# EUR-Lex - 52012PC0073 - EN

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# 52012PC0073

**Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on improving securities settlement in the European Union and on central securities depositories (CSDs) and amending Directive 98/26/EC /* COM/2012/073 final - 2012/0029 (COD) */**

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EXPLANATORY MEMORANDUM

1.           Context of the proposal

The Central Securities Depositories (CSDs)
are systemically important institutions for the financial markets. Any trade of
securities on or off a securities exchange is followed by post-trade processes
that lead to the settlement of that trade, which is the delivery of securities
against cash. The CSDs are the key institutions that enable settlement by
operating so-called securities settlement systems. CSDs also ensure the initial
recording and the central maintenance of securities accounts that record how
many securities have been issued by whom and each change in the holding of
those securities.

CSDs also play a crucial role for the
collateral market especially for monetary policy purposes. For instance, almost
all of the eligible collateral for central bank monetary policy operations in
the EU, especially in the Euro area, flows through securities settlement
systems operated by CSDs.

Securities settlement systems in the EU
settled approximately €920 trillion worth of transactions in 2010, and held
almost €39 trillion of securities at the end of 2010. There are over 30 CSDs in
the EU, generally one in each country, and two 'international' CSDs (ICSDs –
Clearstream Banking Luxembourg and Euroclear Bank), which are a sub-category of
CSDs specialised in the issuance of international bonds, commonly known as
"Eurobonds".

While generally safe and efficient within
national borders, CSDs combine and communicate less safely across borders,
which means that an investor faces higher risks and costs when making a
cross-border investment. For example, the number of settlement fails is higher
for cross-border transactions than for domestic transactions and cross-border
settlement costs are up to four times higher than domestic settlement costs.

These safety problems are the result of a
number of factors, including:

· The length of the settlement cycle. The time between trade and
settlement is not harmonised in the EU, creating disruptions when securities
are settled cross-border;

· A small but substantial proportion of securities still exist in paper
form. These are settled after a much longer settlement cycle, which increases
the risk incurred by investors;

· Settlement fails, which are situations where a transaction fails to
be settled on the intended settlement date, are not subject to deterrent
penalties in all markets and where they exist settlement discipline measures
differ widely between markets;

· While Directive 98/26/EC on settlement finality in payment and securities
settlement systems (SFD)[1]
reduces the disruption to a securities settlement system caused by insolvency
proceedings against a participant in that system, it does not address other risks
of the system or the resilience of the CSD operating the system. Some CSDs are
subject to additional credit and liquidity risks derived from the provision of
banking services ancillary to settlement;

· Agreements between CSDs to link-up, while being considered as a
first step towards the consolidation of the European settlement markets, raise
safety concerns in the absence of specific prudential rules for such links. In
addition, they increase the interconnectedness between CSDs, which justifies
further the introduction of a common prudential framework.

The absence of an efficient single internal
market for settlement also raises important concerns. Important barriers to the
European post trading market continue to exist, such as for instance the
limitation of securities issuers' access to CSDs, different national licensing
regimes and rules for CSDs across the EU and limited competition between
different national CSDs. These barriers result in a very fragmented market. As
a consequence, the cross-border settlement of transactions relies on
unnecessarily complex holding 'chains' often involving several CSDs and several
other intermediaries. This has a negative impact on the efficiency, but also on
the risks associated with cross-border transactions.

These problems are important as cross-border
transactions in Europe, ranging from usual purchases/sales of securities to
collateral transfers, continue to increase and CSDs become increasingly
interconnected. These trends are expected to accelerate with the advent of
Target2 Securities (T2S), a project launched by the Eurosystem to provide a
borderless common platform for securities settlement in Europe, which is
scheduled to start in 2015.

This proposed Regulation addresses these
problems. It introduces an obligation to represent all transferable securities
in book entry form and to record these in CSDs before trading them on regulated
venues. It harmonises settlement periods and settlement discipline regimes
across the EU. It introduces a common set of rules inspired by international
standards addressing the risks of the CSDs' operations and services. As CSDs
will be subject to identical substantive rules across the EU, they will benefit
from uniform requirements for licensing and an EU wide passport, which will
help remove the existing barriers of access.

The proposed Regulation will therefore increase
safety in the system and open the market for CSD services, therefore improving
the efficiency of securities settlement. The proposed Regulation will complete
the regulatory framework for securities market infrastructures, alongside the Directive
2004/39/EC on markets in financial instruments (MiFID) [2] for trading venues, and the
proposal for a Regulation on derivative transactions (EMIR) for Central
Counterparties (CCPs).

This initiative has received wide political
support. The ECOFIN Council of 2 December 2008 emphasised the need to
strengthen the safety and soundness of securities settlement systems operated
by CSDs and agreed that EU legislation is needed to address legal barriers
relating to post-trading, including barriers of access to CSDs. The need for appropriate
standards for CSDs is also agreed internationally. As early as 2001 global
banking and securities regulators (CPSS-IOSCO) adopted a set of recommendations
for securities settlement systems. These were adapted through non-binding
guidelines by European regulators (ESCB-CESR) in 2009. In October 2010 the
Financial Stability Board re-iterated the call for updated standards for more
robust core market infrastructures and asked for the revision and enhancement
of existing standards.

2.           results of consultations with the
interested parties and impact assessment

This initiative is the result of an
extensive and continuous dialogue and consultation with all major stakeholders,
including securities and banking regulators, the ECB and all types of market
participants. It takes into consideration the views expressed in a public
consultation from 13 January to 1 March 2011, and the input obtained through a
broad range of stakeholder groups since summer 2010.

In addition, an external study of costs and
prices in the post trading sector was commissioned from Oxera Consulting. Oxera
delivered a first report in 2009 and a second one in 2011. These reports
provide useful data on the cost gaps between cross-border and domestic post trading
costs in Europe.

In line with its "Better
Regulation" policy, the Commission conducted an impact assessment of
policy alternatives. Policy options were assessed against the key objectives of
increasing the safety, efficiency and level playing field for CSD services in
Europe. The assessment was done by considering the effectiveness of achieving
the objectives above and the cost efficiency of implementing different policy
options.

The draft impact assessment report was
submitted on 16 March 2011 to the Commission's Impact Assessment Board (IAB),
followed by a resubmission of a revised draft on 8 August 2011. The draft report
was considerably improved following the comments of the IAB by strengthening
the evidence base underlying the problems found and the analysis of different
policy options, in particular with respect to banking services ancillary to
settlement and by including an estimation of the overall benefits and of the
impact of different policy options on different stakeholder groups and a clearer
and more robust monitoring and evaluation framework.

3.           Legal elements of the proposal

3.1.        Legal basis

The proposal is based on Article 114 of the
Treaty on the Functioning of the European
Union ('TFEU') as the most appropriate legal basis in this field. The proposal
aims principally at addressing the lack of safety and efficiency of securities settlement
and the resulting obstacles to the functioning of the internal market resulting
from the divergent national rules regulating securities settlement and the
activities of the CSDs, which operate securities settlement systems, by introducing
a set of common rules concerning certain aspects of the settlement cycle and
discipline, as well as a set of common prudential requirements addressing the
resilience of and access to CSDs.. In the absence of such common rules and
requirements, likely divergent measures taken at national level will have a
direct negative impact on the safety, efficiency and competition in the
settlement markets in the Union. A regulation is considered to be the most
appropriate instrument to ensure that all market participants are subject to
uniform and directly applicable obligations regarding the settlement cycle and
discipline, and that CSDs are subject to uniform and directly applicable
prudential standards in the Union, which should reinforce their resilience and
central role in the maintenance of book-entry systems and in the settlement
process.

As the main purpose of the proposed
Regulation is to introduce a number of legal obligations imposed directly on
market operators consisting, inter alia, in the recording of virtually all
transferable securities in book-entry form in a CSD and a stricter time frame
for settlement and as CSDs are responsible for the operation of securities settlement
systems and the application of measures to provide timely settlement in the
Union, it is essential that all CSDs constantly comply at all times with
uniform and stringent prudential requirements provided in the proposal. It is
therefore necessary to include in this proposal a set of uniform and directly
applicable rules regarding the authorisation and ongoing supervision of CSDs,
as a corollary to the legal obligations imposed on market operators.

3.2.        Subsidiarity and
proportionality

According to the principle of subsidiarity provided
in Article 5(3) of the Treaty on European Union, action at Union level should
be taken only when the aims envisaged cannot be achieved sufficiently by Member
States alone and can, because of the scale or effects of the proposed action,
be better achieved by the EU.

This proposal essentially aims at making
the European securities market safer and more efficient within the Union, which
calls for a coordinated EU action. The Union action is further justified by the
systemic nature of CSDs and their increasing interconnection, in particular
after the introduction of T2S.

As regards authorisation and supervision of
CSDs, the proposed Regulation aims at striking a balance between the
competences of national authorities and the interests of other competent
authorities. The European Securities and Markets Authority (ESMA) will play a
key role in resolving disputes, facilitating the cooperation arrangements
between national authorities and developing technical standards in close consultation
with the members of European System of Central Banks (ESCB).

Certain issues are already covered by
existing Union legislation. For instance, securities settlement systems are
already defined by Directive 98/26/EC on settlement finality in payment and
securities settlement systems[3]
and Directive 2004/39/EC (MiFID) provides for certain rules of access by market
participants to the securities settlement system of their choice. The proposed
Regulation is consistent with these Union texts.

The proposal also takes full account of the
principle of proportionality required in Article 5(4) of the Treaty on European
Union, namely that Union action should be adequate to reach the objectives
pursued and should not go beyond what is necessary. The proposed Regulation is
compatible with this principle and strikes the right balance between the public
interest at stake and the cost-efficiency of the measures proposed. The
proposal has taken full account of the need to balance safety, efficiency of
the markets and costs for the stakeholders.

3.3.        Detailed explanation of
the proposal

The proposed Regulation has two main parts:
measures addressing all market operators in the context of securities
settlement (Title II) and measures addressing specifically CSDs (Titles III, IV
and V). The remaining titles, on scope and definitions (Title I) and
transitional and final provisions (Title VI) apply to both parts of the
proposal.

3.3.1.     Scope of proposal (Title I)

The proposed Regulation covers all CSDs,
but exempts from the authorisation and supervision requirements the members of
the ESCB and other national or public bodies performing similar services, such
as the Member States national bodies charged with or intervening in the
management of the public debt, that would otherwise qualify as CSDs. These
institutions nevertheless remain subject to the full set of requirements for
CSDs. They are exempt from Title IV, which imposes the segregation between
banking services ancillary to settlement and other CSD services since these
institutions, by their very nature, provide such ancillary services.

Regarding financial instruments, the
proposal covers all financial instruments as far as the requirements for CSDs
are concerned, but it mainly covers transferable securities as defined in point
(18) of Article 4(1) of Directive 2004/39/EC (MiFID) (essentially shares and
bonds) for the purposes of Title II on securities settlement.

3.3.2.     Securities settlement
(Title II)

A key objective of the proposed Regulation
consists in increasing the safety of settlement. Title II includes three sets
of measures to achieve this objective. First, it imposes the so-called
dematerialisation/immobilisation of securities, which is the issuance of
securities in book-entry form. This measure is aimed at increasing the
efficiency of settlement, facilitating the shortening of settlement periods and
ensuring the integrity of a securities issue by allowing for easier
reconciliation of securities holdings. Book entry securities do not necessarily
need to be recorded in a CSD before they are traded or given as collateral. They
may be, for instance, recorded by registrars. However, if they are traded on
venues regulated by Directive 2004/39/EC (MiFID), they need to be recorded in a
CSD, in order to benefit from the protection for securities settlement systems
under Directive 98/26/EC and in order to facilitate reconciliation between
securities recorded, on the one hand, and securities traded, on the other hand.
The proposed Regulation provides for a sufficiently long transitional period,
until 1 January 2018, in order to allow market operators from the Member States
where significant amounts of paper securities still exist to comply with this
measure.

Second, Title II harmonises the settlement
period for the securities transactions across the EU. In Europe most securities
transactions are settled either two or three days after the trading day,
depending on each market. The settlement period will be harmonised and set at
two days after the trading day, although shorter settlement periods will be
allowed. Third, Title II harmonises settlement discipline measures across the
EU. These consist of ex ante measures to prevent settlement fails, and ex
post measures to address settlement fails. The key objective is to reduce
settlement fails and to discourage any competition lowering the standards for
settlement discipline, for instance between markets that may have different
penalties systems in place. The proposed provisions go beyond the level of CSDs
and aim to subject market participants that fail to deliver securities on the
intended settlement date to a harmonised 'buy-in' procedure, which may be
executed by a CCP, in the case of a cleared transaction, or otherwise included
in trading venues own rules.

3.3.3.     CSDs (Title III)

Authorisation and supervision of CSDs
(Chapter I)

Directive 98/26/EC defines already
securities settlement systems as formal arrangements allowing transfers of
securities between different participants. However, that directive does not
address the institutions which are responsible for operating such systems. In
view of the increasing complexity of such systems and risks related to
settlement, it is essential that institutions operating securities settlement
systems are legally defined, authorised and supervised along a set of common
prudential standards. A CSD is defined as being a legal person that operates a
securities settlement system and at least one other core service (either 'notary'
service or central maintenance service). In addition, CSDs would only be
permitted to perform certain 'ancillary' services, which are mostly related to
the core services. Where such ancillary services include tax services, CSDs
would need to ensure that they comply with the tax legislation of the Member
States concerned. In the case of withholding tax relief procedures, CSDs would
need to observe any requirements that the Member State of source of the
payments subject to withholding tax imposes on financial intermediaries in
order to authorise them to apply the withholding and claim withholding tax
relief on behalf of the beneficial owners of the payments. This may in
particular involve the obligation to report investor information directly to
the source Member State (in return for being able to claim relief from withholding
taxes at source), which may in turn pass it on to the Member State of residence
of the beneficial owner of financial instruments.

CSDs will have to be authorised and
supervised by national competent authorities of the place where they are
established. However, in view of the increasing cross-border element of their
activity, other authorities, related to the securities settlement system(s)
operated by the CSD and to other group entities would have to be consulted.
ESMA will have an important role in developing draft technical standards to
harmonise the authorisation process and to ensure cooperation between
authorities.

The proposal grants authorised CSDs a
"passport" to provide services in the Union, either by providing
directly a service in another Member State or by establishing a branch in that
Member State. A CSD from a third country can be granted access to the Union if
it is recognised by ESMA. Such recognition may be granted only when the
Commission has ascertained that the legal and supervisory framework of that
third country is equivalent to the Union one and that the third country
provides for a effective equivalent recognition of the Union regulatory and
supervisory framework; the CSD is subject to effective authorisation and
supervision in that third country; and cooperation arrangements are in place
between ESMA and that third country authorities.

Requirements for CSDs and conflict of
law (Chapters II and III)

Since CSDs are systemically important and
perform critical services for the securities market, they must be subject to
high prudential standards to ensure their viability and the protection of their
participants. The requirements for CSDs are grouped into several categories in
Chapter II: organisational requirements (Section 1), conduct of business rules
(Section 2), requirements for CSD services (Section 3), prudential requirements
(Section 4) and requirements for CSD links (Section 5).

Section 1 requires CSDs to have robust
governance arrangements, experienced and suitable senior management, board and
shareholders, and to set up user committees representing issuers and
participants for each securities settlement system. Any outsourcing of services
or activities should not compromise the responsibility of a CSD towards
participants or issuers or the exercise of supervisory and oversight functions
by different authorities. An important exception is foreseen for outsourcing
arrangements with public entities, such as the T2S project operated by the
Eurosystem, which are governed by a dedicated framework agreed by the competent
authorities.

Section 2 introduces important requirements
for CSDs to have non-discriminatory, transparent and strictly risk-based
criteria for participation to securities settlement systems. These requirements
are reinforced by the provisions on access set out in Chapter IV. It also
introduces important principles on transparency regarding public disclosure of
prices and disclosure to the competent authorities of costs and revenues by
service provided.

Section 3, in Article 34 on requirements
for CSD services, recognises the important role played by CSDs in ensuring the
integrity of a securities issue and includes obligations about intraday
reconciliation of accounts. In terms of account segregation for the purpose of
protecting participants' assets, the proposal goes beyond the requirements
provided in Directive 2004/39/EC (MiFID) and requires CSDs to segregate the
accounts of each participant from those of other participants and to enable
participants to segregate the accounts of each of the participants' clients.
Regarding cash settlement, the proposal requires CSDs to settle on central bank
accounts whenever practical and available. Commercial bank money settlement is
allowed, however, contrary to some current practices, it must be done via a
separate credit institution that acts as settlement agent.

The prudential requirements for the CSDs
themselves in Section 4 include important provisions on the mitigation of
operational risk. Since CSDs would not be permitted to perform banking type of
services directly, the key risk CSDs will face is operational risk. These
provisions include appropriate measures to ensure the continuity of operations,
including settlement, at all times. Capital requirements are also set by reference
to operating expenses – CSDs should hold capital, retained earnings and
reserves to cover at least six months of operating expenses.

As CSDs are increasingly interconnected and
this process is expected to accelerate with the advent of T2S, Article 45
provides for important prudential requirements for linked CSDs, including the
setting up of identical settlement finality rules.

Chapter III aims at increasing the legal
certainty for securities transactions, by proposing a conflict-of-law rule with
respect to proprietary aspects for securities held by a CSD.

Access to CSDs (Chapter IV)

Opening up the market for CSD services and
removing barriers of access is one of the objectives of this initiative.
Chapter IV addresses three types of access: (a) between issuers and CSDs, (b)
between CSDs, and (c) between CSDs and other market infrastructures.

In many Member States issuers are required
by law to issue certain types of securities, most notably shares, in the
national CSD. Article 47 introduces the right of issuers to record their
securities in any CSD authorised in the Union as well as the right for CSDs to
provide services for securities that have been constituted under the law of
another Member State. National specificities are respected by recognising that
this right should be without prejudice to the corporate law under which the
securities are constituted.

Sections 2 and 3 lay down the principles on
access. A CSD should have the right to become a participant in a securities
settlement system of another CSD based on non-discriminatory and risk-based
principles. A CSD should also have the right, based on the same principles, to
request another CSD to develop special functions, which should be charged on a
'cost-plus' basis. Similarly, a CSD should have the right to receive
transaction feeds from CCPs and trading venues and those infrastructures should
have access to securities settlement systems operated by CSDs. Any disputes
between the relevant competent authorities could be referred to ESMA for
dispute resolution.

3.3.4.     Credit institutions
designated to act as settlement agents (Title IV)

As described before, when central bank
settlement is not practical or available, CSDs may offer commercial bank money
settlement to their participants. However, CSDs should not provide the banking
services ancillary to settlement themselves, but should be authorised by their
competent authorities to designate a credit institution to act as settlement
agent to open cash accounts and grant credit facilities to facilitate settlement
unless the competent authorities demonstrate, based on the available evidence, that
the exposure of one credit institution to the concentration of credit and liquidity risks is not
sufficiently mitigated. This separation between CSDs and settlement agents is
an important measure to address and increase the safety of CSDs. Banking services
ancillary to settlement increase the risks to which CSDs are exposed and
therefore the likelihood of CSDs suffering a default or being subject to severe
stress. While the banking services are usually provided by some CSDs on
intraday basis and are limited to the services ancillary to settlement, the
amounts handled are however significant and any default of such CSDs would have
negative consequences for the securities and payments markets. The requirement
to provide the banking services in a separate legal entity than the one which
provides the core CSD services will prevent the transmission of risks from the
banking services to the provision of core CSD services, in particular in case
of insolvency or severe stress resulting from the banking services. This
requirement will also provide CSDs and public authorities with more options to
find appropriate solutions in case of default of the settlement agent providing
banking services. For the CSDs which currently provide banking services, the
main costs associated with this measure are the legal costs involved in the
setting-up a separate legal entity for providing banking services, while CSDs
willing to develop such services in the future would not incur significant
incremental costs for setting-up of a separate legal entity. There are no less
stringent alternatives to the separation of banking services, which would entirely
eliminate the danger of transmission of risks from the banking services to the core
CSD services.

In order to secure the efficiencies
resulting from the provision of both CSD and banking services within the same
group of undertakings, the requirement that banking services be carried out by
a separate credit institution should not prevent that credit institution from
belonging to the same group of undertakings as the CSD. However, if both CSD
and banking services are provided within the same group of undertakings, the
activities of the credit institution providing banking services should be
limited to the provision of banking services ancillary to settlement. The
latter restriction aims at reducing the overall risk profile of the group
resulting from the presence of a credit institution in that group.

The competent authority should be able
demonstrate on a case by case basis the absence of systemic risk incurred by
the provision of both CSD and banking services by the same legal entity. In
such a case, a reasoned request could be made to the European Commission which
may authorise the derogation. In any case, the
activities of a CSD licensed as credit institution should be limited to the
provision of banking services ancillary to settlement.

The credit institution acting as settlement
agent should be authorised under the Directive 2006/48/EC relating to the
taking up and pursuit of the business of credit institutions[4]. However, as securities
settlement system(s) operated by CSDs should be protected as much as possible
against any potential risks caused by settlement agents, such agents should
comply with additional requirements to mitigate credit and liquidity risks in
respect of each securities settlement system they serve.

Considering that Directive 2006/48/EC does
not address specifically intraday credit and liquidity risks resulting from the
provision of banking services ancillary to settlement, credit institutions
should also be subject to specific enhanced credit and liquidity risk
mitigation requirements that should apply to each securities settlement system
in respect of which they act as settlement agents. The proposed requirements
for the settlement agents are inspired by the international CPSS-IOSCO
standards for financial market infrastructures and by current market practices.
They include full collateralisation of credit exposures, monitoring of intraday
liquidity taking into account the liquidity risk generated by the default of
the two largest participants and concentration limits on liquidity providers.

3.3.5.     Sanctions (Title V)

A review of the existing sanctioning powers
and their practical application aimed at promoting convergence of sanctions
across the range of supervisory activities has been carried out in the Commission
Communication 'Reinforcing sanctioning in the financial services sector'[5]. A stock taking of the national
regimes in place has, for example, revealed that the levels of pecuniary
sanctions vary widely among Member States, that some competent authorities do
not have certain important sanctioning powers at their disposal and that some
competent authorities cannot impose sanctions on natural and legal persons. As
a result, the Commission now proposes that Member States should provide that
appropriate administrative sanctions and measures can be applied to breaches of
the Regulation. To this end, a minimum set of administrative sanctions and
measures should be available to the competent authorities, including withdrawal
of authorisation, public warnings, dismissal of management, restitution of
profits gained from the breaches of this Regulation where those can be
determined, and administrative fines. The maximum level of administrative fines
should not be lower than the level provided for by the Regulation – 10% of the
annual turnover of a legal entity or five million Euro or 10% of the annual
income of a natural person. When determining the type and level of sanctions,
the competent authorities should take into account a number of criteria set in
the Regulation, including the size and financial strength of the responsible person,
the impact of the violation and the cooperative behaviour of the responsible
person. The proposed Regulation does not prevent individual Member States from
fixing higher standards.

3.3.6.     Compliance with Articles
290 and 291 TFEU

On 23 September 2009, the Commission
adopted proposals for Regulations establishing EBA, EIOPA, and ESMA. In this
respect the Commission wishes to recall the Statements in relation to Articles
290 and 291 TFEU it made at the adoption of the Regulations establishing the
European Supervisory Authorities according to which: "As regards the
process for the adoption of regulatory standards, the Commission emphasises the
unique character of the financial services sector, following from the
Lamfalussy structure and explicitly recognised in Declaration 39 to the TFEU.
However, the Commission has serious doubts whether the restrictions on its role
when adopting delegated acts and implementing measures are in line with
Articles 290 and 291 TFEU."

4.           Budgetary implications

The
proposal has implications for the European Union budget related to the tasks
allocated to ESMA, as specified in the legislative financial statements
accompanying this proposal.

2012/0029 (COD)

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT
AND OF THE COUNCIL

on improving securities settlement in the
European Union and on central securities depositories (CSDs) and amending
Directive 98/26/EC

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE
COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Article 114 thereof,

Having regard to the proposal from the European
Commission,

After transmission of the draft legislative
act to the national Parliaments,

Having regard to the opinion of the
European Economic and Social Committee[6],

Having regard to the opinion of the
European Central Bank[7],

Acting in accordance with the ordinary
legislative procedure,

Whereas:

(1)
Central Securities Depositories (CSDs), along
with Central Counterparties (CCPs) contribute to a large degree in maintaining
post trade infrastructures that safeguard financial markets and give market
participants confidence that securities transactions are executed properly and
in a timely manner, including during periods of extreme stress.

(2)
Due to their position at the end of the
settlement process, the securities settlement systems operated by CSDs are of a
systemic importance for the functioning of securities markets. Being situated
at the top of the securities holding chain through which their participants
report the securities holdings of investors, the securities settlement systems
operated by CSDs also serve as an essential tool to control the integrity of an
issue, playing an important role in maintaining investor confidence. Moreover,
securities settlement systems operated by CSDs are closely involved in the
collateralisation of monetary policy operations as well as in the
collateralisation process between credit institutions and are, therefore,
important actors in the collateral markets.

(3)
While Directive 98/26/EC of the European
Parliament and of the Council of 19 May 1998 on settlement finality in payment
and securities settlement systems[8]
reduced the disruption to a securities settlement system caused by insolvency
proceedings against a participant in that system, it is necessary to address
other risks that securities settlement systems are facing, as well as the risk
of insolvency or disruption in the functioning of the CSDs that operate
securities settlement systems. A number of CSDs are subject to credit and
liquidity risks deriving from the provision of banking services ancillary to
settlement.

(4)
The increasing number of cross-border
settlements as a consequence of the development of link agreements between CSDs
calls into question the resilience, in the absence of common prudential rules,
of CSDs when importing the risks encountered by CSDs from other Member States.
Moreover, despite the increase in cross-border settlements, the settlement
markets in the Union remain fragmented and cross-border settlement more costly,
due to different national rules regulating settlement and the activities of
CSDs and limited competition between CSDs. This fragmentation hinders and
creates additional risks and costs for cross-border settlement. In the absence
of identical obligations for market operators and common prudential standards
for CSDs, likely divergent measures taken at national level will have a direct
negative impact on the safety, efficiency and competition in the settlement
markets in the Union. It is necessary to remove those significant obstacles in
the functioning of the internal market and avoid distortions of competition and
to prevent such obstacles and distortions from arising in the future.
Consequently, the appropriate legal basis for this Regulation should be Article
114 of the Treaty on the Functioning of
the European Union, as interpreted in accordance with the consistent case law
of the Court of Justice of the European Union.

(5)
It is necessary to lay down in a Regulation a
number of uniform obligations to be imposed on market participants regarding
certain aspects of the settlement cycle and discipline and to provide a set of common
requirements for CSDs operating securities settlement systems. The directly
applicable rules of a Regulation should ensure that all market operators and
CSDs are subject to identical directly applicable obligations and rules. A Regulation
should increase the safety and efficiency of settlement in the Union by
preventing any diverging national rules as a result of the transposition of a directive.
A Regulation should reduce the regulatory complexity for market operators and
CSDs resulting from different national rules and should allow CSDs to provide
their services on a cross-border basis without having to comply with different
sets of national requirements such as those concerning the authorisation,
supervision, organisation or risks of CSDs. A Regulation imposing identical requirements
on CSDs should also contribute to eliminating competitive distortions.

(6)
The Financial Stability Board (FSB) called, on
20 October 2010[9],
for more robust core market infrastructures and asked for the revision and
enhancement of the existing standards. The Committee on Payments and Settlement
Systems (CPSS) of the Bank of International Settlements (BIS) and the
International Organisation of Securities Commissions (IOSCO) are finalising
draft global standards. These are to replace the BIS recommendations from 2001,
which were adapted through non-binding guidelines at European level in 2009 by
the European System of Central Banks (ESCB) and the Committee of European
Securities Regulators (CESR).

(7)
The Council, in its conclusions of 2 December
2008[10],
emphasised the need to strengthen the safety and soundness of the securities
settlement systems, and to address legal barriers to post-trading in the Union.

(8)
One of the basic tasks of the ESCB is to promote
the smooth operation of payment systems. In this respect, the members of the
ESCB execute oversight by ensuring efficient and sound clearing and payment
systems. The members of the ESCB often act as settlement agents for the cash
leg of the securities transactions. They are also important clients of CSDs,
which often manage the collateralisation of monetary policy operations. The
members of the ESCB should be closely involved by being consulted in the
authorisation and supervision of CSDs, recognition of third country CSDs and
the approval of CSD links. They should also be closely involved by being consulted
in the setting of regulatory and implementing technical standards as well as of
guidelines and recommendations. The provisions of this Regulation should be
without prejudice to the responsibilities of the European Central Bank (ECB)
and the National Central Banks (NCBs) to ensure efficient and sound clearing and
payment systems within the Union and other countries.

(9)
Member States' central banks or any other bodies
performing similar functions in certain Member States, such as the Member
States national bodies charged with or intervening in the management of the public
debt may themselves provide a number of services which would qualify them as a
CSD. Such institutions should be exempt from the authorisation and supervision
requirements, but should remain subject to the full set of prudential requirements
for CSDs. Since central banks act as settlement agents for the purpose of
settlement, they should also be exempt from the requirements set out in Title
IV of this Regulation.

(10)
This Regulation should apply to the settlement
of transactions in all financial instruments and activities of CSDs unless
specified otherwise. This Regulation should also be without prejudice to
other legislation of the Union concerning specific financial instruments such
as Directive 2003/87/EC of the European Parliament and of the Council of 13
October 2003 establishing a scheme for greenhouse gas emission allowance
trading within the Community and amending Council Directive 96/61/EC[11] and measures adopted in
accordance with that Directive.

(11)
The recording of securities in book-entry form
is an important step to increase the efficiency of settlement and ensure the
integrity of a securities issue, especially in a context of increasing
complexity of holding and transfer methods. For reasons of safety, this
Regulation provides for the recording in book-entry form of all transferable
securities. This Regulation should not impose one particular method for the
initial book-entry recording, which may take the form of immobilisation through
the issuance of a global note or of immediate dematerialisation. This
Regulation should not impose the type of institution that should record
securities in book-entry form upon issuance and permits different actors,
including registrars, to perform this function. However, once such securities
are traded on trading venues regulated by Directive 2004/39/EC of the European
Parliament and of the Council of 21 April 2004 on markets in financial
instruments amending Council Directives 85/611/EEC and 93/6/EEC and
Directive 2000/12/EC of the European Parliament and of the Council and
repealing Council Directive 93/22/EEC[12]
or provided as collateral under the conditions of Directive
2002/47/EC of the European Parliament and of the Council of 6 June 2002 on
financial collateral arrangements[13],
such securities should be recorded in a CSD book-entry system in order to
ensure, inter alia, that all such securities can be settled in a securities
settlement system.

(12)
In order to ensure the safety of settlement, any
participant to a securities settlement system buying or selling certain
financial instruments, namely transferable securities, money-market
instruments, units in collective investment undertakings and emission
allowances, should settle its obligation on the intended settlement date.

(13)
Longer settlement periods of transactions in
transferable securities cause uncertainty and increased risk for securities
settlement systems participants. Different durations of settlement periods
across Member States hamper reconciliation and are sources of errors for
issuers, investors and intermediaries. It is therefore necessary to provide a
common settlement period which would facilitate the identification of the
intended settlement date and facilitate the implementation of settlement
discipline measures. The intended settlement date of transactions in
transferable securities which are admitted to trading on trading venues
regulated by Directive 2004/39/EC should be no later than on the second
business day after the trading takes place.

(14)
CSDs and other market infrastructures should take
measures to prevent and address settlement fails. It is essential that such
rules be uniformly and directly applied in the Union. In particular, CSDs and
other market infrastructures should be required to put in place procedures
enabling them to take appropriate measures to suspend any participant that systematically
causes settlement fails and to disclose its identity to the public, provided
that that participant has the opportunity to submit observations before such a
decision is taken.

(15)
One of the most efficient ways to address
settlement fails is to require failing participants to be subject to a buy-in,
whereby the securities which ought to be delivered must be bought in the market
after the intended settlement date and delivered to the receiving participant.
This Regulation should provide for uniform rules concerning certain aspects of
the buy-in transaction for all transferable securities, money-market
instruments, units in collective investment undertakings and emission
allowances, such as the timing, notice period, pricing and penalties.

(16)
As the main purpose of this Regulation is to
introduce a number of legal obligations imposed directly on market operators
consisting, inter alia, in the recording in book-entry form in a CSD of all transferable
securities once such securities are traded on trading venues regulated by Directive
2004/39/EC or provided as collateral under the conditions of Directive
2002/47/EC and in the settling their obligations no later than on the second
business day after trading takes place and as CSDs are responsible for the
operation of securities settlement systems and the application of measures to
provide timely settlement in the Union, it is essential to ensure that all CSDs
are safe and sound and comply at all times with stringent organisational,
conduct of business and prudential requirements established by this Regulation.
Uniform and directly applicable rules regarding the authorisation and ongoing
supervision of CSDs are therefore an essential corollary of and are interrelated
with the legal obligations imposed on market participants by this Regulation.
It is, therefore, necessary to include the rules regarding the authorisation
and supervision of CSDs in the same act as the legal obligations imposed on
market participants.

(17)
Taking into account that CSDs should be subject
to a set of common requirements and in order to dismantle the existing barriers
to cross-border settlement, any authorised CSD should enjoy the freedom to
provide its services within the territory of the Union either by establishment
of a branch or by way of direct provision of services.

(18)
Within a borderless Union settlement market, it
is necessary to define the competences of the different authorities involved in
the application of this Regulation. Member States should specifically designate
the competent authorities responsible for the application of this Regulation,
which should be afforded the supervisory and investigatory powers necessary for
the exercise of their functions. A CSD should be subject to the authorisation
and supervision of the competent authority of its place of establishment, which
is well placed and should be empowered to examine how CSDs operate on a daily
basis, to carry out regular reviews and to take appropriate action when
necessary. That authority should however consult at the earliest stage and
cooperate with other relevant authorities, which include the authorities
responsible for the oversight of each securities settlement system operated by
the CSD and, where applicable, the relevant central banks that act as
settlement agent for each securities settlement system, and, also, where
applicable, the competent authorities of other group entities. This cooperation
also implies immediate information of the authorities involved in case of
emergency situations affecting the liquidity and stability of the financial
system in any of the Member States where the CSD or its participants are
established. Whenever a CSD provides its services in another Member State than
where it is established either by the establishment of a branch or by way of
direct provision of services the competent authority of its place of
establishment is mainly responsible for the supervision of that CSD.

(19)
Any legal person falling within the definition
of a CSD needs to be authorised by the competent national authorities before
starting its activities. In view of taking into account different business
models, a CSD should be defined by reference to certain core services, which
consist of settlement, implying the operation of a securities settlement
system, notary and central securities accounts maintenance services. A CSD should
at least operate a securities settlement system and provide one other core
service. This definition should exclude, therefore, entities which do not
operate securities settlement systems such as registrars or public authorities
and bodies in charge of a registry system established under Directive
2003/87/EC. This combination is essential for CSDs to play their role in the
securities settlement and in ensuring the integrity of a securities issue.

(20)
In order to avoid any risk taking by the CSDs in
other activities than those subject to authorisation under this Regulation, the
activities of the authorised CSDs should be limited to the provision of
services covered by their authorisation and they should not hold any
participation, as defined in the Regulation by reference to the Fourth Council
Directive 78/660/EEC of 25 July
1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain
types of companies[14],
or any ownership, direct or indirect, of 20 % or more
of the voting rights or capital in any other institutions than the ones
providing similar services.

(21)
In order to ensure the safety in the functioning
of the securities settlement systems, the latter should be operated only by the
CSDs subject to the rules provided in this Regulation or by central banks.

(22)
Without prejudice to specific requirements of
Member States tax legislation, CSDs should be authorised to provide services ancillary
to their core services that contribute to enhancing the safety, efficiency and
transparency of the securities markets. Where the
provision of such services relates to withholding tax procedures, it will
continue to be carried out in accordance with the legislation of the Member
States concerned.

(23)
A CSD intending to outsource a core service to a
third party or to provide a new core or ancillary service, to operate another
securities settlement system, to use another central bank as settlement agent
or to set up a CSD link should apply for authorisation following the same
procedure as that required for initial authorisation, with the exception that
the competent authority should inform the applicant CSD within three months
whether authorisation has been granted or refused.

(24)
CSDs established in third countries may offer
their services either through a branch or by way of direct provision of
services to issuers and participants established in the Union in relation to
their activities there and may set up links with CSDs established in the Union
subject to recognition by ESMA. In view of the global nature of financial
markets, ESMA is best placed to recognise third country CSDs. ESMA may
recognise third country CSDs only if the Commission concludes that they are
subject to a legal and supervisory framework equivalent to the one provided in
this Regulation, if they are effectively authorised and supervised in their
country and if cooperation arrangements have been established between ESMA and
the competent authorities of CSDs. Recognition by ESMA is subject to an effective
equivalent recognition of the prudential framework applicable to CSDs
established in the Union and authorised under this Regulation.

(25)
Considering the global nature of financial
markets and the systemic importance of the CSDs, it is necessary to ensure
international convergence of the prudential requirements to which they are
subject. The provisions of this Regulation should follow the existing
recommendations developed by CPSS-IOSCO and ESCB-CESR. ESMA should consider the
existing standards and their future developments when drawing up or proposing
to revise the regulatory technical and implementing standards as well as the
guidelines and recommendations required in this Regulation.

(26)
Considering the complexity as well as the
systemic nature of the CSDs and of the services they provide, transparent
governance rules should ensure that senior management, board members, shareholders
and participants, who are in a position to exercise control as defined by
reference to the Seventh Council Directive 83/349/EEC
of 13 June 1983 based on Article 54(3)(g) of the Treaty on consolidated accounts[15],
over the operation of the CSD, are suitable to ensure the sound and prudent
management of the CSD.

(27)
Transparent governance rules should ensure that
the interests of the shareholders, the management and staff of the CSD, on the
one hand, and the interests of their users, on the other, are taken into
account. These governance principles should apply without prejudice to the
ownership model adopted by the CSD. User committees should be established for
each securities settlement system operated by the CSD to advise the board of
the CSD on the key issues that impact its members.

(28)
Considering the importance of the tasks
entrusted to CSDs, this Regulation should provide that CSDs do not transfer
their responsibilities to third parties through outsourcing of their
activities. Outsourcing of such activities should be subject to strict
conditions that maintain the CSDs' responsibility for their activities and
ensure that the supervision and oversight of the CSDs are not impaired.
Outsourcing by a CSD of its activities to public entities may, under certain
conditions, be exempted from these requirements.

(29)
Conduct of business rules should provide transparency
in the relations between the CSD and its users. In particular, a CSD should
have publicly disclosed, transparent, objective and non-discriminatory criteria
for participation to the securities settlement system, which would allow
restricting access of the participants only on the basis of the risks involved.
A quick and appropriate remedy should be made available to competent
authorities to address any unjustified refusal of CSDs to provide their
services to participants. A CSD should publicly disclose prices and fees for
its services. In order to provide open and non-discriminatory access to CSD services
and in view of the significant market power that CSDs still enjoy on the
territory of their respective Member States, a CSD may not diverge from its
published pricing policy. A CSD should provide for recognised communication
procedures. These participation provisions complement and reinforce the right
of market participants to use a settlement system in another Member State
provided for in Directive 2004/39/EC.

(30)
Considering the central role of securities
settlement systems in the financial markets, CSDs should, when providing their
services, ensure the timely settlement, the integrity of the issue, the
segregation of the securities accounts maintained for each participant and the
possibility to offer, upon request, further segregation of the accounts of the
participants' clients. CSDs should ensure that these requirements apply
separately to each securities settlement system operated by them.

(31)
In order to avoid settlement risks due to the
insolvency of the settlement agent, a CSD should settle, whenever practical and
available, the cash leg of the securities transaction through accounts opened
with a central bank. If this option is not practical
and available, a CSD should be able to settle through accounts opened with a credit institution established under the conditions provided
in Directive 2006/48/EC of the European Parliament and of the Council of 14
June 2006 relating to the taking up and pursuit of the business of credit
institutions[16]
and subject to a specific authorisation procedure and prudential requirements
provided in Title IV of this Regulation. The latter, when acting as settlement
agent, should be able to provide to the CSD's participants the services set out
in this Regulation, which are covered by the authorisation, and may otherwise
provide other services not covered by this Regulation.

(32)
Considering that Directive 2006/48/EC does not
address specifically intraday credit and liquidity risks resulting from the
provision of banking services ancillary to settlement, credit institutions providing
such services should also be subject to specific enhanced credit and liquidity
risk mitigation requirements that should apply to each securities settlement
system in respect of which they act as settlement agents. In order to ensure
full compliance with specific measures aimed at mitigating credit and liquidity
risks, the competent authorities should be able to require CSDs to designate
more than one credit institution whenever they can demonstrate, based on the
available evidence, that the exposures of one credit institution to the
concentration of credit and liquidity risks is not fully mitigated.

(33)
The requirement that the settlement of the cash
leg of the securities transaction be carried out by a separate legal entity
acting as settlement agent is an important measure to increase the safety and
resilience of CSDs. Such a separation between core services of CSDs and banking
services ancillary to settlement appears indeed indispensible for eliminating
any danger of transmission of the risks from the banking services, such as credit
and liquidity risks, to the provision of core services of CSDs. There are no less
intrusive measures available for eliminating those credit and liquidity risks
in order to ensure the envisaged level of safety and resilience of CSDs.
However, in order to secure the efficiencies resulting from the provision of
both CSD and banking services within the same group of undertakings, the
requirement that banking services be carried out by a separate credit
institution should not prevent that credit institution from belonging to the
same group of undertakings as the CSD. If both CSD and banking services are
provided within the same group of undertakings, in order to increase the safety
and efficiency of the services provided, the activities of the credit
institution providing banking services should be limited to the provision of
banking services ancillary to settlement. Furthermore, a derogation to the
obligation to separate banking services ancillary to settlement from core CSD
services should be available in the absence of any danger of transmission of
credit and liquidity risks from the banking services to the provision of core
services of CSDs. In order to ensure a consistent application of the
possibility to derogate from the obligation on CSDs not to provide any banking
type of ancillary services, the Commission should be empowered to decide, at
the request of a national competent authority, whether any such derogation is
permitted in view of the absence of systemic risk incurred by the provision of
both CSD core and banking services by the same legal entity. In any case, the
activitities of a CSD benefiting from any such derogation and authorised as a
credit institution should be limited exclusively to the provision of banking services
ancillary to settlement.

(34)
In order to provide a sufficient degree of
safety and continuity of the services provided by the CSDs, the CSD should be
subject to specific uniform and directly applicable prudential and capital
requirements which do mitigate their legal, operational and investment risks.

(35)
The safety of the link arrangements set up
between CSDs should be subject to specific requirements to enable the access of
their respective participants to other securities settlement systems. The
requirement to provide banking type of ancillary
services in separate legal entity should not prevent CSDs from receiving such
services, in particular when they are participants in a securities settlement
system operated by another CSD. It is particularly
important that any potential risks resulting from the link arrangements such as
credit, liquidity, organisational or any other relevant risks for CSDs are
fully mitigated. For interoperability links, it is important that linked
securities settlement systems have identical moments of entry of transfer
orders into the system, irrevocability of transfer orders and finality of transfers
of securities and cash. The same principles should apply to CSDs that use a
common settlement information technology (IT) infrastructure.

(36)
As operators of securities settlement systems,
CSDs perform a key role in the process of transferring securities on securities
accounts. In order to enhance legal certainty especially in a cross-border
context, it is important to establish clear rules on the law applicable to
ownership aspects in relation to the securities that are maintained by a CSD in
its accounts. Following the approach taken by the existing conflict of laws
rules, the applicable law should be the law of the place where the accounts of
a CSD are maintained.

(37)
In many Member States issuers are required by
national law to issue certain types of securities, notably shares, within their
national CSDs. In order to remove this barrier to the smooth functioning of the
Union post-trading market and to allow issuers to opt for the most efficient
way for managing their securities, issuers should have the right to choose any
CSD established in the Union for recording their securities and receiving any
relevant CSD services. A quick and appropriate remedy should be made available
to competent authorities to address any unjustified refusal of CSDs to provide
their services to issuers. In order to protect the rights of shareholders, the
right of issuers to choose a CSD should not prevent the application of the
national corporate laws under which the securities are constituted and which
govern the relation between issuers and their shareholders.

(38)
The European Code of Conduct for Clearing and
Settlement of 7 November 2006[17]
created a voluntary framework to enable access between CSDs and other market
infrastructures. However, the post-trade sector remains fragmented along
national lines, making cross-border trades more costly. It is necessary to lay
down uniform conditions for links between CSDs and of access between CSDs and
other market infrastructures. In order to enable CSDs to offer their
participants access to other markets, they should have a right to become a
participant of another CSD or request another CSD to develop special functions
for having access to the latter. A quick and appropriate remedy should be made
available to competent authorities to address any unjustified refusal of a CSD
to grant access to another CSD. Since CSD links may introduce additional risk
for settlement, they should be subject to authorisation and supervision by the
relevant competent authorities.

(39)
CSDs should also have access to transaction
feeds from a CCP or a trading venue and those market infrastructures should
have access to the securities settlement systems operated by the CSDs, unless
such access endangers the operation of their activities. A quick and
appropriate remedy should be made available to competent authorities to address
any unjustified refusal of CSDs or market infrastructures to provide access to
their services.

(40)
A sound prudential and conduct of business
framework for the finanical sector should rest on strong supervisory and
sanctioning regimes. To this end, supervisory authorities should be equipped
with sufficient powers to act and should be able to rely on deterrent
sanctioning regimes to be used against any unlawful conduct. A review of
existing sanctioning powers and their practical application aimed at promoting
convergence of sanctions across the range of supervisory activities has been
carried out in the Communication of 8 December 2010 from the Commission to the
European Parliament, the Council, the European Economic and Social Committee
and the Committee of the Regions on reinforcing sanctioning in the financial
services sector.

(41)
Therefore, in order to ensure effective compliance
by CSDs, credit institutions designated as settlement agents, the members of
their management bodies and any other persons who effectively control their
business or any other persons with the requirements of this Regulation, competent
authorities should be able to apply administrative sanctions and measures which
are effective, proportionate and dissuasive.

(42)
In order to provide deterrence and consistent
application of the sanctions across Member States, this Regulation should provide
for a list of key administrative sanctions and measures that need to be
available to the competent authorities, for the power to impose those sanctions
and measures on all persons, whether legal or natural, responsible for a breach,
for a a list of key criteria when determining the level and type of those
sanctions and measures and for levels of administrative pecuniary sanctions. Administrative
fines should take into account factors such as any identified financial benefit
resulting from the breach, the gravity and duration of the breach, any
aggravating or mitigating factors, the need for fines to have a deterrent
effect and, where appropriate, include a discount for cooperation with the
competent authority. The adoption and publication of sanctions should respect
fundamental rights as laid down in the Charter of Fundamental Rights of the
European Union, in particular the rights to respect for private and family life
(Article 7), the right to the protection of personal data (Article 8) and the
right to an effective remedy and to a fair trial (Article 47).

(43)
In order to detect potential breaches, effective
mechanisms to encourage reporting of potential or actual breaches of this
Regulation to the competent authorities should be put in place. These
mechanisms should include adequate safeguards for the persons who report
potential or actual breaches of this Regulation and the persons accused of such
breaches. Appropriate procedures should be established to comply with the
accused person's right to protection of personal data, with the right of
defence and to be heard before the adoption of a final decision affecting that
person as well as with the right to seek effective remedy before a tribunal
against any decision or measure affecting that person.

(44)
This Regulation should be without prejudice to
any provisions in the law of Member States relating to criminal sanctions.

(45)
Directive 95/46/EC of the European Parliament
and of the Council of 24 October 1995 on the protection of individuals with
regard to the processing of personal data and on the free movement of such data[18] governs the processing of
personal data carried out in the Member States pursuant to this Regulation. Any
exchange or transmission of personal data by competent authorities of the
Member States should be undertaken in accordance with the rules on the transfer
of personal data as laid down in Directive 95/46/EC. Regulation (EC) No 45/2001
of the European Parliament and of the Council of 18 December 2000 on the
protection of individuals with regard to the processing of personal data by the
Community institutions and bodies and on the free movement of such data[19] governs the processing of
personal data carried out by ESMA pursuant to this Regulation. Any exchange or
transmission of personal data carried out by ESMA should be in accordance with
the rules on the transfer of personal data as laid down in Regulation (EC) No
45/2001.

(46)
This Regulation complies with the fundamental
rights and observes the principles recognised in particular by the Charter of
Fundamental Rights of the European Union, notably the rights to respect for
private and family life, the right to the protection of personal data, the
right to an effective remedy or to a fair trial, the right not to be tried or
punished twice for the same offence, the freedom to conduct a business, and has
to be applied in accordance with those rights and principles.

(47)
European Securities and Markets Authority (ESMA),
established by Regulation (EU) No 1095/2010 of the European Parliament and of
the Council of 24 November 2010 establishing a European Supervisory Authority
(ESMA), amending Decision No 716/2009/EC and repealing Commission Decision
2009/77/EC[20],
should play a central role in the application of this Regulation by ensuring
consistent application of Union rules by national competent authorities and by
settling disagreements between them.

(48)
As a body with highly specialised expertise
regarding securities and securities markets, it is efficient and appropriate to
entrust ESMA with the elaboration of draft regulatory and implementing
technical standards which do not involve policy choices, for submission to the
Commission. Whenever specified, ESMA should also involve closely the members of
the ESCB and the European Banking Authority (EBA), established by Regulation
(EU) No 1093/2010 of the European
Parliament and the Council of 24 November 2010 establishing
a European Supervisory Authority (European Banking Authority), amending
Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC[21].

(49)
The Commission should be empowered to adopt regulatory
technical standards in accordance with Article
290 of the Treaty on the Functioning of the European Union and with the procedure set out in Articles 10 to 14
of Regulation (EU) No 1095/2010 with
regard to the detailed elements of the settlement discipline measures;
the information and other elements to be included by a CSD in its application
for authorisation; the information that different authorities shall supply each
other when supervising the CSDs; the details of the cooperation arrangements
between home and host authorities; the elements of the governance arrangements
for CSDs; the details of the records to be kept by CSDs; the details of the
measures to be taken by CSDs so that the integrity of the issue is maintained;
the protection of the participants' securities; the timely achievement of
settlement; the mitigation of the operational risks and of the risks derived
from the CSD links; the details of the capital requirements for CSDs; the
details of the prudential requirements on credit and liquidity risks for the
designated credit institutions.

(50)
The Commission should also be empowered to adopt
implementing technical standards by means of implementing acts pursuant to
Article 291 of Treaty on the Functioning of the European Union and in
accordance with the procedure set out in Article 15 of Regulation (EU) No
1095/2010 with regard to standard forms and templates for the application for
authorisation by CSDs; for the provision of information between different
competent authorities for the purposes of supervision of CSDs; for the relevant
cooperation arrangements between home and host authorities; for formats of records
to be kept by CSDs; for the procedures in cases when a participant or an issuer
is denied access to a CSD, CSDs are denied access between themselves or between
CSDs and other market infrastructures; for the consultation of different
authorities prior to granting authorisation to a settlement agent.

(51)
The Commission should be empowered to adopt
delegated acts in accordance with Article 290 of the Treaty. In particular, the
delegated acts should be adopted in respect of specific details concerning
definitions; the criteria under which the operations of a CSD in a host Member
State should be considered of substantial importance for that Member State; the
services for which a third country CSD shall seek for recognition by ESMA and
the information that the applicant CSD shall provide ESMA in its application
for recognition; the risks which may justify a refusal by a CSD of access to
participants and the elements of the procedure available for requesting
participants; the assessment of situations when settlement in central bank
money is not practical and available; the elements of the procedure for access
of issuers to CSDs, access between CSDs and between CSDs and other market
infrastructures.

(52)
In order to ensure uniform conditions for the
implementation of this Regulation, implementing powers should be
conferred on the Commission to take decisions on the assessment of rules from
third countries for the purposes of recognition of third country CSDs and
derogations from the obligation to separate banking services ancillary to
settlement from core CSD services. Those powers should be exercised in accordance with
Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16
February 2011 laying down the rules and general principles concerning mechanisms
for control by the Member States of the Commission's exercise of implementing
powers[22].

(53)
Since the objectives of this Regulation, namely
to lay down uniform requirements for settlement as well as for CSDs, cannot be
sufficiently achieved by the Member States and can therefore, by reason of the
scale of the action, be better achieved at Union level, the Union may adopt
measures, in accordance with the principle of subsidiarity as set out in
Article 5 of the Treaty on European Union. In accordance with the principle of
proportionality, as set out in that Article, this Regulation does not go beyond
what is necessary in order to achieve those objectives.

(54)
It is necessary to amend Directive 98/26/EC to
bring it in line with the Directive 2010/78/EU of the European Parliament and
of the Council of 24 November 2010 amending Directives 98/26/EC, 2002/87/EC,
2003/6/EC, 2003/41/EC, 2003/71/EC, 2004/39/EC, 2004/109/EC, 2005/60/EC,
2006/48/EC, 2006/49/EC and 2009/65/EC in respect of the powers of the European
Supervisory Authority (European Banking Authority), the European Supervisory
Authority (European Insurance and Occupational Pensions Authority) and the
European Supervisory Authority (European Securities and Markets Authority)[23], whereby designated securities
settlement systems are no longer notified to the Commission but to ESMA.

(55)
The application of the authorisation and
recognition requirements of this Regulation should be deferred in order to
provide CSDs established in the Union or in third countries with sufficient
time to seek authorisation and recognition provided for in this Regulation.

(56)
It is also necessary to defer the application of
the requirements of recording certain transferable securities in book-entry
form and settling obligations in securities settlement systems no later than on
the second business day after the trading in order to provide market
participants, holding securities in paper form or using longer settlement
periods, with sufficient time to comply with those requirements.

HAVE ADOPTED THIS REGULATION:

Title I
Subject matter, scope and definitions

Article 1
Subject matter and scope

1.
This Regulation lays down uniform requirements
for the settlement of financial instruments in the Union and rules on the
organisation and conduct of central securities depositories to promote safe and
smooth settlement.

2.
This Regulation applies to the settlement of all
financial instruments and activities of CSDs unless otherwise specified in the
provisions of this Regulation.

3.
This Regulation is without prejudice to provisions
of Union legislation concerning specific financial instruments, in particular
Directive 2003/87/EC.

4.
Articles 9 to 18 and 20 as well as the
provisions of Title IV do not apply to the members of the European System of
Central Banks (ESCB), other Member States' national bodies performing similar
functions or Member States' public bodies charged with or intervening in the
management of the public debt.

Article 2
Definitions

1.
For the purposes of this Regulation, the
following definitions apply:

(1)
‘central securities depository’ ('CSD') means a legal
person that operates a securities settlement system listed in point 3 of
Section A of the Annex and performs at least one other core service listed in
Section A of the Annex;

(2)
'settlement' means the completion of a
securities transaction with the aim of discharging the obligations of
participants through the transfer of funds or securities;

(3)
'securities settlement system' means a system under
the first and second indents of point (a) of Article 2 of Directive 98/26/EC whose
business consists of the execution of transfer orders as defined in the second
indent of point (i) of Article 2 of Directive 98/26/EC;

(4)
'settlement period' means the time period
between the trade date and the intended settlement date;

(5)
'business day' means business day as defined in
point (n) of Article 2 of Directive 98/26/EC;

(6)
'settlement fail' means the non-occurrence of
settlement of a securities transaction on the intended settlement date due to a
lack of securities or cash, regardless of the underlying cause;

(7)
'intended settlement date' means the date on which the parties to a securities transaction agree that
settlement is to take place;

(8)
'central counterparty (CCP)' means an entity
that interposes itself between the counterparties to the contracts traded
within one or more financial markets, becoming the buyer to every seller and
the seller to every buyer;

(9)
'competent authority' means the authority
designated by each Member State in accordance with Article 10;

(10)
'participant' means any participant, as defined in
point (f) of Article 2 of Directive 98/26/EC, including a CCP, to a securities
settlement system;

(11)
‘participation’ means participation within the
meaning of the first sentence of Article 17 of Directive 78/660/EEC, or the
ownership, direct or indirect, of 20 % or more of the voting rights or capital
of an undertaking;

(12)
‘home Member State’ means the Member State in
which a CSD has been authorised;

(13)
‘host Member State’ means the Member State,
other than the home Member State, in which a CSD has a branch or provides CSD
services;

(14)
‘branch’ means a place of business other than
the head office which is a part of a CSD, which has no legal personality and
which provides CSD services for which the CSD has been authorised;

(15)
‘control’ means the relationship between two
undertakings as defined in Article 1 of Directive 83/349/EEC;

(16)
'participant's default' means a situation where
insolvency proceedings, as defined in point (j) of Article
2 of Directive 98/26/EC, are opened against a participant;

(17)
'delivery versus payment' ('DVP') means a securities settlement mechanism which links a transfer of securities
with a transfer of funds in a way that the delivery of securities occurs only if
the corresponding payment occurs;

(18)
'securities account' means
an account on which securities may be credited or debited;

(19)
'CSD link' means an arrangement between CSDs
whereby one CSD opens an account in the securities settlement system of another
CSD in order to facilitate the transfer of securities from its participants to the
participants of that CSD. CSD links include standard link access, customised link
access and interoperable links;

(20)
'standard link access' means a CSD link whereby
a CSD is connected to another CSD as any other participant to the securities
settlement system operated by the latter;

(21)
'customised link access' means a CSD link
whereby a CSD provides specific services to another CSD distinct from the
services provided to other participants to its securities settlement system;

(22)
'interoperability links' means CSD links whereby
the securities settlement systems operated by CSDs become interoperable as
defined in point (o) of Article 2 of Directive 98/26/EC;

(23)
'transferable securities' means transferable
securities as defined in point (18) of Article 4 of Directive 2004/39/EC;

(24)
'money-market instruments' means money-market
instruments as defined in point (19) of Article 4 of Directive 2004/39/EC;

(25)
'units in collective investment undertakings'
means units in collective investment undertakings as referred to in point (3)
of Section C of Annex I of Directive 2004/39/EC;

(26)
'emission allowances' means any units recognised
for compliance with the requirements of Directive 2003/87/EC;

(27)
'regulated market' means 'regulated market' as defined in point (14) of Article 4 of Directive 2004/39/EC;

(28)
'multilateral trading
facility (MTF)' means multilateral trading facility as
defined in point (15) of Article 4 of Directive 2004/39/EC;

(29)
'organised trading facility (OTF)' means any
system or facility, which is not a regulated market or MTF, operated by an
investment firm or a market operator, in which multiple third-party buying and
selling interests in financial instruments are able to interact in the system in
a way that results in a contract in accordance with the provisions of Title II
of Directive 2004/39/EC;

(30)
'subsidiary' means a subsidiary undertaking
within the meaning of Article 1 of Directive 83/349/EEC;

(31)
'settlement agent' means settlement agent as
defined in point (d) of Article 2 of Directive 98/26/EC.

2.
The Commission shall be empowered to adopt
delegated acts in accordance with Article 64 concerning measures to specify the technical elements of the definitions in points (17),
(20), (21) and (22) of paragraph 1, and to specify the ancillary services set
out in points (1) to (4) of Section B of the Annex and the services set out in
points (1) and (2) of Section C of the Annex.

Title II
Securities settlement

Chapter I
Book-entry form

Article 3
Book-entry form

1.
Any company that issues transferable securities which are admitted to trading on regulated markets
shall arrange for such securities to be represented in book-entry form as immobilisation
through the issuance of a global note, which represents the whole issue, or subsequent
to a direct issuance of the securities into a dematerialised form.

2.
Where the securities referred to in paragraph 1 are traded on regulated
markets, traded on multilateral trading facilities (MTFs) or organised trading
facilities (OTFs) or are transferred following a financial collateral
arrangement as defined in point (a) of Article 2 of Directive 2002/47/EC, those
securities shall be recorded in book-entry form in a CSD prior to the trade
date, unless they have already been so recorded.

Article 4
Enforcement

1.
The authorities of the Member State where the
company that issues securities is established shall be competent for ensuring
that Article 3(1) is applied.

2.
The authorities competent for the supervision of
the regulated markets, MTFs and OTFs shall ensure that Article 3(2) is applied when
the securities referred to in Article 3(1) are traded on regulated markets,
MTFs or OTFs.

3.
Member States' authorities responsible for the application
of Directive 2002/47/EC shall be competent for ensuring that Article 3(2) of
this Regulation is applied when the securities referred to in Article 3(1) of
this Regulation are transferred following a financial collateral arrangement as
defined in point (a) of Article 2 of Directive 2002/47/EC.

Chapter II
Settlement periods

Article 5
Intended settlement dates

1.
Any participant to a securities settlement
system buying or selling on its own account or on behalf of a third party
transferable securities, money-market instruments, units in collective
investment undertakings and emission allowances shall settle its obligation in
relation to the securities settlement system on the intended settlement date.

2.
As regards transferable securities referred to
in paragraph 1 which are traded on regulated markets, MTFs or OTFs, the
intended settlement date shall be no later than on the second business day after
the trading takes place.

3.
The relevant authority of the Member State whose
law applies to the securities settlement system operated by a CSD shall be
competent for ensuring that paragraphs 1 and 2 are applied.

Chapter III
Settlement discipline

Article 6
Measures to prevent settlement fails

1.
Any regulated market, MTF or OTF shall establish
procedures that enable the confirmation of relevant details of transactions in financial
instruments referred to in Article 5 (1) on the date when the orders have been
sent to it.

2.
For each securities settlement system it
operates, a CSD shall establish procedures that facilitate the settlements of
transactions in financial instruments referred to in Article 5(1) on the intended
settlement date. It shall promote early settlement on the intended settlement date
through appropriate mechanisms, such as a progressive tariff structure.

3.
For each securities settlement system it
operates, a CSD shall establish monitoring tools that allow it to identify in
advance settlements of transactions in financial instruments referred to in
Article 5(1) that are most likely to fail and it shall require participants to
settle such transactions on the intended settlement date.

4.
The European Securities and Markets Authority (ESMA) shall develop in consultation
with the members of the European System of Central Banks (ESCB) draft
regulatory technical standards to specify the details of the procedures enabling
confirmation of relevant details of transactions and facilitating settlement
referred to in paragraphs 1 and 2 and the details of the monitoring tools
identifying likely settlement fails referred to in paragraph 3.

ESMA shall submit those draft regulatory
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1095/2010.

Article 7
Measures to address settlement fails

1.
For each securities settlement system it
operates, a CSD shall establish a system that monitors settlement fails of transactions
in financial instruments referred to in Article 5(1). It shall provide regular
reports to the competent authority and to any person with a legitimate interest
as to the number and details of settlement fails and any other relevant
information. The competent authorities shall share with ESMA any relevant
information on settlement fails.

2.
For each securities settlement system it
operates, a CSD shall establish procedures that facilitate settlement of transactions
in financial instruments referred to in Article 5(1) that are not settled on
the intended settlement date. These procedures shall provide for a sufficiently
deterrent penalty mechanism for participants that cause the settlement fails.

3.
A participant to a securities settlement system that
fails to deliver the financial instruments referred to in Article 5(1) to the
receiving participant on the intended settlement date shall be subject to a
buy-in whereby those instruments shall be bought in the market no later than four
days after the intended settlement date and delivered to that receiving
participant and other measures in accordance with paragraph 4.

4.
The measures referred to in paragraph 3 shall
specify at least the following:

(a)
the daily penalty paid by the defaulting
participant for each business day between the intended settlement date and the
actual settlement date;

(b)
the notice period given to the defaulting
participant before the execution of a buy-in;

(c)
the pricing and costs of a buy-in;

(d)
where relevant, the party that executes the
buy-in;

(e)
the amount of compensation for the receiving
participant in case the execution of the buy-in is not possible.

5.
The measures referred to in paragraph 3 shall
ensure that:

(a)
the receiving participant receives at least the price
of the financial instruments agreed at the time of the trade;

(b)
the daily penalty paid by the defaulting
participant is sufficiently deterrent for the defaulting participant;

(c)
where the execution of the buy-in is not
possible, the amount of cash compensation paid to the receiving participant is
higher than the price of the financial instruments agreed at the time of the
trade and the last publicly available price for such instruments on the trading
venue where the trade took place, and is sufficiently deterrent for the
defaulting participant;

(d)
the parties referred to in paragraph 7,
including CCPs, who execute the buy-in disclose to participants the fees charged
for this service;

(e)
if a party other than the failing participant
executes the buy-in, the failing participant reimburse all amounts paid by the
executing party in accordance with paragraphs 3 and 4.

6.
CSDs, CCPs, regulated markets, MTFs and OTFs
shall establish procedures that enable them to suspend any participant that
fails systematically to deliver the financial instruments referred to in
paragraph 1 or cash on the intended settlement date and to disclose to the
public its identity only after giving that participant the opportunity to
submit its observations.

7.
Paragraphs 2 to 6 shall apply to all
transactions of the instruments referred to in Article 5 (1) which are admitted
to trading on regulated markets, traded on MTFs or OTFs or cleared by a CCP.

For transactions cleared by a CCP before being
settled within a securities settlement system, the measures referred to in
paragraph 3 to 5 shall be executed by the CCP.

For transactions not cleared by a CCP, the
regulated markets, MTFs and OTFs shall include in their internal rules an
obligation on their participants to be subject to the measures referred to in
paragraph 3 to 5.

8.
ESMA shall develop in consultation with the
members of the ESCB draft regulatory technical standards to specify the details
of the system monitoring settlement fails and the reports on settlement fails referred
to in paragraph 1, of the procedures facilitating settlement of transactions
following settlement fails referred to in paragraph 2 and the measures referred
to in paragraphs 3 to 5.

ESMA shall submit those draft regulatory
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1095/2010.

Article 8
Enforcement

1.
The relevant authority of the Member State whose
law applies to the securities settlement system operated by a CSD shall be
competent for ensuring that Articles 6 and 7 are applied and for monitoring the
penalties imposed, in close cooperation with the authorities competent for the
supervision of the regulated markets, MTFs, OTFs, and CCPs referred to in
Article 7. In particular, the authorities shall monitor the application of
penalties referred to in Article 7 (2) and (4) and of the measures referred to
in Article 7(6).

2.
In order to ensure consistent, efficient and
effective supervisory practices within the Union in relation to Articles 6 and
7 of this Regulation, ESMA may issue guidelines in accordance with Article 16
of Regulation (EU) No 1095/2010.

Title III
Central securities depositories

Chapter I
Authorisation and supervision of CSDs

Section 1
Authorities responsible for authorisation and supervision of CSDs

Article 9
Competent authority

A CSD shall be authorised and supervised by
the competent authority of the Member State where it is established.

Article 10
Designation of the competent authority

1.
Each Member State shall designate the competent
authority responsible for carrying out the duties under this Regulation for the
authorisation and supervision of CSDs established in its territory and shall
inform ESMA thereof.

Where a Member State designates more than one competent
authority, it shall determine their respective roles and shall designate a
single authority to be responsible for cooperation with other Member States'
competent authorities, the relevant authorities referred to in Article 11, ESMA,
and EBA whenever specifically referred to in this
Regulation.

2.
ESMA shall publish on its website a list of the
competent authorities designated in accordance with paragraph 1.

3.
The competent authorities shall have the
supervisory and investigatory powers necessary for the exercise of their
functions.

Article 11
Relevant authorities

1.
The following authorities shall be involved in
the authorisation and supervision of CSDs whenever specifically referred to in
this Regulation:

(a)
the authority responsible for the oversight of
the securities settlement system operated by the CSD in the Member State whose
law applies to that securities settlement system;

(b)
where applicable, the central bank in the Union in
whose books the cash leg of a securities settlement system operated by the CSD
is settled or, in case of settlement through a credit institution in accordance
with Title IV, the central bank in the Union of issue of the relevant currency.

2.
ESMA shall publish on its website the list of
the relevant authorities referred to in paragraph 1.

Article 12
Cooperation between authorities

1.
The authorities referred to in Articles 9 and 11
and ESMA shall cooperate closely for the application of this Regulation, in
particular in emergency situations referred to in Article 13. Whenever
appropriate and relevant, such cooperation shall include other public
authorities and bodies, in particular those established or appointed under
Directive 2003/87/EC.

In order to ensure consistent, efficient and
effective supervisory practices within the Union, including cooperation between
authorities referred to in Articles 9 and 11 in the different assessments necessary
for the application of this Regulation, ESMA may issue guidelines addressed to
authorities referred to in Article 9 in accordance with Article 16 of Regulation
(EU) No 1095/2010.

2.
The competent authorities shall, in the exercise
of their general duties, duly consider the potential impact of their decisions
on the stability of the financial system in all other Member States concerned,
in particular in the emergency situations referred to in Article 13, based on
the available information.

Article 13
Emergency situations

The authorities referred to in Articles 9
and 11 shall immediately inform ESMA and each other of any emergency situation
relating to a CSD, including of any developments in financial markets, which
may have an adverse effect on market liquidity and on the stability of the
financial system in any of the Member States where the CSD or one of its
participants are established.

Section 2
Conditions and procedures for authorisation of CSDs

Article 14
Authorisation of a CSD

1.
Any legal person that falls within the
definition of CSD shall obtain an authorisation from the competent authority of
the Member State where it is established before commencing its activities.

2.
The authorisation shall specify the services set
out in Sections A and B of the Annex, which the CSD is authorised to provide.

3.
A CSD shall comply at all times with the
conditions necessary for the authorisation.

A CSD shall, without undue delay, inform the
competent authority of any material changes affecting the conditions for
authorisation.

Article 15
Procedure for granting authorisation

1.
The applicant CSD shall submit an application
for authorisation to its competent authority.

2.
The application for authorisation shall be
accompanied by all information necessary to enable the competent authority to satisfy
itself that the applicant CSD has established, at the time of the
authorisation, all the necessary arrangements to meet its obligations set out
in this Regulation. The application for authorisation shall contain a programme
of operations setting out the types of business envisaged and the structural
organisation of the CSD.

3.
Within 20 working days from the receipt of the
application, the competent authority shall assess whether the application is
complete. If the application is not complete, the competent authority shall set
a time limit by which the applicant CSD has to provide additional information.
The competent authority shall inform the applicant CSD when the application is
considered to be complete.

4.
As from the moment when the application is
considered to be complete, the competent authority shall transmit all
information included in the application to the relevant authorities referred to
in Article 11 and consult those authorities concerning the features of the
securities settlement system operated by the applicant CSD.

5.
The competent authority shall, before granting
authorisation to the applicant CSD, consult the competent authorities of the
other Member State involved in the following cases:

(a)
the CSD is a subsidiary of a CSD authorised in
another Member State;

(b)
the CSD is a subsidiary of the parent
undertaking of a CSD authorised in another Member State;

(c)
the CSD is controlled by the same natural or
legal persons who control a different CSD authorised in another Member State.

The consultation referred to in the first
subparagraph shall cover the following:

(a)
the suitability of the shareholders and
participants referred to in Article 25(4) and the reputation and experience of
persons who effectively direct the business of the CSD whenever those
shareholders, participants and persons are common to both the CSD and a CSD
authorised in another Member State;

(b)
whether the relations referred to in paragraph 5
between the CSD authorised in another Member State and the applicant CSD do not
affect the ability of the latter to comply with the requirements of this
Regulation.

6.
Within six months from the submission of a
complete application, the competent authority shall inform the applicant CSD in
writing with a fully reasoned decision whether the authorisation has been
granted or refused.

7.
ESMA shall develop in consultation with the
members of the ESCB draft regulatory technical standards to specify the
information that the applicant CSD shall provide to the competent authority in
the application for authorisation.

ESMA shall submit those draft regulatory
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1095/2010.

8.
ESMA shall develop in consultation with the members
of the ESCB draft implementing technical standards to establish standard forms,
templates and procedures for the application for authorisation.

ESMA shall submit those draft implementing
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1095/2010.

Article 16
Effects of the authorisation

1.
The activities of the authorised CSD shall be
limited to the provision of services covered by its authorisation.

2.
Securities settlement systems may be operated only
by authorised CSDs and central banks.

3.
An authorised CSD shall not be exposed to any risks
related to the provision of banking type of ancillary services by the credit
institution designated to provide such services in accordance with Title IV.

4.
An authorised CSD may only have a participation in
a legal person whose activities are limited to the provision of services set
out in Sections A and B of the Annex.

Article 17
Extension and outsourcing of activities and services

1.
An authorised CSD shall submit a request for authorisation
to the competent authority of the Member State where it is established whenever
it wishes to outsource a core service to a third party under Article 28 or
extend its activities to one or more of the following:

(a)     additional core and ancillary services
set out in the Sections A and B of the Annex not covered by the initial
authorisation;

(b)     the operation of another securities
settlement system;

(c)     the settlement of all or part the cash
leg of its securities settlement system in the books of another central bank;

(d)     setting up any CSD link.

2.
The granting of authorisation under paragraph 1
shall follow the procedure set out in Article 15.

The competent authority shall inform the
applicant CSD whether the authorisation has been granted or refused within
three months of the submission of a complete application.

Article 18
Withdrawal of authorisation

1.
The competent authority of the Member State
where the CSD is established shall withdraw the authorisation in any of the
following circumstances:

(a)
where the CSD has not made use of the
authorisation during 12 months, expressly renounces the authorisation or has
provided no services or performed no activity during preceding six months;

(b)
where the CSD has obtained the authorisation by
making false statements or by any other unlawful means;

(c)
where the CSD no longer complies with the
conditions under which authorisation was granted and has not taken the remedial
actions requested by the competent authority within a set time frame;

(d)
where the CSD has seriously and systematically
infringed the requirements set out in this Regulation.

2.
As from the moment it becomes aware of one of
the circumstances referred to in paragraph 1, the competent authority shall immediately
consult the relevant authorities referred to in Article 11 on the necessity to withdraw
the authorisation except where such a decision is required urgently.

3.
ESMA and any relevant authority referred to in
Article 11 may, at any time, request that the competent authority of the Member
State where the CSD is established examines whether the CSD still complies with
the conditions under which the authorisation was granted.

4.
The competent authority may limit the withdrawal
to a particular service, activity, or financial instrument.

Article 19
CSD Register

1.
Decisions taken by competent authorities under
Articles 14, 17 and 18 shall be immediately communicated to ESMA.

2.
Central banks shall immediately inform ESMA of
any CSD that they operate.

3.
The name of each CSD operating in compliance
with this Regulation and to which authorisation or recognition has been granted
under Articles 14, 17 and 23 shall be entered in a list specifying the services
and classes of financial instruments for which the CSD has been authorised. The
list shall include branches operated by the CSD in other Member States and CSD links.
ESMA shall publish the list on its dedicated website and keep it up to date.

4.
The competent authorities referred to in Article
9 shall communicate to ESMA those institutions that operate as CSDs within 90
days from the date of entry into force of this Regulation.

Section 3
Supervision of CSDs

Article 20
Review and evaluation

1.
The competent authority shall, at least on an
annual basis, review the arrangements, strategies, processes and mechanisms
implemented by a CSD with respect to compliance with this Regulation and evaluate
the risks to which the CSD is, or might be, exposed.

2.
The competent authority shall establish the
frequency and depth of the review and evaluation referred to in paragraph 1
having regard to the size, systemic importance, nature, scale and complexity of
the activities of the CSD concerned. The review and evaluation shall be updated
at least on an annual basis.

3.
The competent authority may subject the CSD to
on-site inspections.

4.
When performing the review and evaluation
referred to in paragraph 1, the competent authority shall consult at an early
stage the relevant authorities referred to in Article 11 concerning the
functioning of the securities settlement systems operated by the CSD.

5.
The competent authority shall regularly, and at
least once a year, inform the relevant authorities referred to in Article 11 of
the results, including any remedial actions or penalties, of the review and
evaluation referred to in paragraph 1.

6.
When performing the review and evaluation
referred to in paragraph 1, the competent authorities responsible for
supervising CSDs which maintain the types of relations referred to in points
(a), (b) and (c) of the first subparagraph of Article 15(5) shall supply one
another with all relevant information that is likely to facilitate their tasks.

7.
The competent authority shall require the CSD
that does not meet the requirements of this Regulation to take at an early
stage the necessary actions or steps to address the situation.

8.
ESMA shall develop in consultation with the
members of the ESCB draft regulatory technical standards to specify the
following:

(a)
the information that the CSD shall provide to
the competent authority for the purposes of the review referred to in paragraph
1;

(b)
the information that the competent authority
shall supply to the relevant authorities referred to in paragraph 5;

(c)
the information that the competent authorities referred
to in paragraph 6 shall supply one another.

ESMA shall submit those draft regulatory
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1095/2010.

9.           ESMA shall develop in consultation
with the members of the ESCB draft implementing technical standards to
determine standard forms, templates and procedures for the provision of
information referred to in the first subparagraph of paragraph 8.

ESMA shall submit those draft implementing
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1095/2010.

Section 4
Provision of services in another Member State

Article 21
Freedom to provide services in another Member State

1.
An authorised CSD may carry out its activities
within the territory of the Union, either by the establishment of a branch or
by way of direct provision of services, provided that the types of activities
concerned are covered by the authorisation.

2.
Any CSD wishing to provide its services within
the territory of another Member State for the first time, or to change the
range of services provided shall communicate the following information to the
competent authority of the Member State where it is established:

(a)
the Member State in which it intends to operate;

(b)
a programme of operations stating in particular
the services which it intends to provide;

(c)
in case of a branch, the organisational
structure of the branch and the names of those responsible for the management
of the branch.

3.
Within three months from the receipt of the
information referred to in paragraph 2, the competent authority shall
communicate that information to the competent authority of the host Member
State unless, by taking into account the provision of services envisaged, it has
reasons to doubt the adequacy of the administrative structure or the financial
situation of the CSD wishing to provide its services in the host Member State.

4.
Where the competent authority refuses to
communicate the information to the competent authority of the host Member
State, it shall give reasons for its refusal to the CSD concerned within three
months of receiving all the information.

5.
The CSD may start providing its services in the
host Member State under the following conditions:

(a)
on receipt of a communication from the competent
authority in the host Member State acknowledging receipt by the latter of the
communication referred to in paragraph 3;

(b)
in the absence of any receipt of a communication,
after two months from the date of transmission of the communication referred to
in paragraph 3.

6.
In the event of a change in any of the
information communicated in accordance with paragraph 2, a CSD shall give
written notice of that change to the competent authority of the home Member
State at least one month before implementing the change. The competent
authority of the host Member State shall also be informed of that change by the
competent authority of the home Member State.

Article 22
Cooperation between home and host authorities

1.
Where a CSD authorised in one Member State has
established a branch in another Member State, the competent authority of the
home Member State of the CSD, in the exercise of its responsibilities and after
informing the competent authority of the host Member State, may carry out
on-site inspections in that branch.

2.
The competent authorities from the host Member
States may require CSDs which provide services in accordance with Article 21 to
report to them periodically on their activities in those host Member States, in
particular for the purpose of collecting statistics.

3.
The competent authority of the home Member State
of the CSD shall, on the request of the competent authority of the host Member
State and within an appropriate time frame, communicate the identity of the
issuers and participants to the securities settlement systems operated by the
CSD which provides services in that host Member State and any other relevant
information concerning the activities of that CSD in the host Member State.

4.
When, taking into account the situation of the
securities markets in the host Member State, the activities of a CSD that has
established a branch or interoperability links with other CSDs or security
settlement systems in that host Member State have become of substantial
importance for the functioning of the securities markets and the protection of
the investors in that host Member State, the home and host competent
authorities shall establish cooperation arrangements for the supervision of the
activities of that CSD in the host Member State.

5.
Where the competent authority of the host Member
State has clear and demonstrable grounds for believing that a CSD providing
services within its territory in accordance with Article 21 is in breach of the obligations arising from the provisions of this
Regulation, it shall refer those findings to the competent authority of the
home Member State.

Where, despite measures taken by the competent
authority of the home Member State or because such measures prove inadequate,
the CSD persists in acting in breach of the obligations arising from the
provisions of this Regulation, after informing the competent authority of the
home Member State, the competent authority of the host Member State shall take
all the appropriate measures needed in order to ensure compliance with the
provisions of this Regulation within the territory of the host Member State.
ESMA shall be informed of such measures without delay.

The competent authority of the host Member
State may refer the matter to ESMA, which may act in accordance with the powers
conferred on it under Article 19 of Regulation (EU) No 1095/2010.

6.
The Commission shall be empowered to adopt
delegated acts in accordance with Article 64 concerning measures for establishing
the criteria under which the operations of a CSD in a host Member State could
be considered of substantial importance for the functioning of the securities
markets and the protection of the investors in that host Member State.

7.
ESMA shall develop draft implementing technical
standards to establish standard forms, templates and procedures for the
cooperation arrangements referred to in paragraphs 1, 3 and 5.

ESMA shall submit those draft implementing
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1095/2010.

Section 5
Relations with third countries

Article 23
Third countries

1.
A CSD established in a third country may provide
CSD services either through a branch or by way of direct provision of services to
issuers and participants established in the Union in relation to their
activities in the Union and may establish links with a CSD established in the
Union, only where that CSD is recognised by ESMA.

2.
After consultation with the authorities referred
to in paragraph 3, ESMA shall recognise a CSD established in a third country
that has applied for recognition to provide the services referred to in
paragraph 1, where the following conditions are met:

(a)
the Commission has adopted a decision in
accordance with paragraph 6;

(b)
the CSD is subject to effective authorisation
and supervision ensuring a full compliance with the prudential requirements
applicable in that third country;

(c)
co-operation arrangements between ESMA and the competent
authorities in that third country have been established pursuant to paragraph 7.

3.
When assessing whether the conditions referred
to in paragraph 2 are met, ESMA shall consult with:

(a)
the competent authorities of the Member States
in which the third country CSD intends to provide CSD services;

(b)
the competent authorities supervising CSDs
established in the Union with whom a third country CSD has established links;

(c)
the authorities referred to in point (a) of Article
11(1);

(d)
the authority in the third country competent for
authorising and supervising CSDs.

4.
The CSD referred to in paragraph 1 shall submit
its application for recognition to ESMA.

The applicant CSD shall provide ESMA with all
information deemed necessary for its recognition. Within 30 working days from
the receipt of the application, ESMA shall assess whether the application is
complete. If the application is not complete, ESMA shall set a time limit by
which the applicant CSD has to provide additional information.

The recognition decision shall be based on the
criteria set out in paragraph 2.

Within six months from the submission of a
complete application, ESMA shall inform the applicant CSD in writing with a
fully reasoned decision whether the recognition has been granted or refused.

5.
ESMA shall, in consultation with the authorities
referred to in paragraph 3, review the recognition of the CSD established in a
third country in case of extensions by that CSD in the Union of the services referred
to in paragraph 1 under the procedure set out in paragraphs 1 to 4.

ESMA shall withdraw the recognition of that CSD
where the conditions and requirements according to paragraph 2 are no longer met
or in the circumstances referred to in Article 18.

6.
The Commission may adopt a decision in
accordance with the procedure referred to in Article 66, determining that the
legal and supervisory arrangements of a third country ensure that CSDs
authorised in that third country comply with legally binding requirements which
are equivalent to the requirements set out in this Regulation, that those CSDs
are subject to effective supervision and enforcement in that third country on
an ongoing basis, and that the legal framework of that third country provides
for an effective equivalent system for the recognition of CSDs authorised under
third country legal regimes.

7.
In accordance with Article 33 (1) of Regulation
(EU) No 1095/2010, ESMA shall establish cooperation arrangements with the
relevant competent authorities of third countries whose legal and supervisory
frameworks have been recognised as equivalent to this Regulation in accordance
with paragraph 6. Such arrangements shall specify at least:

(a)
the mechanism for the exchange of information
between ESMA and the competent authorities of third countries concerned,
including access to all information regarding the CSDs authorised in third
countries that is requested by ESMA;

(b)
the mechanism for prompt notification of ESMA
where a third country competent authority deems a CSD it is supervising to be
in breach of the conditions of its authorisation or other legislation to which
it is obliged to adhere;

(c)
the procedures concerning the coordination of
supervisory activities including, where appropriate, onsite inspections.

Where a cooperation agreement provides for
transfers of personal data by a Member State, such transfers shall comply with the
provisions of Directive 95/46/EC and where a cooperation agreement provides for
transfers of personal data by ESMA, such transfers shall comply with the
provisions of Regulation (EU) No 45/2001.

8.
The Commission shall be empowered to adopt
delegated acts in accordance with Article 64 concerning measures to specify the
services for which a CSD established in a third country shall apply for
recognition by ESMA under paragraph 1 and the information that the applicant
CSD shall provide ESMA in its application for recognition under paragraph 4.

Chapter II
Requirements for CSDs

Section 1
Organisational requirements

Article 24
General provisions

1.
A CSD shall have robust governance arrangements,
which include a clear organisational structure with well-defined, transparent
and consistent lines of responsibility, effective processes to identify, manage,
monitor and report the risks to which it is or might be exposed, and adequate remuneration
policies and internal control mechanisms, including sound administrative and
accounting procedures.

2.
A CSD shall adopt policies and procedures which
are sufficiently effective so as to ensure compliance with this Regulation,
including compliance of its managers and employees with all the provisions of
this Regulation.

3.
A CSD shall maintain and operate effective
written organisational and administrative arrangements to identify and manage
any potential conflicts of interest between itself, including its managers,
employees, board members or any person directly or indirectly linked to them,
and its participants or their clients. It shall maintain and implement adequate
resolution procedures whenever possible conflicts of interest occur.

4.
A CSD shall make its governance arrangements and
the rules governing its activity available to the public.

5.
A CSD shall have appropriate procedures for its employees
to report potential violations internally through a specific channel.

6.
A CSD shall be subject to frequent and
independent audits. The results of these audits shall be communicated to the
board and made available to the competent authority.

7.
A CSD bound by capital links with another CSD, a
holding company or with a credit institution referred to in Title IV shall adopt
detailed policies and procedures specifying how the requirements set in this
article apply to the group and to the different entities of the group.

8.
ESMA shall develop in consultation with the
members of the ESCB draft regulatory technical standards specifying the monitoring
tools for the risks of the CSDs referred to in paragraph 1, and the
responsibilities of the key personnel in respect of those risks, the potential conflicts
of interest referred to in paragraph 3 and the audit methods referred to in
paragraph 6 at the CSD level as well as at the group level.

ESMA shall submit those draft regulatory
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is delegated to the Commission to adopt the
regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1095/2010.

Article 25
Senior management, board and shareholders

1.
The senior management of a CSD shall be of
sufficiently good repute and experience so as to ensure the sound and prudent
management of the CSD.

2.
A CSD shall have a board of which at least one
third, but no less than two, of its members are independent.

3.
The compensation of the independent and other
non-executive members of the board shall not be linked to the business
performance of the CSD.

4.
The board shall be composed of suitable members
with an appropriate mix of skills, experience and knowledge of the entity and
of the market.

5.
A CSD shall clearly determine the roles and
responsibilities of the board and shall make the minutes of the board meetings
available to the competent authority.

6.
The CSD shareholders and participants who are in a position to exercise, directly or indirectly, control over
the management of the CSD shall be suitable to ensure the sound and prudent
management of the CSD.

7.
A CSD shall:

(a)
provide the competent authority with, and make
public, information regarding the ownership of the CSD, and in particular, the
identity and scale of interests of any parties in a position to exercise control
over the operation of the CSD;

(b)
inform the competent authority of and make
public any transfer of ownership which gives rise to a change in the identity
of the persons exercising control over the operation of the CSD.

8.
Within 60 working days from the receipt of the information referred to in paragraph 7, the competent
authority shall take a decision on the proposed changes in the control of the
CSD. The competent authority shall refuse to approve
proposed changes in the control of the CSD where there are objective and
demonstrable grounds for believing that they would pose a threat to the sound
and prudent management of the CSD or to the ability of the CSD to comply with
this Regulation.

Article 26
User committee

1.
A CSD shall establish user committees for each
securities settlement system it operates, which shall be composed of
representatives of issuers and of participants to such securities settlement
systems. The advice of the user committee shall be independent from any direct
influence by the management of the CSD.

2.
A CSD shall define the mandate for each
established user committee, the governance arrangements necessary to ensure its
independence and its operational procedures, as well as the admission criteria
and the election mechanism for user committee members. The governance
arrangements shall be publicly available and shall ensure that the user committee
reports directly to the board and holds regular meetings.

3.
User committees shall advise the board of the
CSD on key arrangements that impact their members, including the criteria for
accepting issuers or participants to their respective securities settlement
systems, service level and pricing structure.

4.
Without prejudice to the right of competent
authorities to be duly informed, the members of the user committees shall be
bound by confidentiality. Where the chairman of a user committee determines
that a member has an actual or a potential conflict of interest on a particular
matter, that member shall not be allowed to vote on that matter.

5.
A CSD shall promptly inform the competent authority
of any decision in which the board decides not to follow the advice of a user
committee.

Article 27
Record keeping

1.
A CSD shall maintain, for a period of at least five
years, all the records on the services and activity provided so as to enable
the competent authority to monitor the compliance with the requirements under
this Regulation.

2.
A CSD shall make the records referred to in
paragraph 1 available upon request to the competent authority and the relevant authorities
referred to in Article 11 for the purpose of fulfilling their mandates.

3.
ESMA shall develop in consultation with the members
of the ESCB draft regulatory technical standards to specify the details of the
records referred to in paragraph 1 to be retained for the purpose of monitoring
the compliance of CSDs with the provisions of this Regulation.

ESMA shall submit those drafts to the
Commission by six months from the date of entry into force of this Regulation.

Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1095/2010.

4.
ESMA shall develop in consultation with the
members of the ESCB draft implementing technical standards to establish the
format of the records referred to in paragraph 1 to be retained for the purpose
of monitoring the compliance of CSDs with the provisions of this Regulation.

ESMA shall submit those draft implementing technical
standards to the Commission by six months from the date of entry into force of
this Regulation.

Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1095/2010.

Article 28
Outsourcing

1.
Where a CSD outsources services or activities to
a third party, it shall remain fully responsible for discharging all of its
obligations under this Regulation and shall comply at all times with the
following conditions:

(a)
outsourcing does not result in the delegation of
its responsibility;

(b)
the relationship and obligations of the CSD
towards its participants or issuers are not altered;

(c)
the conditions for the authorisation of the CSD
do not effectively change;

(d)
outsourcing does not prevent the exercise of
supervisory and oversight functions, including on site access to acquire any
relevant information needed to fulfill those functions;

(e)
outsourcing does not result in depriving the CSD
from the necessary systems and controls to manage the risks it faces;

(f)
the CSD retains the necessary expertise and
resources for evaluating the quality of the services provided, the
organisational and capital adequacy of the service provider, for supervising
the outsourced services effectively and for managing the risks associated with
the outsourcing;

(g)
the CSD has direct access to the relevant
information of the outsourced services;

(h)
the service provider cooperates with the
competent authority and the relevant authorities referred to in Article 11 in
connection with the outsourced activities;

(i)
the CSD ensures that the service provider meets
the standards set down by the relevant data protection legislation which would
apply if the service providers were established in the Union. The CSD is
responsible for ensuring that those standards are set out in a contract between
the parties and that those standards are maintained.

2.
The CSD shall define in a written agreement its
rights and obligations and those of the service provider. The outsourcing
agreement shall include the possibility of the CSD to terminate the agreement.

3.
A CSD shall make available upon request to the
competent authority and the relevant authorities referred to in Article 11 all
information necessary to enable them to assess the compliance of the outsourced
activities with the requirements of this Regulation.

4.
The outsourcing of a core service shall be
subject to authorisation under Article 17 by the competent authority.

5.
Paragraphs 1 to 4 shall not apply where a CSD
outsources some of its services or activities to a public entity and where that
outsourcing is governed by a dedicated legal, regulatory and operational
framework which has been jointly agreed and formalised by the public entity and
the relevant CSD and agreed by the competent authorities on the basis of the
requirements established in this Regulation.

Section 2
Conduct of business rules

Article 29
General provisions

1.
A CSD shall be designed to meet the needs of its
participants and the markets it serves.

2.
A CSD shall have clearly defined goals and
objectives that are measurable and achievable, such as in the areas of minimum
service levels, risk-management expectations and business priorities.

3.
A CSD shall have transparent rules for the
handling of complaints.

Article 30
Participation requirements

1.
For each securities settlement system it
operates a CSD shall have publicly disclosed criteria for participation which allow
fair and open access. Such criteria shall be transparent, objective,
risk-based, and non-discriminatory so as to ensure fair and open access to the
CSD. Criteria that restrict access shall only be permitted to the extent that
their objective is to control the risk for the CSD.

2.
A CSD shall treat requests for access promptly by
providing a response to such requests within one month at the latest and shall
make the procedures for treating access requests publicly available.

3.
A CSD may only deny access to a participant
meeting the criteria referred to in paragraph 1 where it is duly justified in
writing and based on a comprehensive risk analysis.

In case of refusal, the requesting participant has
the right to complain to the competent authority of the CSD that has refused
access.

The responsible competent authority shall duly
examine the complaint by assessing the reasons for refusal and shall provide
the requesting participant with a reasoned reply.

The responsible competent authority shall
consult the competent authority of the place of establishment of the requesting
participant on its assessment of the complaint. Where the authority of the
requesting participant disagrees with the assessment provided, the matter shall
be referred to ESMA, which may act in accordance with the powers conferred on
it under Article 19 of Regulation (EU) No 1095/2010.

Where the refusal by the CSD to grant access to
the requesting participant is deemed unjustified, the responsible competent
authority shall issue an order requiring that CSD to grant access to the
requesting participant.

4.
A CSD shall have objective and transparent
procedures for the suspension and orderly exit of participants that no longer
meet the criteria for participation referred to in paragraph 1.

5.
The Commission shall be empowered to adopt
delegated acts in accordance with Article 64 concerning measures to specify the
risks which may justify a refusal by a CSD of access to participants and the
elements of the procedure referred to in paragraph 3.

6.
ESMA shall develop in consultation with the
members of the ESCB draft implementing technical standards to establish
standard forms and templates for the procedure referred to in paragraph 3.

ESMA shall submit those draft implementing
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1095/2010.

Article 31
Transparency

1.
For each securities settlement system it
operates, as well as for the each of the other services it performs, a CSD shall
publicly disclose the prices and fees associated with the services provided. It
shall disclose the prices and fees of each service and function provided
separately, including discounts and rebates and the conditions to benefit from
those reductions. It shall allow its customers separate access to the specific
services provided.

2.
A CSD shall publish its price list so as to
facilitate the comparison of offers and to allow customers to anticipate the
price they shall have to pay for the use of services.

3.
A CSD shall be bound by its published pricing
policy.

4.
A CSD shall provide to its customers information
that allows reconciling the invoice with the published price lists.

5.
A CSD shall disclose to all participants the
risks associated with the services provided.

6.
A CSD shall account separately for costs and
revenues of the services provided and shall disclose that information to the
competent authority.

Article 32
Communication procedures with participants and other market infrastructures

CSDs shall use in their communication procedures
with participants of the securities settlement systems they operate and with
the market infrastructures they interface with the recognised communication
procedures and standards for messaging and reference data in order to
facilitate efficient recording, payment and settlement.

Section 3
requirements for CSD services

Article 33
General provisions

For each securities settlement system it
operates a CSD shall have appropriate rules and procedures, including robust
accounting practices and controls, to help ensure the integrity of securities
issues, reduce and manage the risks associated with the safekeeping and settlement
of transactions in securities.

Article 34
Integrity of the issue

1.
A CSD shall take appropriate reconciliation measures
to verify that the number of securities making up a securities issue or part of
a securities issue submitted to the CSD is equal to the sum of securities
recorded on the securities accounts of the participants of the securities
settlement system operated by the CSD. Such reconciliation measures shall be conducted
intraday.

2.
Where appropriate and if other entities are
involved in the reconciliation process for a certain securities issue, such as
the issuer, registrars, issuance agents, transfer agents, common depositories, other
CSDs or other entities, the CSD shall require such entities to convene adequate
cooperation and information exchange measures with the CSD so that the
integrity of the issue is maintained.

3.
Securities overdrafts, debit balances or
securities creation shall not be allowed in a securities settlement system
operated by a CSD.

4.
ESMA shall develop in consultation with the
members of the ESCB draft regulatory technical standards to specify the reconciliation
measures a CSD shall take under paragraphs 1 to 3.

ESMA shall submit those draft regulatory
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1095/2010.

Article 35
Protection of participants' securities

1.
For each securities settlement system it
operates a CSD shall keep records and accounts that shall enable it, at any
time and without delay, to distinguish in the accounts with the CSD the securities
of a participant from the securities of any other participant and, if
applicable, from the CSD's own assets.

2.
A CSD shall keep records and accounts that
enable a participant to distinguish the securities of that participant from
those of that participant's clients.

3.
A CSD shall offer to keep records and accounts
enabling a participant to distinguish the securities of each of that
participant's clients, if and as required by that participant ('individual
client segregation').

4.
A CSD shall publicly disclose the level of
protection and the costs associated with the different levels of segregation it
provides and shall offer these services under reasonable commercial terms.

5.
A CSD shall not use the securities of a
participant for any purpose unless it has obtained that participant's express
consent.

6.
ESMA shall develop in consultation with the members
of the ESCB draft regulatory technical standards specifying the book-entry
methods and the account structures enabling the distinction between the
holdings referred under paragraphs 1 to 3 and the methods of assessment thereof.

ESMA shall submit those draft regulatory
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1095/2010.

Article 36
Settlement finality

1.
A CSD shall ensure that the securities settlement
system it operates offers adequate protection to participants. The securities settlement
system operated by a CSD shall be designated and notified according to the procedures
referred to in point (a) of Article 2 of Directive 98/26/EC.

2.
A CSD shall establish procedures for its
securities settlement systems that allow for a timely achievement of settlement,
a minimum exposure of their participants to counterparty risk and liquidity
risk and a low rate of settlement fails.

3.
A CSD shall clearly define the point at which transfer
orders in a securities settlement system are irrevocable, legally enforceable
and binding on third parties.

4.
A CSD shall disclose the point in time at which transfers of funds and securities in a securities settlement system are irrevocable, legally enforceable and binding on third parties.

5.
Paragraphs 3 and 4 shall apply without prejudice
to the provisions applicable to links and common settlement IT infrastructure
provided under Article 45.

6.
A CSD shall achieve settlement finality no later
than by the end of the business day of the intended settlement date. Upon
demand by its user committee, it shall install systems that allow for intraday
or real-time settlement.

7.
The cash proceeds of securities settlements shall
be available for recipients to use no later than by the end of the business day
of the intended settlement date.

8.
All securities transactions against cash between
direct participants to the securities settlement systems operated by a CSD shall
be settled on a DVP basis.

9.
ESMA shall develop in consultation with the
members of the ESCB draft regulatory technical standards specifying the
elements of the procedures referred to in paragraph 2 allowing the timely
achievement of settlement.

ESMA shall submit those draft regulatory
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1095/2010.

Article 37
Cash settlement

1.
For transactions denominated in the currency of
the country where the settlement takes place, a CSD shall settle the cash
payments of its respective securities settlement system through accounts opened
with a central bank operating in such currency whenever practical and
available.

2.
When it is not practical and available to settle
in central bank accounts, a CSD may offer to settle the cash payments for all
or part of its securities settlement systems through accounts opened with a
credit institution. If a CSD offers to settle in accounts opened with a credit
institution, it shall do so in accordance with the provisions of Title IV.

3.
Where the CSD offers settlement both in central
bank accounts and in accounts opened with a credit institution, its
participants shall have the right to choose between these two options.

4.
A CSD shall provide sufficient information to
market participants to allow them to identify and evaluate the risks and costs
associated with these services.

5.
The Commission shall be empowered to adopt
delegated acts in accordance with Article 64 concerning measures defining the cases
when the settlement of the cash payments in a specific currency through
accounts opened with a central bank is not practical and available and the
methods of assessment thereof.

Article 38
Participant default rules and procedures

1.
For each securities settlement system it
operates, a CSD shall have effective and clearly defined rules and procedures
to manage the default of a participant ensuring that the CSD can take timely
action to contain losses and liquidity pressures and continue to meet its obligations.

2.
A CSD shall make its default rules and
procedures available to the public.

3.
A CSD shall undertake with its participants and
other relevant stakeholders periodic testing and review of its default
procedures to ensure that they are practical and effective.

4.
In order to ensure consistent application of
this article, ESMA may issue guidelines in accordance with Article 16 of
Regulation (EU) No 1095/2010.

Section 4
Prudential requirements

Article 39
General requirements

A CSD shall adopt a sound risk-management
framework for comprehensively managing legal, business, operational and other
risks.

Article 40
Legal risks

1.
For the purpose of its authorisation and
supervision, as well as for the information of its customers, a CSD shall have
rules, procedures, and contracts that are clear and understandable including
for all the securities settlement systems it operates.

2.
A CSD shall design its rules, procedures and
contracts so as they can be enforced in all relevant jurisdictions, including in
the case of the default of the participant.

3.
A CSD conducting business in different
jurisdictions shall identify and mitigate the risks arising from any potential
conflicts of laws across jurisdictions.

Article 41
General business risk

A CSD shall have robust management and
control IT tools to identify, monitor and manage general business risks,
including business strategy, cash flows, and operating expenses.

Article 42
Operational risks

1.
A CSD shall identify all potential sources of
operational risk, both internal and external, and minimise their impact through
the deployment of appropriate IT tools, controls and procedures, including for
all the securities settlement systems it operates.

2.
A CSD shall maintain appropriate IT tools that ensure
a high degree of security and operational reliability, and have adequate
capacity. Information technology tools shall adequately deal with the
complexity, variety and type of services and activities performed so as to
ensure high standards of security, the integrity and confidentiality of the
information maintained.

3.
For its notary and central maintenance services as
well as for each securities settlement system it operates, a CSD shall
establish, implement and maintain an adequate business continuity policy and
disaster recovery plan to ensure the preservation of its services, the timely
recovery of operations and the fulfilment of the CSD’s obligations in the case
of events that pose a significant risk of disrupting operations.

4.
The plan referred to in paragraph 3 shall at a
minimum provide for the recovery of all transactions at the time of disruption
to allow the participants of a CSD to continue to operate with certainty and to
complete settlement on the scheduled date. It shall include the setting up of a
second processing site with the requisite level of key resources, capabilities
and functionalities, including appropriately skilled and experienced staff.

5.
The CSD shall plan and carry out a programme of
tests of the arrangements referred to in paragraphs 1 to 4.

6.
A CSD shall identify, monitor and manage the
risks that key participants to the securities settlement systems it operates, as
well as service and utility providers, and other CSDs or other market
infrastructures might pose to its operations.

7.
ESMA shall develop in consultation with the
members of the ESCB draft regulatory technical standards to specify the
operational risks referred to in paragraphs 1 and 6, the methods to test, address
or minimise those risks, including the business continuity policies and
disaster recovery plans referred to in paragraphs 3 and 4 and the methods of
assessment thereof.

ESMA shall submit those draft regulatory
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1095/2010.

Article 43
Investment risks

1.
A CSD shall hold its financial assets at central
banks or authorised credit institutions that have robust accounting practices,
safekeeping procedures and internal controls that fully protect these assets.

2.
A CSD shall have prompt access to its assets,
when required.

3.
A CSD shall invest its financial resources only
in cash or in highly liquid financial instruments with minimal market and
credit risk. These investments shall be capable of being liquidated rapidly
with minimal adverse price effect.

4.
A CSD shall take into account its overall credit
risk exposures to individual institutions in making its investment decision and
shall ensure that its overall risk exposure to any individual institution
remains within acceptable concentration limits.

Article 44
Capital requirements

1.
Capital, together with retained earnings and
reserves of a CSD, shall be proportional to the risks stemming from the
activities of the CSD. It shall be at all times sufficient to:

(a)
ensure that the CSD is adequately protected
against operational, legal, business, custody and investment risks;

(b)
cover potential general business losses, so that
the CSD can continue providing services as a going concern;

(c)
ensure an orderly winding-down or restructuring
of the CSD's activities over an appropriate time span in case of default;

(d)
allow the CSD to meet its current and projected
operating expenses for at least six months under a range of stress scenarios.

2.
A CSD shall maintain a plan for the following:

(a)
the raising of additional capital should its
equity capital approach or fall below the requirements provided in paragraph 1;

(b)
the achieving of an orderly wind down or
reorganisation of its operations and services in case the CSD is unable to
raise new capital.

This plan shall be approved by the board of
directors or an appropriate board committee and updated regularly.

3.
ESMA shall develop in consultation with the
members of the ESCB draft regulatory technical standards to specify the
capital, retained earnings and reserves of a CSD referred to in paragraph 1 and
the features of the plan referred to in paragraph 2.

ESMA shall submit those draft regulatory
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1095/2010.

Section 5
Requirements for CSD links

Article 45
CSD links

1.
Before establishing a CSD link and on an ongoing
basis once the link is established, all CSDs concerned shall identify, assess,
monitor and manage all potential sources of risk for themselves and for their
participants arising from the link arrangement.

2.
Link arrangements shall be submitted to authorisation
as required under point (d) of Article 17(1).

3.
A link shall provide adequate protection to the linked
CSDs and their participants, in particular as regards possible credits taken by
CSDs and the concentration and liquidity risks as a result of the link
arrangement.

A link shall be supported by an appropriate contractual
arrangement that sets out the respective rights and obligations of the linked
CSDs and, where necessary, of the CSDs' participants. A contractual arrangement
with cross-jurisdictional implications shall provide for an unambiguous choice
of law that govern each aspect of the link's operations.

4.
In case of a provisional transfer of securities between
linked CSDs, retransfer of securities prior to the first transfer becoming
final shall be prohibited.

5.
A CSD that uses an intermediary to operate a
link with another CSD shall measure, monitor, and manage the additional risks
arising from the use of that intermediary.

6.
Linked CSDs shall have robust reconciliation
procedures to ensure that their respective records are accurate.

7.
Links between CSDs shall permit DVP settlement
of transactions between participants in linked CSDs, wherever practical and
feasible. The reasons for any non-DVP settlement shall be notified to the
competent authorities.

8.
Interoperable securities settlement systems and
CSDs that use a common settlement infrastructure shall establish identical
moments of:

(a)
entry of transfer orders into the system;

(b)
irrevocability of transfer orders;

(c)
finality of transfers of securities and cash.

9.
ESMA shall develop in consultation with the members
of the ESCB draft regulatory technical standards to specify the conditions as
provided in paragraph 3 under which each type of link arrangement provides for
adequate protection of the linked CSDs and of their participants, in particular
when a CSD intends to participate in the securities settlement system operated
by another CSD, the monitoring and managing of additional risks referred to in
paragraph 5 arising from the use of intermediaries, the reconciliation methods
referred to in paragraph 6, the cases where DVP settlement through links is
practical and feasible as provided in paragraph 7 and the methods of assessment
thereof.

ESMA shall submit those draft regulatory
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Powers is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation EU No
1095/2010.

Chapter III
Conflict of laws

Article 46
Applicable law to proprietary aspects

1.
Any question with respect to proprietary aspects
in relation to financial instruments held by a CSD shall be governed by the law
of the country where the account is maintained.

2.
Where the account is used for settlement in a
securities settlement system, the applicable law shall be the one governing that
securities settlement system.

3.
Where the account is not used for settlement in
a securities settlement system, that account shall be presumed to be maintained
at the place where the CSD has its habitual residence as determined by Article
19 of Regulation (EC) No 593/2008 of the European Parliament and the Council[24].

4.
The application of the law of any country
specified in this Article shall comprise the application of the rules of law in
force in that country other than its rules of private international law.

Chapter IV
Access to CSDs

section 1
Access of issuers to CSDs

Article 47
Freedom to issue in a CSD authorised in the EU

1.
Without prejudice to the corporate law under
which the securities are constituted, an issuer shall have the right to arrange
for its securities to be recorded in any CSD established in any Member State.

2.
When an issuer submits a request for recording
its securities in a CSD, the latter shall treat such request promptly and
provide a response to the requesting issuer within three months.

3.
A CSD may refuse to provide services to an
issuer. Such refusal may only be based on a comprehensive risk analysis or on
the absence of access by the CSD to transaction feeds from the market where the
requesting issuer's securities are or will be traded.

4.
Where a CSD refuses to provide services to an
issuer, it shall provide the requesting issuer with full reasons for its
refusal.

In case of refusal, the requesting issuer shall
have a right to complain to the competent authority of the CSD that refuses to
provide its services.

The competent authority of that CSD shall duly
examine the complaint by assessing the reasons for refusal provided by the CSD
and shall provide the issuer with a reasoned reply.

The competent authority of the CSD shall consult
the competent authority of the place of establishment of the requesting issuer
on its assessment of the complaint. Where the authority of the place of
establishment of the requesting issuer disagrees with that assessment, the
matter shall be referred to ESMA, which may act in accordance with the powers
conferred on it under Article 19 of Regulation (EU) No 1095/2010.

Where the refusal by the CSD to provide its
services to an issuer is deemed unjustified, the responsible competent
authority shall issue an order requiring the CSD to provide its services to the
requesting issuer.

5.
The Commission shall be empowered to adopt
delegated acts in accordance with Article 64 concerning measures to specify the
risks which may justify a refusal by a CSD of access to issuers and the
elements of the procedure referred to in paragraph 4.

6.
ESMA shall develop in consultation with the
members of the ESCB draft implementing technical standards to establish
standard forms and templates for the procedure referred to in paragraph 2.

ESMA shall submit those draft implementing
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1095/2010.

section 2
Access between CSDs

Article 48
Standard link access

A CSD shall have the right to become a
participant of another CSD in accordance with Article 30 and subject to the
authorisation of the CSD link provided under Article 17.

Article 49
Customised link access

1.
Where a CSD requests another CSD to develop
special functions for having access to the latter, the receiving CSD may reject
such request only based on risk considerations. It may not deny a request on
the grounds of loss of market share.

2.
The receiving CSD may charge a fee from the
requesting CSD for making customised link access available on a cost-plus basis,
unless otherwise agreed by both parties.

Article 50
Procedure for CSD links

1.
When a CSD submits a request for access to another
CSD, the latter shall treat such request promptly and provide a response to the
requesting CSD within three months.

2.
A CSD may only deny acces to a requesting CSD where
such access would affect the functioning of the financial markets and cause
systemic risk . Such refusal can be based only on a comprehensive risk analysis.

Where a CSD refuses access, it shall provide
the requesting CSD with full reasons for its refusal.

In case of refusal, the requesting CSD has the
right to complain to the competent authority of the CSD that has refused access.

The responsible competent authority shall duly
examine the complaint by assessing the reasons for refusal and shall provide the
requesting CSD with a reasoned reply.

The responsible competent authority shall
consult the competent authority of the requesting CSD on its assessment of the
complaint. Where the authority of the requesting CSD disagrees with the
assessment provided, each of the two authorities may refer the matter to ESMA,
which may act in accordance with the powers conferred on it under Article 19 of
Regulation (EU) No 1095/2010.

Where the refusal by the CSD to grant access to
the requesting CSD is deemed unjustified, the responsible competent authority
shall issue an order requiring that CSD to grant access to the requesting CSD.

3.
Where the CSDs agree to establish a link, they
shall submit their decision for authorisation to their respective competent
authorities in accordance with Article 17, which shall assess whether any
potential risks resulting from the link arrangement such as credit, liquidity,
operational or any other relevant risks are fully mitigated.

The competent authorities of the respective
CSDs shallrefuse to authorise a link when this could affect the functioning of
the securities settlement systems operated by the applicant CSDs.

4.
The competent authorities of the respective CSDs
shall consult each other regarding the approval of the link and may, if
necessary in case of divergent decisions, refer the matter to ESMA which may
act in accordance with the powers conferred on it under Article 19 of
Regulation (EU) No 1095/2010.

5.
The Commission shall be empowered to adopt
delegated acts in accordance with Article 64 concerning measures to specify the
elements of the procedures referred to in paragraphs 1 to 3.

6.
ESMA shall develop in consultation with the
members of the ESCB draft implementing technical standards to establish
standard forms and templates for the procedures referred to in paragraphs 1 to 3.

ESMA shall submit those draft implementing technical
standards to the Commission by six months from the date of entry into force of
this Regulation.

Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1095/2010.

section 3
Access between a CSD and another market infrastructure

Article 51
Access between a CSDs and another market infrastructure

1.
A CCP and a trading venue shall provide
transaction feeds on a non-discriminatory and transparent basis to a CSD upon
request by the CSD and may charge a fee for such transaction feeds to the
requesting CSD on a cost-plus basis, unless otherwise agreed by both parties.

A CSD shall provide access to its securities
settlement systems on a non-discriminatory and transparent basis to a CCP or a
trading venue and may charge a fee for such access on a cost-plus basis, unless
otherwise agreed by both parties.

2.
When a party submits a request for access to another
party in accordance with paragraph 1, such request shall be treated promptly
and a response to the requesting party shall be provided within one month.

3.
The receiving party may only deny access where
such access would affect the functioning of the financial markets and cause
systemic risk. It may not deny a request on the grounds of loss of market
share.

A party that refuses access shall provide the
requesting party with full reasons for such refusal based on a comprehensive
risk analysis. In case of refusal, the requesting party has the right to complain
to the competent authority of the party that has refused access.

The responsible competent authority shall duly
examine the complaint by assessing the reasons for refusal and shall provide
the requesting party with a reasoned reply.

The responsible competent authority shall
consult the competent authority of the requesting party on its assessment of
the complaint. Where the authority of the requesting party disagrees with the
assessment provided, each of the two authorities may refer the matter to ESMA,
which may act in accordance with the powers conferred on it under Article 19 of
Regulation (EU) No 1095/2010.

Where the refusal by a party to grant access is
deemed unjustified, the responsible competent authority shall issue an order
requiring that party to grant access to its services.

4.
The Commission shall be empowered to adopt
delegated acts in accordance with Article 64 concerning measures to specify the
elements of the procedure referred to in paragraphs 1 to 3.

5.
ESMA shall develop in consultation with the members
of the ESCB draft implementing technical standards to establish standard forms
and templates for the procedure referred to in paragraphs 1 to 3.

ESMA shall submit those draft implementing
technical standards to the Commsssion by six months from the date of entry into
force of this Regulation.

Power is conferred on the Commission to adopt
the implementing technical standards referred to in the previous subparagraph
in accordance with the procedure laid down in Article 15 of Regulation (EU) No
1095/2010.

Title IV

Credit institutions designated to
provide banking type of ancillary services for CSDs' participants

Article 52
Authorisation to provide banking type of ancillary services

1.
A CSD shall not provide itself any banking type
of ancillary services set out in Section C of the Annex.

2.
By way of derogation from paragraph 1, when a
national competent authority referred to in Article 53(1) of this Regulation is
satisfied that a CSD has all the necessary safeguards in place to allow it to
exercise ancillary services, the competent authority may submit a request to
the Commission to allow this CSD also to carry out the ancillary services set
out in Section C of the Annex. This request shall include:

(a) evidence justifying the request, explaining
in detail the arrangements the CSD has put in place to deal with all associated
risks;

(b) a reasoned assessment that this solution is
the most effective means to ensure systemic resilience;

(c) an analysis of the expected impact on the
relevant financial market and financial stability.

Following a detailed impact assessment, a
consultation of the undertakings concerned and after taking into account the
opinions of the EBA, the ESMA and the ECB, the Commission shall adopt an
implementing decision in accordance with the procedure referred to in Article
66. The Commission shall give reasons for its implementing decision.

A CSD which benefits from a derogation shall be
authorised as a credit institution as provided in Title II of Directive
2006/48/EC. This authorisation shall be limited exclusively to the provision of
the banking type of ancillary services that it is authorised to provide in
accordance with paragraph 4 and shall imply the fulfilment of the prudential and
supervision requirements provided in Article 57 and 58.

3.
A CSD that intends to settle the cash leg of all
or part of its securities settlement system in accordance with Article 37(2) of
this Regulation shall obtain authorisation to designate for this purpose an
authorised credit institution as provided in Title II of Directive 2006/48/EC,
unless the competent authority referred to in Article 53(1) of this Regulation demonstrates,
based on the available evidence, that the exposure of
one credit institution to the concentration of
risks under Article 57(3) and (4) of this Regulation is not sufficiently
mitigated. In the latter case, the competent authority referred to in Article
53(1) may require the CSD to designate more than one credit institution. The
designated credit institutions shall be considered as settlement agents.

4.
The authorisation referred to in paragraph 3 shall
cover the ancillary services set out in Section C of the Annex that the
designated credit institution or a CSD that has been granted a derogation under
paragraph 2 of this Article may want to provide for its participants.

5.
Whenever the CSD and the designated credit
institution belong to a group of undertakings ultimately controlled by the same
parent undertaking, the authorisation as provided in Title II of Directive
2006/48/EC of such designated credit institution shall be limited exclusively
to the provision of the banking type of ancillary services that it is authorised
to provide in accordance with paragraph 3 of this Article. The same requirement
applies in respect of a CSD that has been granted a derogation under paragraph
2 of this Article.

6.
The CSD and the designated credit institutions
shall comply at all times with the conditions necessary for authorisation under
this Regulation.

The CSD shall, without undue delay, notify the
competent authorities of any material changes affecting the conditions for
authorisation.

Article 53
Procedure for granting and refusing authorisation

1.
The CSD shall submit its application for
authorisation to designate a credit institution, as required under Article 52,
to the competent authority of the Member State where it is established.

2.
The application shall contain all the information
that is necessary to enable the competent authority to satisfy itself that the
CSD and the designated credit institution have established, at the time of the
authorisation, all the necessary arrangements to meet their obligations set out
in this Regulation. It shall contain a programme of operations setting out the
banking type of ancillary services envisaged, the structural organisation of
the relations between the CSD and the designated credit institutions and how that
credit institution intends to meet the prudential requirements as set out under
Article 57(1), (3) and (4).

3.
The competent authority shall apply the
procedure under Article 15(3) and (6).

4.
The competent authority shall, before granting
authorisation to the CSD, consult the following authorities:

(a)
The relevant authority referred to in point (a) of
Article 11(1) on whether the envisaged provision of services by the designated
credit institution will not affect the functioning of the securities settlement
system operated by the applicant CSD;

(b)
The competent authority referred to in Article
58(1) on the ability of the credit institutions to comply with the prudential
requirements under Article 57.

5.
ESMA shall develop in consultation with the
members of the ESCB draft regulatory technical standards to specify the
information that the applicant CSD shall provide to the competent authority.

ESMA shall submit those draft regulatory
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1095/2010.

6.
ESMA shall develop in consultation with the
members of the ESCB draft implementing technical standards to establish
standard forms, templates and procedures for the consultation of the authorities
referred to in paragraph 4 prior to granting authorisation.

ESMA shall submit those draft implementing
technical standards to the Commsssion by six months from the date of entry into
force of this Regulation.

Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1095/2010.

Article 54
Extension of the banking type of ancillary services

1.
A CSD that intends to extend the banking type of
ancillary services for which it designates a credit institution shall submit a
request for extension to the competent authority of the Member State where that
CSD is established.

2.
The request for extension shall be subject to
the procedure under Article 53.

Article 55
Withdrawal of authorisation

1.
The competent authority of the Member State
where the CSD is established shall withdraw the authorisation in any of the
following circumstances:

(a)
where the CSD has not made use of the
authorisation within 12 months, expressly renounces the authorisation or where
the designated credit institution has provided no services or performed no
activity for the preceding six months;

(b)
where the CSD has obtained the authorisation by
making false statements or by any other unlawful means;

(c)
where the CSD and the designated credit
institution are no longer in compliance with the conditions under which
authorisation was granted and have not taken the remedial actions requested by
the competent authority within a set time frame;

(d)
where the CSD and the designated credit
institution have seriously and systematically infringed the requirements set
out in this Regulation.

2.
Before withdrawing authorisation, the competent
authority shall consult the relevant authorities under point (a) of Article 11(1)
and the authorities referred to in Article 58(1) on the necessity to withdraw
the authorisation except where such a decision is required urgently.

3.
ESMA, any relevant authority under point (a) of Article
11(1) and any authority referred to in Article 58(1) may, at any time, request
that the competent authority of the Member State where the CSD is established
examine whether the CSD and the designated credit institution are still in
compliance with the conditions under which the authorisation is granted.

4.
The competent authority may limit the withdrawal
to a particular service, activity, or financial instrument.

Article 56
CSD Register

1.
Decisions taken by competent authorities under
Articles 52, 54 and 55 shall be notified to ESMA.

2.
ESMA shall introduce in the list that it is
required to publish on its dedicated website in accordance with Article 19(3),
the following information:

(a)
the name of each CSD which was subject to a
decision under Articles 52, 54 and 55;

(b)
the name of each designated credit institution;

(c)
the list of banking type of ancillary services
that a designated credit institution is authorised to provide for CSD's
participants.

3.
The competent authorities shall notify to ESMA
those institutions that provide banking type of ancillary services according to
requirements of national law 90 days from the entry into force of this Regulation.

Article 57
Prudential requirements applicable to credit institutions designated to provide
banking type of ancillary services

1.
A credit institution designated to provide
banking type of ancillary services shall provide the services set out in
Section C of the Annex that are covered by the authorisation.

2.
A credit institution designated to provide
banking type of ancillary services shall comply with any present or future
legislation applicable to credit institutions.

3.
A credit institution designated to provide
banking type of ancillary services shall comply with the following specific
prudential requirements for the credit risks related to these services in
respect of each securities settlement system:

(a)
it shall establish a robust framework to manage the
corresponding credit risks;

(b)
it shall identify the sources of such credit
risk, frequently and regularly, measure and monitor corresponding credit
exposures and use appropriate risk-management tools to control these risks;

(c)
it shall fully cover corresponding credit
exposures to individual borrowers using collateral and other equivalent
financial resources;

(d)
if collateral is required to manage its corresponding
credit risk, it shall accept only collateral with low credit, liquidity and
market risk;

(e)
it shall set and enforce appropriately
conservative haircuts and concentration limits on collateral values constituted
to cover the credit exposures referred to in point (c);

(f)
it shall put in place legally binding
arrangements to allow collateral to be sold or pledged promptly, particularly
in the case of cross-border collateral;

(g)
it shall set limits on its corresponding credit
exposures;

(h)
it shall analyse and plan for how to address any
potential residual credit exposures, adopt rules and procedures to implement
such plans;

(i)
it shall provide credit only to participants
that have cash accounts with it;

(j)
it shall provide for an automatic reimbursement procedure
of intraday credit and discourage overnight
credit through deterrent sanctioning rates.

4.
A credit institution designated to provide
banking type of ancillary services shall comply with the following specific prudential
requirements for the liquidity risks related to these services in respect of
each securities settlement system:

(a)
it shall have a robust framework to measure,
monitor, and manage its liquidity risks for each currency of the security
settlement system for which it act as settlement agent;

(b)
it shall monitor continuously the level of
liquid assets it holds and determine the value of its available liquid assets
taking into account appropriate haircuts on these assets;

(c)
it shall measure continuously its liquidity
needs and risks; in doing so, it shall take into account the liquidity risk generated by the default of the two participants to
which it has the largest exposures;

(d)
it shall mitigate the corresponding liquidity risks
with immediately available resources such as prefunding arrangements and,
failing this, shall seek to obtain the necessary credit lines or similar
arrangements to cover the corresponding liquidity needs only with institutions with an adequate risk and market profile and
it shall identify, measure and monitor its liquidity risk stemming from these
institutions;

(e)
it shall set and enforce appropriate
concentration limits for each of the corresponding liquidity providers
including its parent undertaking and subsidiaries;

(f)
it shall determine and test the sufficiency of the
corresponding resources by regular and rigorous stress testing;

(g)
it shall analyse and plan for how to address any
uncovered liquidity shortfalls, and adopt rules and procedures to implement
such plans;

(h)
it shall base its intraday credit services on
proportionate and at least same maturity resources, composed of capital, cash
deposits, and borrowing arrangements;

(i)
it shall deposit the corresponding cash balances
on dedicated accounts with central banks, where practical and available;

(j)
it shall ensure that it can re-use, with the
informed consent of the customer, the collateral provided to it by a defaulting
customer.

5.
EBA, in consultation with ESMA and the members
of the ESCB, shall develop draft regulatory technical standards to specify the
following:

(a)
the frequency of the credit exposure measuring
and monitoring framework referred to in point (b) of paragraph 3 and the types
of risk-management tools that shall be used to control the risks derived from
these exposures;

(b)
what constitutes equivalent financial resources
for the purpose of point (c) of paragraph 3;

(c)
the type of collateral that can be considered as
having low credit, liquidity and market risk for the purpose of point (d) of
paragraph 3;

(d)
what constitutes appropriate haircuts for the
purposes of point (e) of paragraph 3 and point (b) of paragraph 4;

(e)
the concentration limits on collateral values
referred to in point (e) of paragraph 3, on credit exposures referred to in
point (g) of paragraph 3 and on liquidity providers referred to in point (e) of
paragraph 4;

(f)
what constitutes deterrent sanctioning rates for
the purpose of point (j) of paragraph 3;

(g)
the details of the monitoring framework referred
to in point (b) of paragraph 4 and the methodology for calculating the value of
available liquid assets for the purpose of point (b) of paragraph 4 and for
measuring the liquidity needs and risks referred to in point (c) of paragraph
4;

(h)
what constitutes immediately available resources
and an adequate risk and market profile for the purpose of point (d) of
paragraph 4;

(i)
the frequency, the type and the time horizons of
the stress tests for the purpose of point (f) of paragraph 4;

(j)
the criteria for assessing when it is practical
and available to deposit cash balances on accounts with central banks for the
purposes of point (i) of paragraph 4.

EBA shall submit those draft regulatory
technical standards to the Commission by six months from the date of entry into
force of this Regulation.

Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010.

Article 58
Supervision of credit institutions designated to provide banking type of
ancillary services

1.
The competent authority referred to in Directive
2006/48/EC is responsible for the authorisation and supervision under the
conditions provided in that directive of the credit institutions designated to
provide banking type of ancillary services and as regards their compliance with
Article 57(3) and (4) of this Regulation.

2.
The competent authority referred to in Article 9
in consultation with the competent authority referred to paragraph 1 shall
review and evaluate at least on an annual basis whether the designated credit
institutions comply with Article 57(1), and whether all the necessary
arrangements between the designated credit institutions and the CSD allow them to
meet their obligations set out in this Regulation.

3.
In view of the protection of the participants to
the securities settlement systems it operates, a CSD shall ensure that it has
access from the credit institution it designates to all necessary information for
the purpose of this Regulation and it shall report any breaches thereof to the
competent authorities referred to in paragraph 1 and in Article 9.

4.
In order to ensure consistent, efficient and
effective supervision within the Union of credit institutions designated to
provide banking type of ancillary services, EBA, in consultation with ESMA and the
members of the ESCB, may issue guidelines addressed to competent authorities in
accordance with Article 16 of Regulation (EU) No 1093/2010.

Title V
Sanctions

Article 59
Administrative sanctions and measures

1.
Member States shall lay down rules on the
administrative sanctions and measures applicable in the circumstances defined
in Article 60 to the persons responsible for breaches of the provisions of this
Regulation and shall take all measures necessary to ensure that they are
implemented. Those sanctions and measures shall be effective, proportionate and
dissuasive.

By 24 months after the entry into force of this
Regulation, the Member States shall notify the rules referred to in the first
subparagraph to the Commission and ESMA. They shall notify the Commission and
ESMA without delay of any subsequent amendments thereto.

2.
The competent authorities shall be able to apply
administrative sanctions and measures to CSDs, designated credit institutions,
the members of their management bodies and any other persons who effectively
control their business as well as to any other legal or natural person who is
held responsible for a breach.

3.
In the exercise of their sanctioning powers in
the circumstances defined in Article 60 competent authorities shall cooperate
closely to ensure that the administrative sanctions and measures produce the
desired results of this Regulation and coordinate their action in order to
avoid possible duplication and overlap when applying administrative sanctions
and measures to cross border cases in accordance with Article 12.

Article 60
Sanctioning powers

1.
This article shall apply to the following
provisions of this Regulation:

(a)
provision of services set out in Sections A, B
and C of the Annex in breach of Articles 14, 23 and 52;

(b)
obtaining the authorisations required under
Articles 14 and 52 by making false statements or by any other unlawful means as
provided in point (b) of Article 18(1), and point (b) of Article 55(1);

(c)
failure of CSDs to hold the required capital in breach
of Article 44(1);

(d)
failure of CSDs to comply with the
organisational requirements in breach of Articles 24 to 28;

(e)
failure of CSDs to comply with the conduct of
business rules in breach of Articles 29 to 32;

(f)
failure of CSDs to comply with the requirements
for CSD services in breach of Articles 34 to 38;

(g)
failure of CSDs to comply with the prudential
requirements in breach of Articles 40 to 44;

(h)
failure of CSDs to comply with the requirements
for CSD links in breach of Article 45;

(i)
abusive refusals by CSDs to grant different
types of access in breach of Articles 47 to 51;

(j)
failure of designated credit institutions to
comply with the specific prudential requirements related to credit risks in
violation of Article 57(3);

(k)
failure of designated credit institutions to
comply with specific prudential requirements related to liquidity risks in
violation of Article 57(4).

2.
Without prejudice to the supervisory powers of
competent authorities, in case of a breach referred to in paragraph 1, the
competent authorities shall, in conformity with national law, have the power to
impose at least the following administrative sanctions and measures:

(a)
a public statement which indicates the person
responsible for the breach and the nature of the breach;

(b)
an order requiring the person responsible for
the breach to cease the conduct and to desist from a repetition of that
conduct;

(c)
withdrawal of the authorisations granted under
Articles 14 and 52, in accordance with Articles 18 and 55;

(d)
dismissal of the members of the management
bodies of the institutions responsible for a breach;

(e)
administrative pecuniary sanctions of up to
twice the amounts of the profit gained as a result of a breach where those
amounts can be determined;

(f)
in respect of a natural person, administrative
pecuniary sanctions of up to EUR 5 million or up to 10 % of the total annual
income of that person in the preceding calendar year;

(g)
in respect of a legal person, administrative
pecuniary sanctions of up to 10 % of the total annual turnover of that person in
the preceding business year; where the undertaking is a subsidiary of a parent
undertaking, the relevant total annual turnover shall be the total annual
turnover resulting from the consolidated account of the ultimate parent
undertaking of the group in the preceding business year.

3.
Competent authorities may have other sanctioning
powers in addition to those referred in paragraph 2 and may provide for higher
levels of administrative pecuniary sanctions than those established in that
paragraph.

4.
Every administrative sanction or measure imposed
for breaches of this Regulation shall be published without undue delay, including
at least information on the type and nature of the breach and the identity of persons
responsible for it, unless such disclosure would seriously jeopardise the
stability of financial markets. Where publication would cause a
disproportionate damage to the parties involved, competent authorities shall
publish the measures and sanctions on an anonymous basis.

The publication of sanctions shall comply with
fundamental rights as laid down in the Charter of Fundamental Rights of the
European Union, in particular with the right to respect of private and family
life and the right to the protection of personal data.

Article 61
Effective application of sanctions

1.
When determining the type and level of
administrative sanctions or measures, the competent authorities shall take into
account the following criteria:

(a)
the gravity and the duration of the breach;

(b)
the degree of responsibility of the responsible
person;

(c)
the size and the financial strength of the
responsible person, as indicated by the total turnover of the responsible legal
person or the annual income of the responsible natural person;

(d)
the importance of the profits gained, losses
avoided by the responsible person or the losses for third parties derived from
the breach, insofar as they can be determined;

(e)
the level of cooperation of the responsible
person with the competent authority, without prejudice to the need to ensure
disgorgement of profits gained or losses avoided by that person;

(f)
previous breaches by the responsible person.

2.
Additional factors may be taken into account by
competent authorities, if such factors are specified in national law.

Article 62
Reporting of violations

1.
Member States shall put in place effective
mechanisms to encourage reporting of breaches of this Regulation to competent
authorities.

2.
The mechanisms referred to in paragraph 1 shall
include at least:

(a)
specific procedures for the receipt and
investigation of reports of breaches;

(b)
appropriate protection for persons who report
potential or actual breaches;

(c)
protection of personal data concerning both the
person who reports the potential or actual breaches and the accused person in
compliance with the principles laid down in Directive 95/46/EC;

(d)
appropriate procedure to ensure the rights of
defence and to be heard of the accused person before the adoption of a final
decision affecting that person and the right to seek effective remedy before a tribunal
against any decision or measure affecting that person.

Title VI
Delegated acts, transitional provisions, amendment to Directive 98/26/EC and
final provisions

Article 63
Delegation of powers

The Commission shall be empowered to adopt delegated
acts in accordance with Article 64 concerning Articles 2(2), 22(6), 23(1),
23(4), 30(1), 30(3), 37(1), 50(1), 50(2), 50(3), 51(2) and 51(3).

Article 64
Exercice of the delegation

1.
The power to adopt delegated acts is conferred
to the Commission subject to the conditions laid down in this Article.

2.
The delegation of power referred to in
Article 63 shall be conferred for an indeterminate period of time from the date
of entry into force of this Regulation.

3.
The delegation of powers referred to in Article 63
may be revoked at any time by the European Parliament or by the Council. A
decision of revocation shall put an end to the delegation of the power
specified in that decision. It shall take effect the day following the
publication of the decision in the Official Journal of the European Union
or at a later date specified therein. It shall not affect the validity of any
delegated acts already in force.

4.
As soon as it adopts a delegated act, the
Commission shall notify it simultaneously to the European Parliament and to the
Council.

5.
A delegated act adopted pursuant to Article 63 shall
enter into force only if no objection has been expressed either by the European
Parliament or the Council within a period of two months of notification of that
act to the European Parliament and the Council or if, before the expiry of that
period, the European Parliament and the Council have both informed the
Commission that they will not object. That period shall be extended by two
months at the initiative of the European Parliament or the Council.

Article 65
Implementing powers

The Commission shall be empowered to adopt
implementing acts under Article 23(6) and the third subparagraph of Article
52(2). Those implementing acts shall be adopted in accordance with the
examination procedure referred to in Article 66(2).

Article 66
Committee procedure

1.
The Commission shall be assisted by the European
Securities Committee established by Commission Decision 2001/528/EC[25]. That Committee shall be a
committee in the meaning of Regulation (EU) No 182/2011.

2.
Article 5 of Regulation (EU) No 182/2011 shall
apply when the Commission exercises the implementing powers conferred by this
Regulation.

Article 67
Transitional provisions

1.
Institutions that have been notified to ESMA as
CSDs under the conditions set out under Article 19(4) shall seek all
authorisations that are necessary for the purposes of this Regulation within two
years from the date of entry into force of this Regulation.

2.
Within two years from the date of entry into
force of this Regulation, a CSD established in a third country shall seek
either authorisation from the competent authority of the Member State in which
the CSD provides its services where it intends to provide its services on the
basis of Article 14, or recognition from ESMA where it intends to provide its
services on the basis of Article 23.

3.
Where, on the date of entry into force of this Regulation,
a CSD established in a third country, already provides services in a Member
State in accordance with the national law of that Member State, that CSD shall
be permitted to continue to provide services until such time as the
authorisation referred to in Article 14 or the recognition referred to in
Article 23 is granted or rejected.

4.
Links between a CSD established in a third
country and CSDs authorised in the Member States shall be accepted until such
time as the authorisation referred to in Article 14 or the recognition referred
to in Article 23 is granted or rejected.

Article 68
Amendment to Directive 98/26/EC

1.
The third indent of the first subparagraph of
point (a) of Article 2 of Directive 98/26/EC is replaced by the following:

"-       designated,
without prejudice to other more stringent conditions of general application
laid down by national law, as a system and notified to the
European Securities and Markets Authority by the Member
State whose law is applicable, after that Member State is satisfied as to the
adequacy of the rules of the system.".

2.
Six months after the entry into force of this
Regulation at the latest, Member States shall adopt and publish and communicate
to the Commission measures necessary to comply with the provisions of paragraph
1.

Article 69
Reports and review

1.
ESMA, in cooperation with EBA and the
authorities referred to in Articles 9 and 11, shall submit annual reports to
the Commission providing assessments of trends, potential risks and
vulnerabilities, and, where necessary, recommendations of preventative or
remedial action in the markets for services covered by this Regulation. Such
report shall include at least:

(a)
An assessment of settlement efficiency for
domestic and cross-border operations for each Member State based on the number
and volume of settlement fails, amount of penalties referred to in Article 7(4),
number and volumes of buy-in transactions referred to in Article 7(4) and any
other relevant criteria;

(b)
An assessment measuring settlement which does
not take place in the securities settlement systems operated by CSDs based on
the number and volume of transactions and any other relevant criteria;

(c)
An assessment of the cross-border provision of
services covered by this Regulation based on the number and types of CSD links,
number of foreign participants to the securities settlement systems operated by
CSDs, number and volume of transactions involving such participants, number of
foreign issuers recording their securities in a CSD in accordance with Article
47 and any other relevant criteria.

2.
The reports referred to in paragraph 1 covering
a calendar year shall be communicated to the Commission before 30 April of the
next calendar year.

Article 70

Entry
into force and application

1.
This Regulation shall enter into force on the
twentieth day following that of its publication in the Official Journal of
the European Union.

2.
Article 5 shall apply from 1 January 2015.

3.
Article 3(1) shall apply from 1 January 2020.

This
Regulation shall be binding in its entirety and directly applicable in all
Member States.

Done at Brussels, 7.3.2012

For the European Parliament                                                      For
the Council

The President                                                                                The
President

ANNEX

List
of Services

Section
A
Core services of central securities depositories

1.
Initial recording of securities in a book-entry
system ('notary service');

2.
Maintaining securities accounts at the top tier
level ('central maintenance service');

3.
Operating a securities settlement system ('settlement
service').

Section
B
Non-banking type of ancillary services of central securities depositories

Services provided by the CSDs that
contribute to enhancing the safety, efficiency and transparency of the
securities markets, including:

1.
Services related to the settlement service, such
as:

(a)
Organising a securities lending mechanism, as
agent among participants of a securities settlement system;

(b)
Providing collateral management services, as
agent for participants of a securities settlement system;

(c)
Settlement matching, order routing, trade
confirmation, trade verification.

2.
Services related to the notary and central maintenance
services, such as:

(a)
Services related to shareholders' registers;

(b)
Initiating the processing of corporate actions,
including tax, general meetings and information services;

(c)
New issue services, including allocation and
management of ISIN codes and similar codes;

(d)
Order routing and processing, fee collection and
processing and related reporting;

3.
Maintaining securities accounts in relation to
the settlement service, collateral management and other ancillary services.

4.
Any other services, such as:

(a)
Providing general collateral management services
as agent;

(b)
Providing regulatory reporting;

(c)
Providing data and statistics to market/census
bureaus;

(d)
Providing IT services.

Section
C
Banking type of ancillary services

1.
Banking type of services for the participants to
a securities settlement system related to the settlement service, such as

(a)
Providing cash accounts;

(b)
Accepting cash deposits;

(c)
Providing cash credit;

(d)
Lending securities.

2.
Banking type of services related to the other
core or ancillary services listed in Sections A and B, such as:

(a)
Providing cash accounts for settlement and
accepting cash deposits from the holders of securities accounts;

(b)
Lending securities to the holders of securities
accounts;

(c)
Banking type of services facilitating the
processing of corporate actions, such as:

–
(i)            Pre-financing income and
redemption proceeds;

–
(ii)           Pre-financing tax reclaims.

ANNEX

LEGISLATIVE
FINANCIAL STATEMENT

1.           FRAMEWORK OF THE PROPOSAL/INITIATIVE

1.1.    Title of the proposal/initiative

1.2.    Policy
area(s) concerned in the ABM/ABB structure

1.3.    Nature
of the proposal/initiative

1.4.    Objective(s)

1.5.    Grounds
for the proposal/initiative

1.6.    Duration
and financial impact

1.7.    Management
method(s) envisaged

2.           MANAGEMENT MEASURES

2.1.    Monitoring
and reporting rules

2.2.    Management
and control system

2.3.    Measures
to prevent fraud and irregularities

3.           ESTIMATED FINANCIAL IMPACT OF THE
PROPOSAL/INITIATIVE

3.1.    Heading(s)
of the multiannual financial framework and expenditure budget line(s) affected

3.2.    Estimated
impact on expenditure

3.2.1. Summary of
estimated impact on expenditure

3.2.2. Estimated impact
on operational appropriations

3.2.3. Estimated impact
on appropriations of an administrative nature

3.2.4. Compatibility
with the current multiannual financial framework

3.2.5. Third-party
participation in financing

3.3.    Estimated impact on revenue

LEGISLATIVE FINANCIAL STATEMENT

1.
FRAMEWORK OF THE PROPOSAL/INITIATIVE
1.1.
Title of the proposal/initiative

Regulation of the European Parliament and of the Council on improving
securities settlement in the European Union and on central securities
depositories (CSDs) and amending Directive 98/26/EC

1.2.
Policy area(s) concerned in the ABM/ABB
structure[26]

Internal Market – Financial markets

1.3.
Nature of the proposal/initiative

ý The
proposal/initiative relates to a new action

 ̈ The
proposal/initiative relates to a new action following a pilot
project/preparatory action[27]

 ̈ The proposal/initiative relates to the
extension of an existing action

 ̈ The
proposal/initiative relates to an action redirected towards a new action

1.4.
Objectives
1.4.1.
The Commission's multiannual strategic
objective(s) targeted by the proposal/initiative

Increase the safety and the efficiency of the financial markets;
boost the internal market for financial services

1.4.2.
Specific objective(s) and ABM/ABB activity(ies)
concerned

Specific objectives: In the light of the general objectives above, the following specific objectives are sought: · Increase safety of cross-border settlement · Increase efficiency of cross-border settlement · Ensure a level playing field for CSD services

1.4.3.
Expected result(s) and impact

Specify the effects
which the proposal/initiative should have on the beneficiaries/groups targeted.

The proposal aims at: · Increasing the safety and efficiency of settlement by harmonising settlement periods and ensuring the large majority of transferable securities are issued in book entry form · Improving settlement discipline by creating an appropriate and harmonised framework to prevent and address settlement fails · Regulating appropriately all CSDs operating in the EU · Ensuring consistency of requirements for CSDs and coordination in supervision by national regulators · Reducing costs of cross-border settlement for investors · Providing more choice to issuers and investors by increasing access to CSDs · Increasing level playing field in the competition between CSD services, leading potentially to better quality and lower fees for CSD services for issuers and investors

1.4.4.
Indicators of results and impact

Specify the
indicators for monitoring implementation of the proposal/initiative.

· A report assessing settlement efficiency for each EU market. Indicators could include number and volume of settlement fails (differentiated between domestic and cross-border transactions), volume of CSD penalties, number of buy-in procedures and number of cases of suspension of membership due to systematic failures to settle · A report measuring the volume of market claims, to assess whether the harmonisation of settlement periods has led to an increased efficiency of corporate actions · A report measuring internalisation of settlement by custodians outside of securities settlement systems operated by CSDs. This information is important in terms of systemic risk and to help assess whether EU intervention may be necessary in this respect · A report assessing whether cross-border activity is increasing. Indicators could include number of CSD links, number of foreign participants to CSDs, volume of transactions for foreign participants and numbers of issuers accessing foreign CSDs · A report analysing prices in the EU for the key CSD services, such as settlement and safekeeping for cross-border and domestic transactions · A survey of CSDs, issuers and other market infrastructures to assess to what extent the measures taken have eliminated barriers of access or whether obstacles (of practical or legal nature) still remain

1.5.
Grounds for the proposal/initiative
1.5.1.
Requirement(s) to be met in the short or long
term

As a result of the application of the Regulation in Member States: · Settlement periods would be harmonised · The large majority of transferable securities would be issued in book entry form · Settlement discipline would be increased by creating an appropriate and harmonised framework to prevent and address settlement fails · All CSDs operating in the EU would be regulated appropriately, based on the same set of requirements · The authorisation and supervision of CSDs would be harmonised and the coordination between national regulators would be improved · Access to CSDs (by issuers, other CSDs and other market infrastructures) and from CSDs (to other CSDs and other market infrastructures) would be increased and the conditions for access would be harmonised

1.5.2.
Added value of EU involvement

· Financial markets are inherently cross-border in nature and are becoming increasingly so. The nature of problems identified with respect to CSD services, and particularly settlement in the EU relate essentially to cross-border transactions. Consequently, the effectiveness of remedies implemented in an autonomous and uncoordinated way by individual Member States would likely be very low in a cross-border context · The systemic nature of CSDs and their increasing interconnection in Europe calls for coordinated action · Related aspects are covered by the existing acquis communautaire, notably the Financial Collateral Arrangements Directive, the Settlement Finality Directive (SFD), the Market in Financial Instruments Directive (MiFID), the Capital Requirements Directive (CRD) as well as the possible future Securities Law Directive. Any new proposal would need to tie in perfectly with these EU measures. This can be best achieved in a common effort

1.5.3.
Lessons learned from similar experiences in the
past

CSDs are important institutions for the financial markets in that
they ensure the recording and safekeeping of securities and operate the systems
that ensure settlement of securities transactions, which means the effective
delivery of securities against cash. As such, they are important financial
market infrastructures, alongside trading venues, central counterparties (CCPs)
and trade repositories (TRs). Trading venues are regulated by the Market in
Financial Instruments Directive (MiFID), while CCPs and TRs will also be regulated
at EU level once the proposal for a regulation on derivative transactions,
central counterparties and trade repositories will be approved by the European
Parliament and the Council and will enter into force. MiFID has been applied
since November 2007 and has resulted in more competition between venues for the
trading of financial instruments and more choice for investors in terms of
service providers and available financial instruments.

1.5.4.
Coherence and possible synergy with other
relevant instruments

Certain issues are already covered by existing Union legislation.
For instance, securities settlement systems are already defined by Directive
98/26/EC on settlement finality in payment and securities settlement systems[28] and Directive 2004/39/EC (MiFID)
provides for certain rules of access by market participants to the securities
settlement system of their choice. Other issues are included in Commission
proposals. For instance, the Commission proposal on short selling and certain
aspects of Credit Default Swaps also address settlement discipline for certain
categories of financial instruments, and the Commission proposal on derivative
transactions, central counterparties and trade repositories establish rules for
clearing, which is a process closely related to settlement. The proposed
Regulation is consistent with these Union texts.

1.6.
Duration and financial impact

 ̈ Proposal/initiative of limited
duration

–
 ̈  Proposal/initiative in effect from [DD/MM]YYYY to [DD/MM]YYYY

–
 ̈  Financial impact from YYYY to YYYY

ý Proposal/initiative of unlimited
duration

–
Implementation with a start-up period from 2013
to 2015,

–
followed by full-scale operation.

1.7.
Management mode(s) envisaged[29]

 ̈ Centralised direct management by the Commission

 ̈ Centralised indirect management with the delegation of implementation tasks to:

–
 ̈  executive agencies

–
ý  bodies set up by the Communities[30]

–
 ̈  national public-sector bodies/bodies with public-service mission

–
 ̈  persons entrusted with the implementation of specific actions
pursuant to Title V of the Treaty on European Union and identified in the
relevant basic act within the meaning of Article 49 of the Financial Regulation

 ̈ Shared management with the Member States

 ̈ Decentralised management with third countries

 ̈ Joint management with international organisations (to be specified)

If more than one
management mode is indicated, please provide details in the
"Comments" section.

Comments

-

2.
MANAGEMENT MEASURES
2.1.
Monitoring and reporting rules

Specify frequency
and conditions.

Article 81 of the draft Regulation establishing the European
Securities and Markets Authority (ESMA) provides for the evaluation of the
experience acquired as a result of the operation of ESMA within three years
from the effective start of its operation. To this end, the Commission will
publish a general report that will be forwarded to the European Parliament and
to the Council.

2.2.
Management and control system
2.2.1.
Risk(s) identified

An impact assessment has been carried out for the proposal to reform the financial supervision system in the EU to accompany the draft Regulations establishing the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities Markets Authority. The additional resource to ESMA foreseen as a result of the current proposal is needed in order to allow ESMA to carry out its competences and notably its role in: · Ensuring a harmonised and improved regime for settlement discipline by ensuring consistency of the monitoring and reporting of settlement fails and by drafting standards for the measures to prevent and address settlement fails · Ensuring harmonisation and coordination of rules applying to CSDs by drafting standards · Reinforcing and ensuring consistent application of national regulatory powers by issuing guidelines regarding the cooperation between authorities and drafting standards specifying the content of the application for authorisation and the information to be provided to competent authorities and to be exchanged between authorities for supervision purposes · Ensuring coordination and harmonisation of conditions of access granted to third country firms · Ensuring harmonisation and coordination of rules regarding access to CSDs by participants, issuers and other CSDs, and between CSDs and other market infrastructures The lack of this resource could not ensure a timely and efficient fulfilment of the role of ESMA.

2.2.2. Control
method(s) envisaged

Management and control systems as provided for in the ESMA
Regulation will apply also with regard to the role of ESMA according to the
present proposal.

The final set of indicators to assess the performance of ESMA will
be decided by the Commission at the time of conducting the first required
evaluation. For the final assessment, the quantitative indicators will be as
important as the qualitative evidence gathered in the consultations. The
evaluation shall be repeated every three years.

2.3.
Measures to prevent fraud and irregularities

Specify existing or
envisaged prevention and protection measures.

For the purposes of combating fraud, corruption and any other
illegal activity, the provisions of Regulation (EC) No 1073/1999 of the
European Parliament and of the Council of 25 May 1999 concerning investigations
conducted by the European Anti-Fraud Office (OLAF) shall apply to the ESMA
without any restriction.

ESMA shall accede to the Interinstitutional Agreement of 25 May 1999
between the European Parliament, the Council of the European Union and the
Commission of the European Communities concerning internal investigations by
the European Anti-Fraud Office (OLAF) and shall immediately adopt appropriate
provisions for all ESMA staff.

The funding decisions and the agreements and the implementing
instruments resulting from them shall explicitly stipulate that the Court of Auditors
and OLAF may, if need be, carry out on-the-spot checks on the beneficiaries of
monies disbursed by ESMA as well as on the staff responsible for allocating
these monies.

3.
ESTIMATED FINANCIAL IMPACT OF THE PROPOSAL/INITIATIVE
3.1.
Heading(s) of the multiannual financial
framework and expenditure budget line(s) affected

· Existing expenditure budget lines

In order of multiannual financial framework
headings and budget lines.

Heading of multiannual financial framework || Budget line || Type of expenditure || Contribution

Number [Description........................................] || Diff./non-diff. ([31]) || from EFTA[32] countries || from candidate countries[33] || from third countries || within the meaning of Article 18(1)(aa) of the Financial Regulation

|| 12.0404.01 [ESMA – Subsidy under Titles 1 and 2 (Staff and administrative expenditure)] || Diff || YES || NO || NO || NO

· New budget lines requested

In order of multiannual financial framework
headings and budget lines.

-

3.2.
Estimated impact on expenditure
3.2.1.
Summary of estimated impact on expenditure

EUR million (to 3 decimal places)

Heading of multiannual financial framework: || 1A || Competitiveness for Growth and Employment

DG: MARKT || || || Year 2013[34] || Year 2014 || Year 2015 || || || TOTAL

Ÿ Operational appropriations || || || || || || || ||

12.0404.01 || Commitments || (1) || 0,385 || 0,354 || 0,354 || || || || || 1,093

Payments || (2) || 0,385 || 0,354 || 0,354 || || || || || 1,093

Appropriations of an administrative nature financed  from the envelope for specific programmes[35] || || || || || || || ||

Number of budget line || || (3) || || || || || || || ||

TOTAL appropriations for DG MARKT || Commitments || =1+1a +3 || 0,385 || 0,354 || 0,354 || || || || || 1,093

Payments || =2+2a+3 || 0,385 || 0,354 || 0,354 || || || || || 1,093

Ÿ TOTAL operational appropriations || Commitments || (4) || 0,385 || 0,354 || 0,354 || || || || || 1,093

Payments || (5) || 0,385 || 0,354 || 0,354 || || || || || 1,093

Ÿ TOTAL appropriations of an administrative nature financed from the envelope for specific programmes || (6) || || || || || || || ||

TOTAL appropriations under HEADING 1A of the multiannual financial framework || Commitments || =4+ 6 || 0,385 || 0,354 || 0,354 || || || || || 1,093

Payments || =5+ 6 || 0,385 || 0,354 || 0,354 || || || || || 1,093

Comments:

The operational appropriations above are
related to the specific tasks allocated to ESMA according to the proposal:

1) Tasks related to settlement discipline (2
regulatory standards, 1 guideline and repository tasks)

These measures aim to introduce consistent
monitoring and reporting of settlement fails and to reduce settlement fails by
implementing strict preventative and penalising measures.

ESMA will have to draft two regulatory
technical standards regarding the measures to prevent settlement fails, the
monitoring tools for identifying the likely fails, the measures to address
fails and the details of the monitoring and reporting system in respect of
fails.

ESMA will also have to issue guidelines to the
authorities to ensure the consistent, efficient and effective enforcement of
the measures to prevent and address settlement fails.

ESMA will also receive from the competent
authorities the relevant data on settlement fails.

2) Tasks related to authorisation and
supervision of CSDs (3 regulatory standards, 4 implementing standards, 1 guideline,
repository and permanent tasks)

These measures aim to introduce a consistent
authorisation and supervision framework for CSDs and to increase cooperation
between authorities. This should, inter alia, reduce regulatory burden on the
CSDs with cross-border operations.

ESMA will have to draft three regulatory
technical standards and four implementing technical standards regarding the
content of the application for authorisation, the information provided by CSDs
to the competent authorities, the information exchanged between authorities for
the purpose of supervision, and the cooperation between home and host
authorities.

ESMA will have to draft guidelines to ensure
the consistent, efficient and effective cooperation between authorities in the
different assessments necessary for the application of the Regulation.

ESMA will have to maintain a detailed register
of CSD activities in the Union, including names of authorised CSDs and of
securities settlement systems operated by the CSDs, services provided, authorities
in charge, third country CSDs, etc.

ESMA will play an important role in relation to
non-EU CSDs intending to establish a branch or provide services without the
establishment of a branch in the Union or intending to establish a link with a
CSD in the Union. Most notably ESMA will have to assess whether such CSDs are
subject to effective authorisation and supervision in their home countries and
will have to establish cooperation agreements with the competent authorities in
those countries.

ESMA will also have a number of other permanent
tasks, including to intervene in case of disagreements between home and host
authorities and to be informed in case of emergency situations.

3) Tasks related to the requirements for
CSDs (8 regulatory standards, 2 implementing standards, 1 guideline, permanent
tasks)

These measures aim to introduce consistent
requirements for CSDs in respect of organisational and corporate governance
matters, conduct of business, services and prudential framework. This should
create a safer environment for CSD services and again reduce regulatory burden
on the CSDs with cross-border operations.

ESMA will have to draft eight regulatory
technical standards and two implementing technical standards in order to
specify certain details in relation to a number of regulatory requirements for
CSDs, namely for organisational matters, record keeping, access by
participants, reconciliation of securities accounts, segregation of securities
accounts, settlement finality, operational risk mitigation, capital
requirements and CSD links.

ESMA will also have to issue guidelines
regarding the CSDs' rules and procedures for managing a participant default.

ESMA will also have permanent tasks derived
from its power to intervene in case of disagreements between authorities with
respect to participants' access to CSDs.

4) Tasks related to the access requirements
(3 implementing standards, permanent tasks)

These measures aim to increase efficiency by
allowing issuers and investors access to the CSD of choice.

ESMA will have to draft three implementing
technical standards in relation to the procedure of access from issuers to
CSDs, between CSDs, and between CSDs and other market infrastructures.

ESMA will also have permanent tasks derived
from its power to intervene in case of disagreements between authorities with
respect to access.

5) Tasks related to the monitoring and
evaluation of the proposal (2 annual reports)

ESMA will have to produce two annual reports,
one to assess settlement efficiency for each EU market, based on the
standardised reporting of settlement fails by market players, and the second to
assess whether cross-border activity is increasing, based on the data recorded
in the ESMA register.

Heading of multiannual financial framework: || 5 || " Administrative expenditure "

EUR million (to 3 decimal places)

|| || || Year 2013 || Year 2014 || Year 2015 || || || TOTAL

DG: MARKT ||

Ÿ Human resources || 0 || 0 || 0 || || || || ||

Ÿ Other administrative expenditure || 0 || 0 || 0 || || || || ||

TOTAL DG MARKT || Appropriations || 0 || 0 || 0 || || || || ||

TOTAL appropriations under HEADING 5 of the multiannual financial framework || (Total commitments = Total payments) || 0 || 0 || 0 || || || || ||

EUR million (to 3 decimal places)

|| || || Year 2013[36] || Year 2014 || Year 2015 || || || TOTAL

TOTAL appropriations under HEADINGS 1 to 5 of the multiannual financial framework || Commitments || 0,385 || 0,354 || 0,354 || || || || || 1,093

Payments || 0,385 || 0,354 || 0,354 || || || || || 1,093

3.2.2.
Estimated impact on operational appropriations

–
 ̈  The proposal/initiative does not require the use of operational
appropriations

–
ý  The proposal/initiative requires the use of operational
appropriations, as explained below:

The specific objectives of the proposal are set
out under 1.4.2. They will be reached through the legislative measures
proposed, to be implemented at national level, and through the involvement of
ESMA. While it is not possible to attribute concrete numerical outputs to each
operational objective, ESMA's role and its contribution to the objectives of
the proposal are described in detail in section 3.2.1.

3.2.3.
Estimated impact on appropriations of an
administrative nature
3.2.3.1.
Summary

–
ý  The proposal/initiative does not require the use of administrative
appropriations

–
 ̈  The proposal/initiative requires the use of administrative
appropriations, as explained below:

3.2.3.2.
 Estimated requirements of human resources

–
ý  The proposal/initiative does not require the use of human
resources

–
 ̈  The proposal/initiative requires the use of human resources, as
explained below:

Comment:

No additional human and administrative
resources will be needed in DG MARKT as a result of the proposal. Resources
currently deployed to follow directive 1997/9/EC will continue to do so.

3.2.4.
Compatibility with the current multiannual
financial framework

–
 ̈  Proposal/initiative is compatible the current multiannual
financial framework.

–
ý  Proposal/initiative will entail reprogramming of the relevant
heading in the multiannual financial framework.

The proposal provides for extra tasks to be
carried out by ESMA. This will require additional resources under budget line
12.0404.

–
 ̈  Proposal/initiative requires application of the flexibility
instrument or revision of the multiannual financial framework[37].

3.2.5.
Third-party contributions

–
 ̈  The proposal/initiative does not provide for co-financing by third
parties

–
ý  The proposal/initiative provides for the co-financing estimated
below:

Appropriations in EUR million (to 3 decimal places)

|| Year 2013 || Year 2014 || Year 2015 || || || Total

Member States via EU national supervisors * || 0,577 || 0,531 || 0,531 || || || || || 1,639

TOTAL appropriations cofinanced || 0,577 || 0,531 || 0,531 || || || || || 1,639

- Estimation based
on current financing mechanism in ESMA regulation (Member States 60%, Community
40%)

3.3.
Estimated impact on revenue

–
ý  Proposal/initiative has no financial impact on revenue.

–
 ̈  Proposal/initiative has the following financial impact:

–
 ̈         on own resources

–
 ̈         on miscellaneous revenue

Annex to the Legislative Financial
Statement for a proposal for a Regulation of the European Parliament and of the
Council on improving securities settlement in the European Union and on central
securities depositories (CSDs) and amending Directive 98/26/EC

The costs related to tasks to be carried
out by ESMA have been estimated for staff expenditure (Title 1), in conformity
with the cost classification in the ESMA draft budget for 2012 submitted to the
Commission.

The proposal of the Commission include
provisions for ESMA to develop 13 regulatory technical standards and 9
implementing technical standards that should ensure that provisions of highly
technical nature are consistently implemented across the EU. In addition, ESMA
will also have to develop 3 guidelines, mainly to ensure the efficient and
effective cooperation between authorities and 2 annual reports to monitor and
evaluate the effectiveness of the Regulation, will hold the register of CSDs
and will have a number of other permanent tasks.

Regarding the timing, it has been assumed
that the Regulation will enter into force in early 2013, and therefore that the
additional ESMA resources are required from 2013. Additional staff has been
estimated only for the technical standards, guidelines and reports to be
produced by ESMA; it has been assumed that ESMA can carry out its other
permanent tasks, such as in relation to non-EU CSD recognition and mediation
between authorities with its existing staff. As regards the nature of positions,
the successful and timely delivery of new technical standards will require, in
particular, additional policy, legal and impact assessment officers.

The following assumptions were applied to
assess the impact on number of FTEs required to develop technical standards,
guidelines and reports:

· One policy officer drafts on average 5 technical standards a year
and the same policy officer can draft the related guidelines or reports. This
implies that 4 policy officers are needed;

· One impact assessment officer is needed for the technical standards
above;

· One legal officer is needed for the technical standards and
guidelines above.

This means an additional 6 FTEs are needed
from 2013.

It was assumed that this increase in FTEs
will be maintained in 2014 and 2015 since the standards will most likely be
finalised only in 2014 and amendments may be required in 2015.

Other assumptions:

· Based on the distribution of FTEs in 2012 draft budget, the
additional 6 FTEs are assumed to be comprised of 4 temporary agents (74%), 1
seconded national expert (16%) and 1 contractual agent (10%);

· Average annual salary costs for different categories of personnel
are based on DG BUDG guidance;

· Salary weighting coefficient for Paris of 1.27;

· Training costs assumed at €1,000 per FTE per year;

· Mission costs of €10,000, estimated based on 2012 draft budget for
missions per headcount;

· Recruiting-related costs (travel, hotel, medical examinations,
installation and other allowances, removal costs, etc) of €12,700, estimated
based on 2012 draft budget for recruiting per new headcount.

The method of calculating the increase in
the required budget for the next three years is presented in more detail in
table below. The calculation reflects the fact that that the Community budget
funds 40% of the costs.

Cost type || Calculation || Amount (in thousands)

|| || 2013 || 2014 || 2015 || Total

|| || || || ||

Title 1: Staff expenditure || || || || ||

|| || || || ||

11 Salaries and allowances || || || || ||

- of which temporary agents || =4*127*1,27 || 645 || 645 || 645 || 1,935

- of which SNEs || =1*73*1,27 || 93 || 93 || 93 || 278

- of which contract agents || =1*64*1,27 || 81 || 81 || 81 || 244

|| || || || ||

12 Expenditure related to recruitment || =6*12,7 || 76 || || || 76

|| || || || ||

13 Mission expenses || =6*10 || 60 || 60 || 60 || 180

|| || || || ||

15 Training || =6*1 || 6 || 6 || 6 || 18

|| || || || ||

Total Title 1: Staff expenditure || || 961 || 885 || 885 || 2,732

|| || || || ||

Of which Community contribution (40%) || || 385 || 354 || 354 || 1,093

Of which Member State contribution (60%) || || 577 || 531 || 531 || 1,639

The following table presents the proposed
establishment plan for the four temporary agent positions.

Function group and grade || Temporary posts

||

AD 8 || 1

AD 7 || 1

AD 6 || 1

AD 5 || 1

||

AD total || 4

[1]               OJ L166, 11.6.1998, p. 45

[2]               OJ L 145, 30.4.2004, p. 1

[3]               OJ L166, 11.6/1998, p. 45

[4]               OJ L 177, 30.6.2006, p. 1

[5]               COM(2010) 716, 8.12.2010

[6]               OJ C , , p. .

[7]               OJ C , , p. .

[8]               OJ L 166, 11.6.1998,
p. 45.

[9]               FSB "Reducing the moral hazard posed by
systemically important financial institutions", 20 October 2010.

[10]             Conclusions of 2911th Council meeting,
ECOFIN, 2 December 2008.

[11]             OJ L 275, 25.10.2003, p. 32.

[12]             OJ L 145, 30.4.2004, p. 1.

[13]             OJ L 168, 27.6.2002, p. 43.

[14]             OJ L 222 , 14.8.1978, p. 11.

[15]             OJ L 193, 18.7.1983, p. 1.

[16]             OJ L 177, 30.6.2006, p. 1.

[17]             "European Code of Conduct for Clearing and
Settlement" signed by FESE (Federation of European Securities Exchanges),
EACH (European Association of Clearing Houses) and ECSDA (European Central
Securities Depositories Association) on 7 November 2006.

[18]             OJ L 281, 23.11.1995, p.31.

[19]             OJ L 8, 12.1.2001, p. 1.

[20]             OJ L 331, 15.12.2010, p. 84.

[21]             OJ L 331, 15.12.2010, p. 12.

[22]             OJ L 55, 28.2.2011, p. 13.

[23]             OJ L 331,
15.12.2010, p. 120.

[24]             OJ L 177, 4.7.2008, p. 6.

[25]             OJ L 191, 13.7.2001, p. 45.

[26]             ABM: Activity-Based Management – ABB: Activity-Based
Budgeting.

[27]             As referred to in Article 49(6)(a) or (b) of the
Financial Regulation.

[28]             OJ L166, 11.6/1998, p. 45

[29]             Details of management modes and references to the
Financial Regulation may be found on the BudgWeb site: http://www.cc.cec/budg/man/budgmanag/budgmanag_en.html

[30]             As referred to in Article 185 of the Financial
Regulation.

[31]             Diff. = Differentiated appropriations / Non-diff. =
Non-Differentiated Appropriations

[32]             EFTA: European Free Trade Association.

[33]             Candidate countries and, where applicable, potential
candidate countries from the Western Balkans.

[34]             Year N is the year in which implementation of the
proposal/initiative starts.

[35]             Technical and/or administrative assistance and
expenditure in support of the implementation of EU programmes and/or actions
(former "BA" lines), indirect research, direct research.

[36]             Year N is the year in which implementation of the
proposal/initiative starts.

[37]             See points 19 and 24 of the Interinstitutional
Agreement.