Clearstream Banking, the German central securities depository, has been granted a licence to operate under the Central Securities Depositories Regulation (CSDR) by the German market regulator.
The German Federal Financial Services Authority (BaFin) authorised the licence to the Deutsche Boerse subsidiary, effective as of 21 January, pursuant to article 16 of CSDR, which covers EU-based CSDs.
Mathias Papenfuss, head of regulatory implementation at Clearstream, commented: “Receiving this licence is an important achievement; it is proof of our continuous efforts to ensure that we are in the best position to support the safety and stability of financial markets and offer services aligned with European standards to all market participants.”
CSDR aims to increase the safety and efficiency of securities settlement across the EU and to establish an enhanced level playing field among CSDs.
The regulation primarily aims to improve settlement rates via the implementation of mandatory buy-in rules and cash penalties for fails.
CSDR’s settlement discipline rules are currently officially slated to come into force in September but ESMA has acknowledged a delay is likely as there are fundamental technical issues with its implementation that won’t be addressed until SWIFT’s annual November update.
The lead-up to the regulation’s go-live has been marred by controversy including market research that suggests that the buy-in provisions will, in reality, work contrary to their intended aim and negatively impact market efficiency and liquidity.
The results of a survey by the International Capital Market Association, released in November 2019, showed that more than three-quarters of respondents thought the rules would hinder, not help the market.
Further research by Pirum Systems estimates that CSDR will cost its clients €300 million annually in fines and fails management costs.
Industry stakeholders are now calling for the EU regulators to go back to the drawing board to fix fundamental errors that have caused the buy-in rules to now not be fit-for-purpose.
Elsewhere, another Deutsche Boerse subsidiary, Eurex, is working on a launching a buy-in agent to help mitigate the challenges posed by mandatory buy-ins and the threat of cash penalities.
Eurex Securities Transaction Services is the first of its kind to be created as a direct response to CSDR’s settlement discipline provisions and is set to launch in September ahead of the regulation.
The company, which will exist as a subsidiary of Eurex Frankfurt, was founded by Marcel Naas, formerly of Eurex Repo, and Marcus Addison, who shifted over from Eurex Clearing.
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