The Central Securities Depository Regulation (CSDR) introduces mandatory Buy-ins for unsettled securities transactions after a certain number of days following the intended settlement day. The receiving Trading Party or Trading Venue Member side the transaction must appoint a Buy-in Agent who executes the Buy-in. In case the Buy-in Agent is unable to source the securities, a mandatory Cash Compensation Process starts.
The mandatory Buy-in requirements are currently scheduled to enter into force on 1 February 2022. This will apply when no objections from the European Parliament and the European Council are received.
Cash penalties apply from the first day of settlement failure until the end of the Buy-in process. The Buy-in Agent is not involved in the calculation or processing of the cash penalties, which is conducted on the CSD level.
The Buy-in obligation covers all deliverable securities which are traded or admitted for trading at one of the EU stock-exchanges, trading venues or cleared/admitted for clearing at one of the EU central counterparties, and which are supposed to settle in an EU CSD or ICSD. Shares which have their primary trading venue outside the EU are exempted from the Buy-ins. A list of excluded shares is provided by ESMA.
The extension period is a grace period following the intended settlement day (ISD) that allows the Failing Counterparty to still deliver the securities and thereby cure the fail. During the extension period, CSDs are calculating and processing settlement fails penalties. The Buy-in request must be initiated at the latest after the extension period expires. The extension periods are as follows:
For all non-centrally cleared securities transactions which fail to settle in an EU CSD or ICSD, the receiving trading party or trading venue member must initiate the Buy-in process with the Buy-in Agent. There are only a few exceptions (e.g. certain repo and securities lending transactions). In the case of transactions via a central counterparty (CCP), the CCP executes the Buy-in or appoints a Buy-in Agent. In case a CCP fails to deliver securities, no Buy-in shall be triggered by the receiving Clearing Member.
Securities lending and repo transaction with a maturity of less than 30 business days are exempt from the mandatory Buy-in, as well as transactions in shares which have their primary trading venue outside the EU. A list of excluded shares is provided by ESMA.
In case the Buy-in was not triggered, the receiving party is violating the Terms of the CSDR, which concerns settlements in all EU CSDs and is applicable to any entity (worldwide) that is the trading party in such a transaction.
In general, the classification of the instrument should be done on the basis of the following ESMA registers:
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