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The European Securities and Markets Authority (ESMA) has postponed the application of the Central Securities Depository Regulation (CSDR) mandatory buy-in regime for another three years.
Market participants have conveyed concerns over “serious difficulties” to implement the mandatory buy-in regime on the scheduled date — which has been repeatedly postponed since 13 September 2020.
These difficulties referred to “the absence of clarity regarding some open questions necessary for the implementation of the buy-in requirements”.
This is in addition to “the uncertainty as to whether the European Commission’s legislative proposals on amending regulation of the European Parliament and of the Council would include amendments to the mandatory buy-in rules and the extent of any potential amendments.”
The buy-in rules refer to a mandatory obligation for trading parties to execute buy-ins against counterparties who fail to settle their trades within a required period.
The postponement is expected to allow the European Commission and the co-legislators additional time to determine the best way forward to improve settlement efficiency while avoiding potential duplicative implementation costs for market participants in case extensive changes would be made to the existing buy-in measures.
A final report by the authority has seen amendments to the regulatory technical standards (RTS) on settlement discipline based on the expected changes to the CSDR buy-in regime presented in the commission’s legislative proposal for the CSDR Review and amendments to the Distributed Ledger Technology Pilot Regulation.
This draft RTS has been sent to the European Commission for endorsement in the form of a Commission Delegated Regulation.
Following the endorsement by the European Commission, the Commission Delegated Regulation will then be subject to the non-objection of the European Parliament and of the Council.
Responding to the announcement, Daniel Carpenter, CEO of Meritsoft, a Cognizant company, says: “The latest announcement on buy-ins will be welcome clarification for the industry. By pushing out the implementation for three years, planned resources can be allocated to ensuring automation of penalties handling, processing the increasing partial settlements needs, performing daily and monthly reconciliations, and then handling claims management activities.
"In conjunction, firms can work towards digitising and centralising their settlement fails data which can be utilised for predictive analytics purposes, leveraging AI and ML. All of the above will give market participants a strong footing from which to tackle the buy-in rules, should they ultimately be introduced.”
