Requirement for RTS under CSDR Refit

As part of CSDR Refit, ESMA must prepare two sets of regulatory technical standards (RTS) on settlement discipline.  These must set out:

• measures to prevent settlement fails with the aim of increasing settlement efficiency
• details of the system to monitor settlement fails, the processes for collecting and redistributing cash penalties, and the conditions under which a participant will be deemed to consistently and systematically fail to deliver financial instruments

In its Consultation Paper on the Amendments to the CSDR RTS on Settlement Discipline, published on 13 February 2025, ESMA looks for feedback on proposed changes to the existing Settlement Discipline RTS to deal with those two new mandates under CSDR Refit.

In formulating the consultation, ESMA took account of the steps being taken towards an EU T+1 securities settlement cycle from 11 October 2027.

Key consultation topics

The key areas on which ESMA is looking for feedback are:

• reducing timeframes for sending allocations and confirmations
• requiring that written allocations and confirmations be sent in an electronic, machine-readable format
• making it mandatory for written allocations and written confirmations to be sent using international open communication procedures and standards
• introducing a requirement on investment firms to collect the data necessary to settle a trade from professional clients during the onboarding process and to keep it updated
• requiring central securities depositories (CSDs) to offer hold and release, and partial settlement, functionality
• introducing a requirement for CSDs to facilitate the provision of intraday cash credit secured with collateral via an auto-collateralisation facility
• whether CSDs should be required to offer real-time gross settlement for a minimum time-window on each business day, as well as a minimum number of settlement batches
• adjusting the criteria for determining the top 10 failing participants for reporting purposes
• requiring that, where the CSD doesn’t have the information to enable it to report on the reason for a settlement fail, that the participant be required to provide that reason to enable the CSD to report
• that CSDs, when publishing annual information on settlement fails, be required to include information on the breakdown of settlement fails per asset class

Additional areas where ESMA is looking for feedback

ESMA is also looking for feedback on further measures that could potentially enhance settlement efficiency, but for which there are no specific policy proposals yet.  These include measures such as:

• the unique transaction identifier and whether respondents agree that its use shouldn’t be mandatory
• whether market standards for the storage and exchange of standard settlement instructions should be left to the industry, or whether regulatory action is needed
• whether ‘place of settlement’ should be a mandatory field in written allocations (ESMA thinks not) and whether it could be used more consistently, contribute to efficiency and help reduce fails; ESMA is also asking whether ‘place of safe keeping’ should continue to left to industry to include if they wish, or made a mandatory field
• whether industry agrees that ‘transaction type’ shouldn’t be a mandatory matching field
• whether market participants should send settlement instructions intra-day rather than at the end of the day
• whether CSD business day schedules should be aligned (ESMA noted that it doesn’t have evidence indicating a regulatory need for this)
• whether ‘shaping’ (splitting the delivery of large amounts of securities or collateral into several smaller deliveries) should be adopted as best practice
• whether there’s a need for regulatory action to automate securities lending (ESMA doesn’t believe that such regulatory action is needed)

The consultation closes on 14 April 2025.  ESMA plans to submit the final draft RTS to the Commission by October 2025.

More information

For more information on settlement (both CSDR Refit and the move to a T+1 settlement cycle), read our recent insights here:

T+1 Settlement Update: Commission proposes change to CSDR

T+1 Update: ESMA recommends move to T+1 on 11 October 2027

Shortening the Settlement Cycle against a backdrop of “instantaneous everything”

US moves to T+1 settlement cycle; ESMA recommendation expected in Q3

CSDR: Targeted Reforms published in Official Journal / Looking ahead to 2024