Industry fears slowdown of CSDR preparedness following delay 

Panellists at the Network Forum Autumn Meeting echoed fears that plans comply with the rules have been put on hold since the announcement of its delay. 

By Joe Parsons

Market participants fear industry preparedness for the settlement discipline regime (SDR) has slowed down after the EU announced it would delay the regulation to February 2022.   

Speaking at The Network Forum Autumn Meeting, panellists from across the European post-trade landscape echoed fears that plans among banks, brokers and buy-side firms to comply with the rules, set out under the Central Securities Depository Regulation (CSDR), have been put on hold since the announcement. 

“From around August time, we seen plans [to comply] definitely slowing down after the messages from ESMA,” said Christine Strandberg, product manager, sub-custody asset servicing, SEB.  

Experts are expecting EU regulators will also review the current framework of the SDR, triggered by the UK’s announcement earlier this year that it would not be implementing the SDR and its contentious buy-in rules. 

According to an audience poll conducted during the panel, over a third said they wanted buy-ins to be removed, while nearly 40% said they expect the scope of the penalties and buy-ins to change. 

However, panellists voiced concerns that the wait and see approach could be detrimental where firms will see a repeat of not being ready to comply.  

“The delay would help with the quality of the solution to CSDR, but the industry is postponing its work. We hope for projects not to go on hold and for speed not to slow down, because if so, the timeline would be too tense to be ready in time and the industry would once again run the risk of not being ready,” added Susanna Scheffold, head of GEOS product management, Software Daten Service (SDS).  

SEB’s Strandberg called on Europe’s CSDs to begin end-to-end testing of the buy-in process with market participants, and for the industry to increase the adoption of automated solutions for trade settlement.  

“We have to implement partial settlement and get the straight through processing (STP) rates up. This would should be done now and there is no reason why we should wait until February 2022 to do so,” she added. 

Partial settlement has been frequently cited by the post-trade industry, including the Association for Financial Markets in Europe (AFME) as a potential solution that can reduce trade fails. 

The trade body is trying to raise awareness of the practice, which CSDs are required to offer under the regulation, allowing participants to place settlement instructions on hold, at which point they will undergo matching but will not be eligible for settlement until they are released. 

Philippe Laurensy, global head of sales, marketing and relationship management at Euroclear, explained on the panel that it has introduced settlement on the ‘Bridge’, its electronic communication platform that facilitates the efficient settlement of securities transactions between counterparties in Clearstream Banking Luxembourg and Euroclear Bank. 

“We have 70% of customers subscribed to it, and as a result of partial settlement, efficiency has improved significantly,” said Laurensy.  

Elsewhere, Clearstream have turned to predictive technologies and new data tools that will enable firms to identify where their historical trades have failed and what can be done to ensure they do not fail in the future. 

“We have been providing simulations to show the market what would have happened if the buy-ins were in place, and the consequences of not complying. We have also been offering data products that predicts, based on clients’ historical transactions, if a trade is likely to fail. This would help reduce fails in the future and use new technologies,” added Guido Wille, member of the executive board, Clearstream.