateral, and they have made plain for years their belief that commercial banks should follow their example.