Developments at the Hungarian CSD

UniCredit Bank Hungary Zrt.
Tue, 27/09/2022

KELER has taken significant steps to align with international standards

With the completion of the necessary developments required by the Settlement Discipline Regime, the focus at the Hungarian CSD (KELER) has shifted in recent months. The most important goal now is to ensure that penalty related communication with market participants is as seamless as possible. KELER started applying the CSDR cash penalties for settlement fails in its securities settlement system from 2 May 2022. However, as required by the European Securities and Markets Authority (ESMA), penalties also had to be calculated and paid for the months of February, March and April 2022 retrospectively. This has placed a considerable strain on the local CSD, but it is safe to say that as the months go by, KELER is rapidly overcoming the problems of the early days, while penalty reporting is becoming smoother and smoother with fewer errors and delays.  

With the implementation of new market standards within the KSDP program, KELER has taken significant steps to align with international standards. On the other hand, the Hungarian National Securities Market Practice Group (NSMPG) sees the need to harmonize REPO transactions with the Target 2-Securities standards as well and has recently taken the initiative to align the settlement of REPO transactions with OTC market practices.

According to international practice, REPO transactions are settled in the same way as OTC transactions, the opening and closing legs of the transactions are submitted separately, and only the transaction type is being referred to as a repo transaction. Only a small number of markets apply the Single Message solution introduced by KELER on 6 December 2021 and it is difficult for investors to apply different solutions if they are present in several securities markets at the same time. Furthermore, Hungarian market participants submit the repo transactions in different ways, some as OTC transactions, and others as repos and as a result the different settlement methods can lead to settlement failure. Increasing the efficiency of settlements under CSDRs can only be achieved if the market adopts a uniform practice, which is currently not the case for repos.

Consequently, the Hungarian NSMPG has proposed to KELER that the settlement of REPO transactions should be done in the same way as for OTC transactions, i.e. market participants should be able to submit repo opening and closing legs separately and not bundled into one instruction as in the Single Message Repo solution.

The proposal of the NSMPG for repo settlement was discussed with KELER during a forum meeting with the participation of the biggest custodians. KELER anticipated that based on the suggestion they would reconsider their standpoint, will deep dive into the topic and investigate the timeframe that would be realistic to implement changes in repo settlement. Further details are not known at present, market participants are waiting for KELER to finish their analysis and come back with official feedback.