Central Securities Depositories Regulation

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 European Commission announced at the end of November 2021 that it will add a reference to CSD-R/SDR in the new Distributed Ledger Technology law, it is currently finalizing. This reference will allow lawmakers to define separate entry-into-force dates of the different SDR measures (cash penalties, buy-ins). It is understood that, due to the complex legislative process, a new start date for the mandatory buy-ins cannot be implemented until the currently defined start date of 1-February 2022. We expect this process to take some time beyond February 2022.

While mandatory buy-ins will be part of the CSD-R Refit starting in 2022, to be introduced with CSD-R II, until the actual delay of the buy-in rules has been announced Buy-ins could technically be initiated under the existing rules.

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:

  • ISD +4 for liquid shares
  • ISD +7 for other financial instruments
  • ISD +15 for shares traded on a SME growth market

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 based on the following ESMA registers:

  • Financial Instrument Reference Data System
  • Financial Instruments Transparency Reporting System
  • Exemption list from EU Short Selling Regulation

In cooperation with Eurex STS, Deutsche Börse Market Data + Services has launched a CSDR data product. The data set contains all instrument static data and CSD-R relevant data which are needed to manage SDR risks and obligations effectively. The instrument scope comprises of all CSDR in-scope instruments.

Eurex STS is making the data product available to its clients without additional costs.

Further information and contacts can be found here:

Deutsche Börse Market Data + Services -CSDR data service (deutsche-boerse.com)

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