Settlement Discipline Regime UK & International

The Central Securities Depositories Regulation (CSDR) requires the creation of a new Settlement Discipline Regime (SDR) that prevents and addresses settlement fails in Securities Settlement Systems (SSSs). This new regime needs to be smoothly implemented within 24 months of the entry of the relevant ESMA technical standards into the Official Journal of the EU, which is expected in Q2 this year.

Euroclear UK & International (EUI) in its capacity as the Central Securities Depository (CSD) and operator of the SSSs for the UK and Ireland is committed to working closely with trading venues, central counterparties, and participants in order to navigate the complex, interconnected features of the regime.

An SDR Standing Group (SDRSG) has been set up by the Bank of England, Financial Conduct Authority, and Central Bank of Ireland in order to bring industry together to help identify the keys risks and issues involved. Composed of a representative body of infrastructure providers and market participants, it will help coordinate efforts ensure that the market works together effectively to deliver a smooth, timely implementation of the regime.

The work of the group has been structured to examine the regime from the perspective of the three layers of infrastructure responsible for administering the regime. This work is led by a trading venues taskforce, a central clearing taskforce, and a settlement taskforce. These taskforces are headed by sponsors from the LSE, LCH, and EUI, with a remit to draw widely on all available knowledge and insight to inform their work. The Standing Group is also seeking to actively coordinate with other SDR initiatives in the EU. The initial work of the Standing Group is focused on the following five key features of the SDR:

• Prevention of settlement fails;
• Penalties;
• Mandatory buy-ins;
• Cash compensation; and
• Reporting.

The Standing Group meets at the offices of EUI on a six-weekly basis and is chaired by the Bank of England.