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CSDR Settlement Discipline

Chapter III of the CSDR Settlement Discipline regulations introduces several measures, to prevent and address settlement fails and encourage market participants to settle transactions on the intended settlement date.

These measures include a harmonised settlement penalties regime, mandatory buy-ins, and common settlement features across the EU such as partial settlement and hold & release.

The Settlement Discipline Regime (SDR) will apply to all transactions intended to settle on an EEA CSD which are traded on a EU trading venue or cleared by a EU CCP.

Such transactions can be in transferable securities, money-market instruments, units in collective investment undertakings, and emissions allowances. Shares with a principle trading venue located in a 3rd country are excluded.

It will apply to all trading level entities - regardless of domicile - whether directly as CSD participants, or indirectly via a settlement or clearing agent.

This new regime will require new processes that will result in cost, liquidity and risk challenges. This is where Euroclear, as the largest group of CSDs in the EU has always brought value to its clients. CSDR Settlement Discipline will be no different.

Buy-in reporting

In order to meet some of the obligations imposed by CSDR, you will need to use Taskize or Swift to send your buy-in information to Euroclear

Adopting a harmonised approach to fail resolution

Euroclear Bank, Euroclear UK & International and the ESES group (Belgium, France and The Netherlands) of central securities depositories have elected to use Taskize to help their clients overcome the challenge of CSDR.

Taskize is already widely used by firms to resolve settlement issues both before and after settlement date so extending this usage to cover the new buy-in process is the most simple and efficient course of action. 

Taskize support for settlement discipline

CSDR Settlement Discipline timeline

The complexities that come with the implementation of the settlement discipline regime will be a new experience for many of our clients.

To help shed some light on the new landscape, the below timeline takes you through the potential steps you can encounter, from trade date to the conclusion of a buy-in.  

Settlement period

The time between the trade date and the intended settlement date of a transaction.

During this time period, clients will - just as they do today - be able to address and resolve matching and other settlement problems that could result in failing trades.

Consult the table below to find out more on how you can identify and resolve your failing transactions.
 

Matching feedback

Utilise your existing business reporting solution to obtain matching feedback

Matching resolution

Use Taskize to facilitate multi-party discussions between back office, middle office, trading desk, underlying client, counterparty, and others to resolve matching issues faster

Trade status reporting

Utilise your existing business reporting solution to obtain a status on the settlement of your trade

Fail resolution

Use Taskize to facilitate multi-party discussions between back office, middle office, trading desk, underlying client, counterparty, and others to resolve the failing transaction faster

Extension period

The time between the intended settlement date and the beginning of the buy-in period.     

During this period, CSDR will impose daily penalty fees on the trading party that is responsible for the late settlement of a transaction.

Our solutions provide assistance in the fail resolution process and thereby help you reduce the fees you have to pay.

Consult the table below to find out more on how to reduce your penalty fees.
 

Fail resolution

Use Taskize to facilitate multi-party discussions with trading desks, underlying clients, counterparty and others to help resolve the failing transaction

Buy-in pre-notification

Use Taskize to acknowledge the length of the extension period and to inform involved parties on upcoming mandatory buy-in

Mandatory partial settlement

Use Taskize to acknowledge mandatory partial settlement of the failing trade on the last day of the extension period

Buy-in period

The time after the extension period as of which transactions, that continue to fail for lack of securities, will be subject to the mandatory buy-in process imposed by CSDR.

Buy-in is not possible

There will be occasions where, often for reasons of reduced liquidity, a buy-in is impossible to execute. In this situation, the seller will be required to pay a cash compensation to the buyer.

The table below details the steps that you may encounter along the way, and introduces the solutions that will help make the process as simple and efficient as possible.
 

Buy-in notification

Use Taskize to agree on the party responsible to initiate and follow-up the buy-in process, and inform all involved parties on the start of the buy-in period

Buy-in verification

Use Taskize to inform all parties that a buy-in is not possible

Cash compensation notification

Use Taskize to inform the failing party of the calculated cash compensation amount and payment details

Price discussion (optional)

Use Taskize to share details of the cash compensation calculation method

Buy-in reimbursement

Use Taskize to disclose the reimbursement details (all amounts paid, including any execution fees resulting from the buy-in) or, use your existing business solution

Buy-in process finality

Use Taskize to confirm receipt of cash compensation and acknowledge finality of the buy-in process

Upon finality, both parties can cancel the failing transaction and penalties will stop to accrue

Failing trade cancellation

Use your existing business solution to cancel your instruction

Cancelled trade reporting

Use your existing business reporting solution to receive confirmation that the failing transaction has been cancelled

Buy-in reporting to Euroclear

Upon finality of the buy-in process, the receiving CSD participant can generate a buy-in bubble in Taskize and invite Euroclear into the bubble to automatically share the cash compensation amount

Alternatively, you can send us an MT530 Swift message with the cash compensation amount

Buy-in is possible

During this period, firms will have to cope with completely new processes and handle interactions with parties they are not used to dealing with.

The table below details the steps that you may encounter during the buy-in period, and introduces the solutions that will help make the process as simple and efficient at possible.
 

Buy-in notification

Use Taskize to agree the party responsible for initiating and following-up the buy-in process

Inform all involved parties of the start of the buy-in period

Buy-in verification

Use Taskize to inform all involved parties that a buy-in is possible

Buy-in agent appointment

Use Taskize to discuss the execution of the buy-in with a buy-in agent

You may invite the buy-in agent directly into the discussion with your counterparty or you can keep the conversations segregated

Buy-in notice

Use Taskize to inform the failing party of the appointment of a buy-in agent

Inform the failing party of their obligation to put the failing trade ‘on hold'

Trade on ‘hold’

Use your existing business solution to put the trade on hold

‘Hold’ confirmation

Use your existing business reporting solution to receive confirmation of hold status

Use Taskize to inform all involved parties that the failing instruction was put 'on hold' by the seller

Buy-in (partial) execution

Use Taskize to provide real-time feedback to all involved parties on the progress and the result of the buy-in execution

Buy-in (partial) settlement

Use Taskize to inform all involved parties of the settlement status of the buy-in

In case of partial settlement, the Taskize checklist will advise on the necessary actions to ensure that penalties continue to accrue only for the outstanding amount

You can also use your existing business reporting solution to receive settlement status updates

Buy-in deferral

Use Taskize to inform all involved parties that the execution of the buy-in is deferred

Share information on the length of the deferral period

Buy-in outcome

Use Taskize to inform all involved parties on the outcome of the buy-in process

Includes quantity, price and value of the financial instruments bought in as well as any cash compensation amount in case of partial buy-in

Price discussion (optional)

Use Taskize to share details of the cash compensation calculation method (in case of a partially successful or unsuccessful buy-in)

Buy-in reimbursement

Use Taskize to disclose the reimbursement details (all amounts paid, including any execution fees resulting from the buy-in) or, use your existing business solution

Buy-in process finality

Use Taskize to confirm receipt of the financial instruments and/or cash compensation and acknowledge finality of the buy-in process

Upon finality, both parties can cancel the failing transaction and penalties will stop to accrue

Failing trade cancellation

Use your existing business solution to cancel your instruction

Cancelled trade reporting

Use your existing business reporting solution to receive confirmation that the failing transaction has been cancelled

Buy-in reporting to Euroclear

Upon finality of the buy-in process, the receiving CSD participant can generate a buy-in bubble in Taskize and invite Euroclear into the bubble to automatically share all relevant buy-in details

Alternatively, you can send us an MT530 Swift message including the aggregated number & value of financial instruments bought in as well as the cash compensation amount, if any

All interactions that occur in the Taskize environment are logged in an audit trail which can be used to evidence compliance with regulatory requirements

Sign up now to get ready for CSDR

Complete the online enrolment form here >

Watch the recorded webinar

15/07/2020

CSDR buy-in reporting: obligations and challenges

With the incoming CSDR mandatory buy-in requirements, (I)CSDs can face a number of challenges when setting up to fulfill their obligations.

Watch the first extract of this webinar (duration 7:18 mins)
15/07/2020

CSDR buy-in reporting: a harmonised and cost-effective solution

A harmonised and cost-effective solution for the CSDR buy-in reporting is what our clients have asked for. And that is what we will be offering.

Watch the second extract of this webinar (duration 5:45 mins)
15/07/2020

CSDR buy-in reporting: a harmonised market practice

Euroclear works with the industry peers to bring you a harmonised market practice for CSDR buy-in reporting.

Watch the third extract of this webinar (duration 6:06 mins)
15/07/2020

CSDR buy-in reporting: challenges and solutions - full length webinar

Euroclear and Taskize partner with Scottish Investment Operations to deliver a CSDR Webinar focused on the CSDR buy-in reporting challenge and solution.

Watch the full webinar (duration 47:34 mins)