The final Regulatory and Technical Standards on Settlement Discipline (SDR, EU regulation 2018/1229 of 25 May 2018) under the Central Depositories Regulation (CSDR) were published on 13 September 2018. In order to allow all market participants to align with the requirements of the settlement discipline a phase-in period of 24 months is allocated for the implementation, thus the regulation will become effective as of September 2020.
KELER convened the first meeting of the Settlement Discipline Working Group on 29 November 2019 with the aim to present the main elements of the Settlement Discipline Regulations and to outline the further tasks of KELER and the market participants. The main points of the presentation were:
Elimination and prevention of the settlement failure – this includes measures imposed on investment service providers in relation to their professional clients, e.g. mandatory and detailed data content of the written allocations and confirmations, cut off times for allocations and confirmation and procedures of international open communication.
Tracking and reporting of settlement failures – KELER defined its reporting responsibilities towards authorities and market participants.
Main futures of the buy-in process – timelines and the administration of the buy-in procedure, the responsibilities of the CCPs, trading venues and trading participants. It is important to mention that KELER, as CSD will not play an active role in the buy–in process, only settles the buy-in transactions and receives the reports on the results.
Application of cash penalties – Definition of the trades affected, main elements and steps of the penalty mechanism, types, calculation methods, reporting, payment procedures of cash penalties and the managing of the database used for penalty calculation and collection.
Besides providing details on the process and implementation of the SDR, KELER also highlighted the potential duties of the investment service providers and the CSD. Amongst others, KELER will need to further analyse its internal regulations and both the domestic and international markets, prepare specifications, run tests in order to develop its IT System, and also amend its internal regulations and conditions. Moreover KELER shall foster the co-operation of the parties and ensure the effective communication.
Details of the informational material issued by KELER will be further described in the upcoming newsletter that shall be published in the course of December.
Impact on investors: The settlement discipline measures are to improve the safety and efficiency of securities settlement and reduce the risk of failure by encouraging the timely settlement of transactions and preventing and addressing settlement fails through mandatory cash penalties and buy-in mechanism. The clients, investment service providers and market infrastructures such as the CSD will need to implement new processes , develop their IT systems, moreover, prepare for amendments of contractual arrangements related to the buy-in procedure and applicable penalties.