European Union reaches agreement on settlement reforms

European Union reaches agreement on settlement reforms

The European Parliament has hammered out an agreement on safeguards aimed at protecting the financial system from failures at central securities depositories.

Under the proposals, CSDs will face an additional capital surcharge for the provisions of collateral and other banking services to market participants. The rules also incorporate a measure for CSDs to enforce a mandatory 'buy-in' of trades that fail to settle on time for delivery to the non-defaulting counterparty.

The Regulation also ensures an equal level playing field across the EU by creating a common authorisation, supervision and regulatory framework for CSDs and improves the securities settlement process through dematerialisation of paper stock certificates and by shortening the settlement timeframe to T+2.

International CSDs will be breathing easier as the original proposals published in May last year called for an outright ban on the provision of ancillary banking services by essential market infrastructure operators.

The size of the capital surcharge that CSDs - and the banks that provide them with banking services - will face has yet to be determined.

Michel Barnier, the EU commissioner responsible for the reforms, welcomed the agreement: "Settlement is a very important process for securities markets and for the financing of our economy. The numbers speak for themselves: in the European Union, transactions worth over one quadrillion euro were settled by CSDs in last two years. I hope that the remaining technical work can be finalised as soon as possible under the Greek Presidency so that these new rules can be formally adopted by the co-legislators."

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