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Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on Central Securities Depositories, and amending Directives 98/26/EC and 2014/65/EU, as well as Regulation (EU) No 236/2012 (hereinafter, the CSDR or Regulation) implies the establishment of a regulatory framework for the integration of securities settlement in the EU. The aim is to establish uniform requirements for the settlement of financial instruments in the EU, as well as rules for the organisation and conduct of Central Securities Depositories (hereinafter, CSDs) with a view to promoting proper, efficient and secure settlement. To this end, the Regulation establishes:

  • Shorter settlement periods
  • Settlement discipline measures (mandatory cash penalties and ‘buy-ins’ for settlement fails)
  • An obligation regarding dematerialisation for most securities
  • Strict prudential and conduct of business rules for CSDs
  • Strict access rights to CSD services
  • Increased prudential and supervisory requirements for CSDs and other institutions providing banking services ancillary to securities settlement

The Regulation is developed through technical regulation and implementing standards which address the following issues:

  • Measures to improve settlement discipline
  • Authorisation, supervision and requirements applicable to CSDs
  • The requirements of Internalised Settlement
  • Prudential requirements for CSDs and credit institutions designated to provide ancillary banking services
  • The penalties and criteria necessary to determine whether the transactions of a CSD in a host Member State should be considered of significant importance to that Member State

Furthermore, and in accordance with Regulation (EU) No 1095/2010 of the European Parliament and of the Council establishing the European Securities Market Authority (hereinafter, "ESMA"), guidelines or recommendations addressed to competent authorities and financial market participants are being drawn up to facilitate the uniform application of the Regulation. These include most notably guidelines defining the matters that depositories must address when preparing procedures in the event of a participant's failure to pay, or specifying the transactions that must be reported by Internalised settlement.

Milestones (entry into force):

  • CSD prudential requirements: 30 March 2017
  • CSD requirements: 30 March 2017
  • Internalised Settlement: 10 March 2019
  • Settlement discipline: 13 September 2020

An entity will be considered a CSD as long as it performs the following basic functions:

  • Initial recording of securities in a book-entry system (notary service)
  • Providing and maintaining securities accounts at the top tier level (central maintenance service)
  • Operating a securities settlement system (settlement service)

The standard defines CSDs as those entities that perform the settlement function and, in addition, at least another of the two basic functions.

In addition, the Regulation regulates a list of non-banking ancillary services (that do not involve credit or liquidity risks) which are non-essential functions of a CSD and which serve to help increase the security, efficiency and transparency of securities markets. These services include those relating to shareholder registers, the processing of corporate activities, tax services and support services for attending general shareholders’ meetings.

The Regulation allows CSDs to provide banking services ancillary to settlement, exposing themselves to credit and liquidity risks arising from the provision of services, provided that the requirements established in the regulation are met. In this way, what are known as the International Central Securities Depositories (ICSDs) can continue to provide banking cut-off services without the need to establish a separate legal entity.

The Regulation has two points of interest: homogeneous requirements and freedom of access.