COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT REPORT Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 909/2014 as regards settlement discipline, cross-border provision of services, supervisory cooperation, provision of banking-type ancillary services and requirements for third-country central securities depositories
Date: 2022-03-16
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: banking, financial cooperation, financial instrument, financial legislation, financial risk, financial supervision, payment system, provision of services, securities, third country

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 16.3.2022  SWD(2022) 75 final  COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT REPORT  Accompanying the document Proposal for a    REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL   amending Regulation (EU) No 909/2014 as regards settlement discipline, cross-border provision of services, supervisory cooperation, provision of banking-type ancillary services and requirements for third-country central securities depositories    {COM(2022) 120 final} - {SEC(2022) 160 final} - {SWD(2022) 76 final}  
 
 
Table of contents  

GLOSSARY ................................................................................................................................................... 3 

1. 

INTRODUCTION: POLITICAL AND LEGAL CONTEXT ............................................................... 6 

1.1.  INTRODUCTION ................................................................................................................................ 6 

1.2.  BACKGROUND .................................................................................................................................. 8 

1.3.  CSDS IN THE EUROPEAN UNION ................................................................................................. 11 

1.4.  LEGAL AND POLITICAL CONTEXT ............................................................................................. 16 

2. 

PROBLEM DEFINITION .................................................................................................................. 21 

2.1.  METHODOLOGY .............................................................................................................................. 21 

2.2.  WHAT ARE THE PROBLEMS? ....................................................................................................... 23 

2.3.  WHAT ARE THE PROBLEM DRIVERS? ....................................................................................... 30 

2.4.  HOW WILL THE PROBLEM EVOLVE? ......................................................................................... 38 

3.  WHY SHOULD THE EU ACT? ........................................................................................................ 40 

3.1.  LEGAL BASIS ................................................................................................................................... 40 

3.2.  SUBSIDIARITY: NECESSITY OF EU ACTION ............................................................................. 40 

3.3.  SUBSIDIARITY: ADDED VALUE OF EU ACTION ...................................................................... 40 

4.  OBJECTIVES: WHAT IS TO BE ACHIEVED? ............................................................................... 41 

4.1.  GENERAL OBJECTIVES .................................................................................................................. 41 

4.2.  SPECIFIC OBJECTIVES ................................................................................................................... 42 

5.  WHAT ARE THE AVAILABLE POLICY OPTIONS? .................................................................... 43 

5.1.  WHAT IS THE BASELINE FROM WHICH OPTIONS ARE ASSESSED? .................................... 43 

5.2.  DESCRIPTION OF THE POLICY OPTIONS ................................................................................... 47 

5.3.  OPTIONS DISCARDED AT AN EARLY STAGE ........................................................................... 49 

6.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? ........................................................... 50 

6.1.  IMPACT OF THE POLICY OPTIONS REGARDING PASSPORTING REQUIREMENTS .......... 50 

6.2.  IMPACT  OF  THE  POLICY  OPTIONS  REGARDING  COOPERATION  BETWEEN 

AUTHORITIES .................................................................................................................................. 53 

6.3.  IMPACT  OF  THE  POLICY  OPTIONS  REGARDING  PROVISION  OF  BANKING 

SERVICES RELATED TO SETTLEMENT IN FOREIGN CURRENCIES ..................................... 57 

6.4.  IMPACT OF THE POLICY OPTIONS REGARDING SETTLEMENT DISCIPLINE .................... 59 

6.5.  IMPACT OF THE POLICY OPTIONS REGARDING THIRD-COUNTRY CSDS ......................... 64 

7.  HOW DO THE OPTIONS COMPARE? ............................................................................................ 67 

8. 

PREFERRED PACKAGE .................................................................................................................. 69 

8.1.  SUMMARY OF PREFERRED AGGREGATED OPTIONS ............................................................. 69 

8.2.  COMBINED IMPACTS OF THE PACKAGE ................................................................................... 70 

8.3.  REFIT (SIMPLIFICATION AND IMPROVED EFFICIENCY) ....................................................... 72 

9.  HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? .................................. 73 

ANNEX 1: PROCEDURAL INFORMATION ............................................................................................ 75 

ANNEX 2: STAKEHOLDER CONSULTATION ....................................................................................... 77 

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ANNEX 3: WHO IS AFFECTED AND HOW? .......................................................................................... 80 

ANNEX 4: ANALYTICAL METHODS ..................................................................................................... 93 

ANNEX 5: EVALUATION ......................................................................................................................... 95 

ANNEX 6: DETAILED DESCRIPTION OF IDENTIFIED PROBLEM AREAS .................................... 123 

ANNEX 7: ANALYSIS OF ALL THE OPTIONS .................................................................................... 136 

ANNEX 8: GRAPHS AND FIGURES ...................................................................................................... 151 

ANNEX 9: DESCRIPTION OF THE BUY-IN PROCESS ....................................................................... 154 

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GLOSSARY 

Term or acronym 

Meaning or definition 

Book-entry settlement   A  mechanism  that  enables  market  participants  to  transfer  assets  (e.g.,  securities) 

without the physical movement of paper documents or certificates. 

Buy-In  

A purchase of shares by a broker after a seller has failed to deliver similar shares, 
the original seller being charged any difference in cost. 

CMU 

Capital Markets Union 

Central bank money   Designates  the  case  where  a  Securities  Settlement  System  settles  its  cash  leg  on 

cash accounts opened in the books of a central bank. 

Central 
(CCP) 

counterparty 

An entity that interposes itself, in one or more markets, between the counterparties 
to  the  contracts  traded,  becoming  the  buyer  to  every  seller  and  the  seller  to  every 
buyer and thereby guaranteeing the performance of open contracts. 

Collateral 

An asset or third-party commitment that is used by the collateral provider to secure 
an obligation to the collateral taker. Collateral arrangements may take different legal 
forms; collateral may be obtained using the method of title transfer or pledge.  

College of supervisors  A  supervisory  college  is  a  permanent  structure  comprising  various  authorities 
interested  in  the  activities  of  a  financial  participant.  The  framework  applicable  to 
colleges  of  supervisors  is  enshrined  in  the  founding  Regulations  for  the  European 
Supervisory Authorities.  

Commercial 
money  

bank 

Designates  the  case  where  a  Securities  Settlement  System  settles  its  cash  leg  on 
cash accounts that are not opened in the books of a central bank but on the books of 
a banking institution. 

Corporate action 

A  corporate  action  is  an  event  initiated  by  a  public  company  that  brings  or  could 
bring  an  actual  change  to  the  securities—equity  or  debt—issued  by  the  company, 
such as stock splits, mergers, dividend payments. The role of the CSD is to inform 
CSD  participants  holding  the  respective  share  or  bond  in  custody  about  the 
upcoming corporate action. 

Custodian 
custodian bank 

or 

An entity, often a credit institution, which acts as "account provider" and provides 
securities  custody  services  to  its  customers,  i.e.  holding  and  administration  of 
securities owned by a third party. 

CSD 

CSDR 

CPMI 

Central  Securities  Depository.  A  legal  person  that  operates  a  securities  settlement 
system and provides at least a notary service or a central maintenance service. 

Regulation  (EU)  No  909/2014  of  the  European  Parliament  and  of  the  Council  on 
improving securities settlement in the EU and on central securities depositories  

The Committee on Payments and Market Infrastructures (CPMI) is an international 
standard  setter  that  promotes,  monitors  and  makes  recommendations  about  the 
safety  and  efficiency  of  payment,  clearing,  settlement  and  related  arrangements, 
thereby supporting financial stability and the wider economy. The CPMI also serves 
as a forum for central bank cooperation in related oversight, policy and operational 
matters, including the provision of central bank services. 

Distributed 
technology (DLT) 

ledger 

Distributed  ledger  is  used  to  describe  a  decentralised  dataset  architecture  which 
allows  the  keeping  and  sharing  of  records  in  a  synchronised  way,  while  ensuring 
their  integrity  through  the  use  of  consensus-based  validation  protocols  and 
cryptographic signatures. 

3 

 
 
DVP 

EBA 

ECB 

ECSDA 

EFAMA 

EEA 

ESCB  

ESMA 

Eurobond 

FSB 

Delivery versus payment. A securities settlement mechanism which links a transfer 
of securities with a transfer of cash in a way that the delivery of securities occurs if 
and only if the corresponding transfer of cash occurs and vice versa. 

European Banking Authority 

European Central Bank 

European Central Securities Depositories Association 

European Fund and Asset Management Association 

European Economic Area 

European System of Central Banks 

European Securities and Market Authority 

Originally the term Eurobond was reserved to bonds that were issued in currencies 
different from the currency of incorporation of the issuer. Currently, Eurobonds are 
issued in a limited number of jurisdictions (e.g. England and Wales, US), leading to 
numerous  situations  where  the  law  of  issuance  is  different  from  the  law  of  the 
issuer.  

The  Financial  Stability  Board  (FSB)  is  an  international  body  that  monitors  and 
makes recommendations about the global financial system. It promotes international 
financial  stability;  it  does  so  by  coordinating  national  financial  authorities  and 
international  standard-setting  bodies  as  they  work  toward  developing  strong 
regulatory, supervisory and other financial sector policies. It fosters a level playing 
field  by  encouraging  coherent  implementation  of  these  policies  across  sectors  and 
jurisdictions. Policies developed in the pursuit of these objectives are implemented 
by jurisdictions and national authorities. 

ICMA 

International Capital Market Association 

International  Central 
Securities  Depository 
(ICSD) 

A  central  securities  depository  (CSD)  that  settles  domestic  and  international 
securities  transactions  and  typically  offers  additional  services  such  as  securities 
lending  and  collateral  management.  ICSDs  are  usually  run  on  direct  or  indirect 
(through correspondent banks) links to local CSDs. 

IOSCO 

ISD 

Links 

The  International  Organization  of  Securities  Commissions  (IOSCO)  is  an 
association of organizations that regulate the world's securities and futures markets. 
Members  are  typically  primary  securities  and/or  futures  regulators  in  a  national 
jurisdiction or the main financial regulator from each country. Its mandate is to: 

  Develop, implement, and promote high standards of regulation to enhance 

investor protection and reduce systemic risk 

  Share  information  with  exchanges  and  assist  them  with  technical  and 

operational issues 

  Establish  standards  toward  monitoring  global  investment  transactions 

across borders and markets 

Intended  Settlement  Date.  Means  the  date  that  is  entered  into  the  securities 
settlement  system  as  the  settlement  date  and  on  which  the  parties  to  a  securities 
transaction agree that settlement is to take place. 

Direct link: an account opened by an investor CSD in the books of an issuer CSD in 
order  to  facilitate  the  transfer  of  securities  from  participants  in  the  issuer  CSD  to 
participants in the investor CSD (see also Investor CSD). 

Indirect link: a link between two CSDs through a non-CSD intermediary. 

Operated direct link: a direct link between two CSDs where a third party, typically 
a custodian bank, operates the account in the issuer CSD on behalf of the investor 
CSD. 

4 

 
Relayed link: a contractual and technical arrangement that allows issuer and investor 
CSDs to hold and transfer securities through an account with a third CSD ("middle 
CSD"), which acts as an intermediary. 

Standard link: a link where the investor CSD is treated as a normal participant to the 
issuer CSD. 

Customised link: a link where the investor CSD benefits from a special access. 

Interoperable  link:  A  set  of  arrangements/procedures  that  allows  participants  in 
different  systems  to  conduct  and  settle  payment  or  securities  transactions  across 
systems  while  continuing  to  operate  only  in  their  own  respective  system. 
Interoperability generally works as an improvement of classical links. 

A ‘pass-on’ mechanism allows each party in the transaction chain to pass-on a buy-
in notification to the party failing to them, until it reaches the original fail. A single 
buy-in  is  executed  by  the  initiating  party,  and  the  cash  differentials  between  each 
original transaction and the buy-in price is settled between each of the parties in the 
chain. 

A section of the capital  market  where financial instruments, stocks and bonds, are 
issued/  sold/  floated  for  the  first  time  by  companies,  governments  or  public 
institutions. After issuance these instruments are traded in the secondary market.  

A  fungible  financial  instrument  that  holds  some  type  of  monetary  value.  It 
represents an ownership position in a publicly-traded corporation via stock (equity); 
a  creditor  relationship  by  owning  an  entity’s  bond;  or  rights  to  ownership 
represented by an option.  

Pass-on mechanism 

Primary market 

Security 

Securities  account  at 
the top tier level 

The  CSDs  find  themselves  at  the  top  of  the  securities  chain,  i.e.  all  holdings  in  a 
given  financial  instrument,  whether  by  an  individual  or  a  financial  institution,  are 
ultimately kept in a securities account at the CSD. 

Securities  Settlement 
System 

A  system  which  allows  the  transfer  of  securities,  either  free  of  payment  (FOP)  or 
against payment (delivery versus payment). 

Settlement 

The  completion  of  a  securities  transaction  where  it  is  concluded  with  the  aim  of 
discharging the obligations of the parties to that transaction through the transfer of 
cash or securities, or both. 

Settlement failure 

The  inability  of  a  participant  to  a  Securities  Settlement  System  to  meet  its 
settlement  obligations  in  the  Securities  Settlement  System.  This  inability  may  be 
temporary or permanent. 

Systemic risk 

The risk that the inability of one participant to meet its obligations in a system will 
cause  other  participants  to  be  unable  to  meet  their  obligations  when  they  become 
due, potentially with spill over effects (e.g. significant liquidity or credit problems) 
threatening  the  stability  of  or  confidence  in  the  financial  system.  That  inability  to 
meet obligations can be caused by operational or financial problems. 

Trade repository (TR)  Trade  repositories  (TRs)  centrally  collect  and  maintain  the  records  of  derivatives 
under Regulation EU No 648/2012 (EMIR). TRs also centrally collect and maintain 
records of securities financing transactions (SFTs) under Regulation No 2015/2365, 
on  transparency  of  securities  financing  transactions  and  of  reuse  and  amending 
EMIR (SFTR). 

T2S 

Target2 Securities. The Eurosystem's single technical platform enabling CSDs and 
national  central  banks  to  provide  core,  borderless  and  neutral  securities  settlement 
services in central bank money in Europe. 

5 

 
 
 
 
 
1.  INTRODUCTION: POLITICAL AND LEGAL CONTEXT 

1.1. Introduction 

Regulation  (EU)  No  909/2014  of  the  European  Parliament  and  of  the  Council  on 
improving  securities  settlement  in  the  European  Union  and  on  central  securities 
depositories1 (CSDR) is one of the key regulations adopted after the 2008 financial crisis. 

While  central  securities  depositories  (CSDs)  were  resilient,  including  during  the  2008 
financial  crisis,  they  were  not  regulated  consistently  across  the  European  Union  (EU). 
This led to differences in their safety and raised level playing field concerns. Regulating 
CSDs was also important to complete the regulatory framework of the trading and post-
trading  market  infrastructures,  following  the  Market  in  Financial  Instruments  Directive 
(Directive  2004/39/EC2),  which  addressed  trading  venues,  and  the  European  Markets 
Infrastructure  Regulation  (Regulation  (EU)  No  648/20123),  which  addressed  central 
counterparties (CCPs) and trade repositories. Moreover, a consistent regulatory approach 
to  settlement  systems  and  settlement  processes  was  important  to  complement  and 
facilitate the Target2-Securities (T2S)4 project launched by the Eurosystem. CSDR was 
also the EU’s response to the call of the Financial Stability Board (FSB), on 20 October 
2010,5  for  a  revision  and  enhancement  of  existing  standards  to  ensure  more  robust 
financial market infrastructures, taking into account the global standards.6 

CSDs are financial institutions of systemic importance for financial markets, hence it 
is essential that their framework remains fit for purpose 

CSDs  play  a  crucial  role  in  the  primary  market,  by  centralising  the  initial  recording  of 
newly  issued  securities  (‘notary  service’).  They  operate  the  infrastructure  (‘securities 
settlement systems’) that enables the completion of a securities transaction (‘settlement’). 
They also maintain securities accounts that record how many securities have been issued 
by whom  and each change in  ownership (‘central  maintenance service’).  Over EUR 53 
trillion  worth  of  securities  were  held  in  EU  securities  settlement  systems  at  the  end  of 
2019, handling over 420 million delivery instructions for a total of turnover of over EUR 
1 120 trillion.7 CSDs are essential for the financing of the economy. Apart from their role 
in  the  issuance  process,  securities  collateral  posted  by  companies,  banks  and  other 
institutions to raise funds flows through securities settlement systems operated by CSDs. 

1  Regulation  (EU)  No  909/2014  of  the  European  Parliament  and  of  the  Council  of  23  July  2014  on 
improving securities settlement in the European Union and on central securities depositories and amending 
Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012, OJ L 257, 28.8.2014, p. 1–72. 
2  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,  OJ  L  145, 
30.4.2004.  MiFID  was  in  force  until  2  January  2018.  Today,  it  is  partly  recast  with  MiFID2  (Directive 
2014/65/EU  of  the  European  Parliament  and  of  the  Council  of  15  May  2014  on  markets  in  financial 
instruments  and  amending  Directive  2002/92/EC  and  Directive  2011/61/EU,  OJ  L  173,  12.6.2014)  and 
partly replaced with MiFIR (Regulation (EU) No 600/2014 of the European Parliament and of the Council 
of 15 May 2014 on markets  in financial instruments and amending Regulation (EU) No 648/2012, OJ L 
173, 12.6.2014). 

3  Regulation  (EU)  No  648/2012  of  the  European  Parliament  and  of  the  Council  of  4  July  2012  on  OTC 

derivatives, central counterparties and trade repositories, OJ L 201, 27.7.2012. 

4  https://www.ecb.europa.eu/paym/target/t2s/html/index.en.html.  
5  https://www.fsb.org/wp-content/uploads/pr_101020.pdf.  
6  https://www.bis.org/cpmi/publ/d101.htm.  
7  European 

Securities 

Central 

Bank 

Holdings 

https://sdw.ecb.europa.eu/browse.do?node=9691130 (accessed on 29.04.2021). 

6 

Statistics 

Database, 

 
                                                           
CSDs are also integral for the implementation of monetary policy as they settle securities 
in central bank monetary policy operations. 

Seven  years  after  its  adoption,  a  review  of  CSDR  is  needed  to  ensure  it  achieves  its 
objectives while making, where possible, the framework clearer, less costly and future 
proof. 

CSDR has uniform requirements for the settlement of financial instruments and rules on 
the organisation and conduct of CSDs to promote safe, efficient and smooth settlement. 
Specifically,  CSDR 
introduced:  shorter  settlement  periods;  settlement  discipline 
measures  (settlement  fails  reporting,  mandatory  cash  penalties  and  ‘buy-ins’  for 
settlement  fails);  strict  organisational,  conduct  of  business  and  prudential  requirements 
for  CSDs;  increased  prudential  and  supervisory  requirements  for  CSDs  and  other 
institutions providing banking services that support securities settlement; and a passport 
system allowing authorised CSDs to provide their services across the EU. 

CSDR entered into force in September 2014; however, most of the requirements did not 
immediately  become  applicable,  as  CSDR  empowered  the  Commission  to  adopt 
secondary  legislation  specifying  the  technical  practicalities,  leading  to  a  phased-in 
schedule of certain core requirements. Certain rules, including in particular on settlement 
discipline, have not yet entered into force.  

Article 75 of CSDR requires the Commission to review and prepare a general report on a 
wide  range  of  issues  by  19  September  2019.  Article  81(2c)  of  the  European  Securities 
and Markets Authority (ESMA) Regulation8 also requires the Commission to assess the 
potential supervision of third-country CSDs by ESMA. From September 2020 to August 
2021, the Commission undertook an assessment of the rules in place to prepare a report. 
This  included  a  targeted  consultation  with  more  than  90  contributions  from  a  range  of 
stakeholders,  as  well  as  reports  required  under  Article  74  of  CSDR  from  ESMA,  in 
cooperation with the European Banking Authority (EBA) and national authorities.  
On  1  July  2021,  the  Commission  adopted  the  CSDR  review  report.9  The  report 
concluded that, in broad terms, CSDR achieves its original objectives to enhance the 
efficiency  of  settlement  in  the  EU  and  the  soundness  of  CSDs.  In  some  areas,  targeted 
changes could improve CSDR’s efficiency and effectiveness. Other provisions have been 
shown to meet their objective, or changes would be premature considering the relatively 
recent application of requirements.  

The Commission has assessed the extent to which specific policy requirements in CSDR 
have met their objectives in an efficient and effective way, while at the same time being 
coherent,  relevant  and  providing  EU  added-value.  This  is  supported  by  an  evaluation 
examining  the  effectiveness  and  efficiency  of  CSDR  in  specific  areas.  That  evaluation 
was  performed  back-to-back  with  the  impact  assessment  and  fed  into  the  problem 
definition of the impact assessment and is presented in Annex 6. 

8  Regulation  (EU)  No  1095/2010  of  the  European  Parliament  and  of  the  Council  of  24  November  2010 
establishing  a  European  Supervisory  Authority  (European  Securities  and  Markets  Authority),  amending 
Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC, OJ L 331, 15.12.2010. 

9  Report from the Commission to the European Parliament and the Council under Article 75 of Regulation 
(EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities 
settlement in the European Union and on central securities depositories and amending Directives 98/26/EC 
and 2014/65/EU and Regulation (EU) No 236/2012, COM (2021) 348 final. 

7 

 
                                                           
The  evaluation  indicates  that  CSDR  may  impose  in  specific  areas  disproportionate 
costs  and  burdens  and  that  certain  requirements  may  be  simplified  to  achieve  its 
objectives more efficiently.  
The CSDR review is a key action in the 2020 Capital Markets Union Action Plan10 
for the development of a more efficient post-trading landscape in the EU. Resilient and 
efficient  markets  for  settlement  in  the  EU  should  remove  barriers  to  cross-border 
settlement,  ensure  adequate  powers  to  monitor  risks  and  reduce  administrative  burden 
and compliance costs. As such, the costs of securities transactions should fall and trust in 
the securities transactions be enhanced, contributing to a better financing of the economy. 

Finally, the consequences of Brexit as well as areas where the review of requirements is 
necessary to ensure the return to long-term growth of the EU economy following the 
crisis resulting from the Covid-19 pandemic are also considered in the analysis. 

This impact assessment report concludes that further action is necessary to address the 
following issues: (1) burdensome and unclear passporting requirements; (2) insufficient 
coordination  and  cooperation  between  authorities;  (3)  restrictive  requirements  for  the 
provision  of  banking  services  related  to  settlement;  (4)  complicated  and  unclear 
requirements  for  settlement  discipline;  and  (5)  insufficient  reporting  for  third-country 
CSDs.  This  will  ensure  that  CSDR’s  objectives  are  achieved  in  a  more  proportionate, 
efficient  and  effective  manner.  This  impact  assessment  report  considers  the  costs  and 
benefits  of  different  policy  options  and  provides  comprehensive  evidence  that  a 
reduction of costs and burdens can be achieved hand-in-hand with a simplification 
of CSDR, without compromising financial stability.  

1.2. Background 

1.2.1.  Post-trade services 

A crucial element of safe and efficient capital markets is the safety and efficiency of the 
post-trade arrangements for securities transactions. Though largely invisible to investors, 
these ensure that after the trade has been carried out the buyer receives securities and the 
seller is paid. These services that are performed after a trade are commonly referred to as 
post-trade services. They typically include:11 

  clearing,  which  guarantees  performance  by  making  the  CCPs  buyer  to  every 

seller and seller to every buyer; 

  settlement,  which  allows  the  discharge  of  the  obligation  of  the  parties  to  the 

transaction and the transfer of cash or securities, or both; 

  asset  servicing  which  allows  the  processing  and  exercise  of  rights  tied  to  a 

security over its lifetime; 

  post-trade reporting of individual transactions and/ or positions of nominated 

participants. 

Post-trade services are an integral part of the value chain (see  Figure  I), as they ensure 
that a securities transaction is completed, including the transfer of legal ownership of a 
security from one party to another, and transferring cash as payment. Post-trade services 

10   Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European  Economic 
and  Social  Committee  and  the  Committee  of  the  Regions,  ‘A  Capital  Markets  Union  for  people  and 
businesses – New Action Plan’, COM (2020) 590. See Action 13. 

11   European  Post-Trade  Forum  Report,  15 May 2017,  p. 117;  https://ec.europa.eu/info/publications/170515-

eptf-report_en . 

8 

 
                                                           
are  provided  by  financial  market  infrastructures,  i.e.  Central  Counterparties  and  CSDs, 
trade repositories, as well as by banks (including custodians). 

Figure I12: Securities industries value chain 

Safe  and  efficient  post-trading  systems  are  essential  for  trust  in  the  financial  system, 
allowing investments to flow into the real economy, increasing competition and thereby 
further fostering a stronger and more resilient financial system.  

1.2.2.  Securities settlement 
CSDR  defines13  settlement  as  the  completion  of  a  securities  transaction  after  it  is 
concluded  with  the  aim  of  discharging  the  obligations  of  the  parties  to  that 
transaction through the transfer of cash or securities, or both. Timely settlement is 
important  as it allows market  participants  to  make contingent  plans, contributing to  the 
depth  and  liquidity  of  the  financial  markets  and  to  their  smooth  functioning.  The 
exchange of cash and securities is normally carried out in a Securities Settlement System 
(SSS) operated by  a  CSD.  In  a CSD, the buyer’s and seller’s  transactions  are matched, 
verifying the ability of the seller to deliver the securities and the ability of the buyer to 
pay;  after  that  the  transaction  is  settled  discharging  the  parties  from  their  obligations. 
However, if both the buyer and the seller of securities have accounts at the same bank, 
the transaction can also be settled by an internal transfer between those accounts. In such 
a case, the bank is acting as a settlement internaliser14, which executes transfer orders 
on  behalf  of  clients  or  on  its  own  account  other  than  through  a  securities  settlement 
system.15  

1.2.3.  The role of CSDs  

The three ‘core’ services under CSDR are:  

 

 
 

the ‘settlement service’: the operation of a securities settlement system, through 
which securities are delivered or are exchanged between buyer and sellers;  
the ‘notary service’: initial recording of securities in a book-entry system;16  
the  ‘central  maintenance  service’  –  maintaining  securities  accounts  at  the  top 
tier level.17 

12  European Post-Trade Forum Report, (see note 11), p.  117;  
13  Article 2(7) of CSDR. 
14  Article 2(11) of CSDR. 
15  A  firm  internalises  settlement  if  it  receives  an  instruction  from  a  client  and  transfers  securities  from  one 

securities account to another in its books rather than forward it to another intermediary or a CSD.  

16  A  mechanism  that  enables  firms  to  transfer  assets  (e.g.  securities)  without  physically  moving  paper 
documents  or  certificates.  Bank  for  International  Settlement,  Committee  on  Payments  and  Market 
Infrastructures – Glossary, https://www.bis.org/cpmi/glossary_030301.pdf . 

9 

 
 
                                                           
CSDR  defines18  a  CSD  as  a  legal  person  that  operates  a  securities  settlement  system19 
(i.e. settlement service) and provides at least one other core service (i.e. notary service or 
central maintenance service).  

As  concerns  settlement,  CSDs  hold  securities  centrally  in  dematerialised  form,  i.e. 
electronically,  to  speed  up  settlement.  The  exchange  of  cash  and  securities  is  normally 
carried  out  electronically  (although  physical  delivery  is  also  still  used  if  securities  are 
held in physical form), using a procedure known as Delivery versus Payment (DvP). DvP 
ensures that neither party can end up with both the securities and the cash, and the other 
party with nothing. CSDs operating nationally will often have links with other CSDs to 
allow cross-border settlement and custody20 facilities. Cross-border securities settlement 
is sometimes complex, involving at least two CSDs and multiple intermediaries.21  

CSDs also play a crucial role in the initial recording of newly issued securities (notary 
function).  This  generally  occurs  at  the  same  time  as  the  issuance  by  the  issuer.  These 
securities, once  created,  are usually  recorded  and deposited in a single CSD, the issuer 
CSD. This service is essential as it ensures that there are not more securities circulating 
than there were actually issued and entered in the account. 

Finally,  CSDs  ensure  the  maintenance  of  securities  accounts  that  record  how  many 
securities  have  been  issued  by  whom  and  each  change  in  who  holds  those  securities. 
These  securities  accounts  are  closely  linked  to  the  key  mission  of  CSDs,  which  is  to 
ensure through their position at the top of the holding chain22 that no more securities are 
settled than securities were actually issued.  

CSDs  also  play  a  crucial  role  for  the  financing  of  the  economy.  Apart  from  the 
issuance process, securities collateral posted by companies, banks and other institutions 
flows  through  securities  settlement  systems  operated  by  CSDs.  CSDs  also  play  an 
essential  role  for  the  implementation  of  monetary  policy  by  central  banks  as  they 
settle securities in central bank monetary policy operations 
In  addition  to  their  core  services,  some  CSDs  provide  ancillary  services,23  e.g. 
collateral  management  services,  maintaining  shareholder  registers  or  supporting 
corporate actions,24 that contribute to  enhancing the safety, efficiency and transparency 
of securities markets, without exposing them to credit or liquidity risk. CSDR also allows 
CSDs  to  provide  banking-type  ancillary  services25  related  to  core  or  ancillary  services, 
i.e.  providing  cash  accounts  and  accepting  deposits  from  participants  to  a  securities 

17  This  allows  CSDs  to  track  all  holdings,  i.e.  who  owns  it,  in  a  given  financial  instrument,  whether  by  an 

individual or a financial institution, are ultimately kept in a securities account at the CSD (ECSDA). 

18  Article 2(1) of CSDR. 
19  Settlement service listed in point 3 of Annex A is the operation of a securities settlement system, through 
which  securities  are  initially  delivered  or  are  subsequently  exchanged  between  buyer  and  sellers  (via 
participants to the SSS). 

20  A custodian bank holds the securities on behalf of the investor and carries out instructions on their behalf.  
21  “Post-trade  explained  – The role of post-trade  services in the financial sector”,  Association for Financial 

Markets in Europe, February 2015. 

22  All tradeable securities are held on the books of various intermediaries, between the ultimate owner and the 

CSD, creating a security holding chain.  

23  For a non-exhaustive of ancillary services provided by CSD’s list see Annex – Section B of CSDR. 
24  A corporate action is an event initiated by a public company that brings or could bring an actual change to 
the securities—equity or debt—issued by the company, such as stock splits, mergers, dividend payments. 
The role of the CSD is to inform CSD participants holding the respective share or bond in custody about 
the upcoming corporate action.  

25  For an exhaustive list see Annex – Section C of CSDR. 

10 

 
                                                                                                                                                                            
settlement  system,  providing  cash  credit,  guarantees  and  commitments  or  payment 
services. 

1.3. CSDs in the European Union 

1.3.1.  Market structure slowly evolving 

Historically, CSDs were established along national lines to provide a local venue for the 
issuance  and  settlement  of  securities.  Today,  this  fragmentation  remains  with  26 
CSDs currently authorised in the EU under Article 16 of CSDR.26 Nevertheless, the 
EU market  structure is  slowly  evolving;  end-2010 there were over 30 CSDs (including 
two  International  Central  Securities  Depositories  (ICSDs))  operating  in  the  EU.27  Most 
recently, in March 2021, the settlement of Irish securities migrated from UK CREST28 to 
Euroclear  Bank  Belgium. The migration,  following the UK’s decision to leave the  EU, 
transferred the settlement of trading activity on Euronext Dublin to a CSD located in the 
EU. In contrast, the US market is more concentrated and specialised29 with 2 CSDs. 

Included  in  the  26  CSDs  are  two  ICSDs:  Clearstream  Banking  in  Luxembourg  and 
Euroclear  Bank  in  Belgium.30  ICSDs  settle  trades  in  international  and  domestic 
securities,  usually  through  direct  and  indirect  links  with  agents  in  domestic  markets. 
Originally,  ICSDs  focused  on  settling  securities  transactions  denominated  in  other 
currencies from where the issuer is based and CSDs focused on national markets. Today, 
the settlement activities of ICSDs and CSDs are more similar.31  

CSDs  operate  different  business  models,  depending  on  the  core  and  ancillary  services 
they  provide.  To  settle  trades  in  international  and  domestic  currencies,  ICSDs  are 
authorised to provide ancillary banking services. The type of instruments a CSD serves 
does not influence its business model. All but one EU CSD settle equities transactions 
and  all  EU  CSDs  settle  corporate  debt.  A  significant  majority  of  CSDs  settle 
government  debt.32  EU CSDs  have  a variety of corporate structures and ownership 
models.  Only  the  Croatian,  Cypriot  and  Maltese  CSDs  are  majority  owned  by  the 
national  government,  while  in  Hungary  the  central  bank  is  the  majority  owner.  In  the 
case  of  other  EU  CSDs  shareholders  include  stock  exchanges,  banks,  national 
governments, central banks and other private institutions.33  

26  ESMA 

CSD 

Register, 

https://www.esma.europa.eu/sites/default/files/library/esma70-155-
11635_csds_register_-_art_21.pdf, ESMA70-155-11635.  Nb. in addition 6 CSDs  are operated by  Central 
Banks  and  are  exempted  from  the  authorisation  and  supervision  requirements  under  CSDR  according  to 
Article 1(4) of CSDR and one CSD is a public body charged with or intervening in the management of the 
public debt and is exempted from the authorisation and supervision requirements under CSDR according to 
Article 1(4) of CSDR. 

27   Commission Staff Working Document, “Impact Assessment accompanying the proposal for a regulation on 
improving  securities  settlement  in  the  European  Union  and  on  Central  Securities  Depositories  (CSDs)”, 
SWD (2012) 22 final. 

28   The UK CSD operated by Euroclear UK & Ireland.  
29   In the US corporate bonds and equities are cleared through the Depository Trust and Clearing Corporation 
(DTCC)  while  government  securities  and  related  entities  are  processed  through  the  Federal  Reserve 
System. 

30   International  CSDs  were  established  to  serve  the  Eurobond  market  –  that  is,  bonds  issued  by  corporate 

issuers for international investors, typically in a non-domestic currency.  

31   See ECDA FAQ: Frequently Asked Questions - ECSDA. 
32   ‘European  CSD 

industry  factbook,  2018  –  2019  Update’,  ECSDA  2020,  https://ecsda.eu/wp-

content/uploads/2021/01/2019_European_CSD_Industry_Factbook.pdf. 
33   Ibid, Table 3: Members organised by majority shareholder type – 2019.  

11 

 
                                                           
Although  specific  data  for  EU  CSDs  is  not  available,  there  are  indications34  that  EU 
market infrastructures have enjoyed stable conditions, although less favourable than their 
global  counterparts.  Market  infrastructure  providers  (exchanges,  CCPs,  CSDs)  globally 
recovered quickly from the financial crisis with revenues growing 4% annually (2007 – 
2012) and then accelerating to 10% post-crisis (2012-1017). EU providers however took 
longer to recover post-crisis with revenues rising only 1% over the same period.35  

1.3.2.  Size of the market 
EU  CSDs  serve  a  large  securities  market.36  End-2019,  EU  securities  were  traded  on 
430 trading venues,37 including 135 regulated markets, 223 multilateral trading facilities 
and  72  organised  trading  facilities.  As  of  end-2019,  28 000  equity  and  equity-like 
instruments were available for trading in the EEA, accounting for annual trading volumes 
of EUR 27 trillion.38 Over 170 000 bonds were available for trading in the EEA. Annual 
bond trading volumes amounted to EUR 101 trillion.39  

EU CSDs serve the growing EU capital market by handling increasing amounts of 
trading.  In  2019,  EU  securities  settlement  systems  handled  more  than  420  million 
delivery  instructions  worth  over  EUR 53 trillion  of  securities  and  representing  a  total 
turnover  of  over  EUR 1 120 trillion.40  In  2014,  when  CSDR  was  adopted,  EUR 43.5 
trillion worth of securities were held in EU securities settlement systems, which handled 
over  330  million  delivery  instructions  for  a  total  of  turnover  of  over  EUR 850 trillion. 
This  is  a  growth  of  22%  in  value  of  securities  held,  27%  in  number  of  delivery 
instructions and 32% in turnover in the period between 2014 and 2019.  

Despite the large number of CSDs operating in the EU, in 2019 the three41 largest 
CSDs  held  over  60%  of  all  securities  held  in  EU  CSDs.  This  is  however  rather  a 
reflection of the size and liquidity of certain EU national financial markets,42 rather than 
issues connected to market structure.43  

34   Oliver  Wyman,  ‘Global  market  infrastructure  –  How  MI  providers  can  achieve  breakthrough  growth’, 

2018. 

35   Based on data for trading venues, CCPs, CSDs, inter-dealer brokers and technology providers the Europe 
and  Middle-East  Region.    ‘Capital  market  infrastructure:  An  industry  reinventing  itself’,  McKinsey  & 
Company, 2017. 

36   Data  based  on  ‘EU  securities  markets  2020’,  ESMA  Annual  Statistical  Report,  ESMA-50-165-1355,  18 
November  2020,  https://www.esma.europa.eu/press-news/esma-news/esma-publishes-first-overview-size-
and-structure-eu-securities-markets.  

37   A  trading  venue  includes  Regulated  Markets,  Multilateral  Trading  Facilities  and  Organised  Trading 

Facilities.  

38   Data based on ‘EU securities markets 2020, ESMA Annual Statistical Report (see note 36), p.15 & p.24. 
39   Ibid. 
40   Data  generated  through  the  Securities  Trading,  Clearing  and  Settlement  Statistics  Database,  European 

Central Bank, https://sdw.ecb.europa.eu/browse.do?node=9691131.  

41   Euroclear Bank Belgium (28%), Clearstream Banking Frankfurt (18%), Clearstream Banking Luxembourg 

(15%). 

42   In 2018 securities trading (debt and equity) on French, German, Italian and Spanish exchanges represented 
app. 88% of EU-27 total. Source: European Central Bank, Statistical Data Warehouse, Securities Trading, 
Clearing and Settlement, Securities Exchange – Trading Statistics.  

43  In  the  same  period,  the  value  of  securities  held  by  the  UK  CSD  (Euroclear  UK  and  Ireland)  rose  from 
EUR 6 215 billion  in  2015  to  EUR 6 406 billion  in  2019  (3%  increase),  while  the  value  of  delivery 
instructions  rose  from  EUR 272 087 billion  to  EUR 357 184 billion  respectively  (31%  increase  – 
‘Securities trading, clearing and settlement statistics’, European Central Bank, September 2020). In the US, 
the  value  of  securities  held  by  the  two  CSDs  (DTC  and  Fedwire  Securities  Service)  rose  from 
EUR 100 739 billion  in  2015  to  EUR 130 366  billion  in  2019  (29%  increase),  the  number  of  delivery 
instructions  processed  increased  from  362 663 000  (2015)  to  672 887 000  (2019)  (86%  increase)  for  a 

12 

 
                                                           
 
1.3.3.  Main forces driving market evolution  

In  addition  to  regulatory  changes  aimed  at  facilitating  cross-border  activity,  there  are 
economies of scale and scope, driving both consolidation of different types of post-trade 
services and competition among EU CSDs and the different services they offer.  

(a)  Consolidation of the sector 

First,  there  is  a  strong  complementary  relationship  between  the  various  components  of 
securities settlement. Economies of scope may be achieved by integrating along the value 
chain of securities transaction, i.e. by combining trading, clearing and settlement into one 
conglomerate. Consolidation between CCPs, CSDs, and stock exchanges has created EU 
financial  market  infrastructure  conglomerates,  e.g.  the  formation  of  Clearstream 
through  the  merger  of  Cedel  International  and  Deutsche  Boerse  in  2012.  With  the 
acquisition of the Norwegian and Danish CSDs in 2019 and 2020 respectively, Euronext 
has also strengthened its presence in the CSD space. This was followed in 2020 with the 
acquisition  of  Borsa  Italiana  (the  Italian  stock  exchange),  MTS,  where  most  of  Italy’s 
sovereign  debt  is  traded,  as  well  as  the  major  multi-asset  clearing  house,  CC&G. 
Economies  of  scope  could  also  be  obtained  through  horizontal  synergies.  In  2009 
Euroclear brought the Belgian, Dutch and French domestic CSDs onto a single platform, 
under  a  harmonised  framework,  but  as  separate  legal  entities.  Nasdaq  has  also 
consolidated  the  three  Baltic  CSDs  (Estonia,  Lithuania  and  Latvia)  in  2017  and  the 
Icelandic  CSD  into  a  single  legal  entity  in  2020.  A  number  of  integrated  post-trade 
services groups operate in the EU post-trade market, i.e. Euroclear (bringing together the 
ICSD  Euroclear  Bank  and  national  CSDs  in  Belgium,  Finland,  France,  Ireland,  the 
Netherlands,  Sweden  and  the  United  Kingdom),  Euronext  (bringing  together  national 
CSDs  in  Portugal,  Denmark,  Norway  and  Italy),  Deutsche  Boerse  (operating  the  ICSD 
Clearstream  Luxembourg, the German CSD and LuxCSD) and Nasdaq CSD (following 
the merger of the regional CSDs for Lithuania, Latvia, Estonia and Iceland). 

(b)  Emerging technological innovation 

The  rise  of  new  record-keeping  technologies  also  has  the  potential  to  alter  the 
landscape.  In  post-trade,  distributed  ledger  technology44  (DLT)  is  currently  considered 
the  most  promising  to  simplify  processes,  reduce  costs,  and  increase  efficiency  and 
security45. This will potentially lead to lower costs and faster settlement, transform how 
securities are held and recorded46 and challenge incumbent settlement systems.  

Most  of  the  realised  projects  so  far  point  to  the  potential  for  financial 
infrastructures to move towards real-time settlement, flatter structures, continuous 

value  of  EUR 355 trillion  in  2015  to  EUR 401 trillion  in  2019  (13%  increase)  (based  on  data  from  the 
Bank for International Settlement, Red Book Statistics, Payment and financial market infrastructures). The 
data  shows  that  in  2019,  there  was  generally  increased  settlement  activity,  explained  by  loose  monetary 
conditions, low interest rates and new trading techniques. 

44   Distributed ledger describes a decentralised dataset architecture  which allows the  keeping and sharing of 
records in a synchronized way, while ensuring their integrity through the use of consensus-based validation 
protocols and cryptographic signatures.   

45   Benos,  Evangelos  &  Garratt,  Rod  &  Gurrola  Perez,  Pedro,  ‘The  economics  of  distributed  ledger 

technology for securities settlement’ (2019). Ledger. 4. 10.5195/ledger.2019.144. 

46   In  2015  an  estimated  EUR  17-24  billion  was  spent  annually  on  trade  processing  globally;  Bech,  J. 
Hancock,  T.  Rice  &  A.  Wadsworth,  ‘On  the  future  of  securities  settlement’,  Bank  for  International 
Settlement, BIS Quarterly Review, March 2020. 

13 

 
                                                                                                                                                                            
operations and global reach.47 This is reflected48 in the growing application of DLT in 
post-trade processes, i.e. issuance and settlement of shares and bonds, data recording or 
the use of tokens to represent shares. Currently, applying DLT to post-trade processes has 
the  greatest  potential  with  respect  to  DvP,  automation  of  risk  management,  settlement 
and the development of currency-substitutes as means of payment.49  

(c)  Provision of cross border services by CSDs 

Fostering competition, greater interoperability and better connectivity among CSDs 
were  some  of  the  main  policy  objectives  of  CSDR.  Nevertheless,  data  collected  by 
ESMA  does  not  reflect  this.50  EU  CSDs’  cross-border  activity,  i.e.  the  CSD  services 
provided in host Member States can be measured by (1) the use of CSD links established 
between  EU  CSDs;  (2)  the  measurement  of  the  services  provided  to  participants  and 
issuers from host Member States; and (3) T2S activity.  

First, a link allows a CSD to give its clients access to securities recorded and settled in 
another CSD. The number of links and the volumes handled by established connections 
measure  the  cross-border  provision  of  settlement  services  by  CSDs.  In  this  regard, 
established  connections  are  handling  increasing  volumes,  suggesting  growing  cross-
border activity through this channel. The value of settlement instructions settled through 
links with other EU CSDs increased from EUR 109 trillion in 2017 to EUR 160 trillion 
in  2019,51  a  growth  of  47%.  The  total  number  of  settlement  instructions  through  links 
almost  doubled  between  2017  (23 278 314 
instructions)  and  2019  (38 984 805 
instructions). 52  The  growth  in  the  use  of  links  outpaced  the  growth  in  settlement 
instructions by EU CSDs (32% and 28% in 2014 and 2019 respectively). 
However,  the  number  of  CSD  links53  has  remained  stable  since  2017.  Excluding  the 
ICSDs which both have a very high number of links (31 for Clearstream Banking, 25 for 
Euroclear  Bank),  the  average  number  of  links  per  CSD  is  5  links  with  other  EU  CSDs 
between  2017-  2020.54  At  the  same  time,  the  total  number  of  links  for  all  CSDs, 
including links with ICSDs, increased by 14% between 2017 (121 links) and 2020 (138 
links).  Excluding  ICSDs,  the  number  of  links  rose  by  28%  from  64  to  82  links.55  The 
increasing  traffic  through  links  shows  that  such  connections  serve  the  development  of 
cross-border settlement, but the limited increase of CSD links demonstrates that barriers 
to cross-border activities remain.  

Second, another measure of use of cross-border services are the type of CSD services, 
including  notary  and  central  maintenance  services,  provided  to  participants  and 
issuers from other Member States.  

47   Shabsigh, G., Khiaonarong, T.  Leinonen H., ‘Distributed ledger technology experiments in payments and 

settlements”, International Monetary Fund, June 2020. 

48   See  ‘The  use  of  DLT  in  post-trade  processes’,  Annex  1,  Advisory  Groups  on  Market  Infrastructures  for 

Securities and Collateral and for Payments, European Central Bank, April 2021. 

49   Ibid.  
50   ESMA  Report  to  the  European  Commission,  ‘Cross-border  services  and  handling  of  applications  under 

Article 23 of CSDR’, ESMA70-156-3569, 05 November 2020. 

51   Ibid.  
52   Ibid, para. 25. 
53   According to CSDR Art. 2(1)(29) a link is “…an arrangement between CSDs whereby one CSD becomes a 
participant  in  the  securities  settlement  system  of  another  CSD,  in  order  to  facilitate  the  transfer  of 
securities  from  participants  of  the  latter  CSD  to  the  participants  of  the  former  CSD,  or  an  arrangement 
whereby a CSD accesses another CSD indirectly via an intermediary…”.  

54   ESMA Report on cross-border services (see note 50), para. 15 
55   Ibid, para 14. 

14 

 
                                                           
In 2019, the share of central maintenance and settlement services provided to participants 
from other Member States by EU CSDs was 37%;56 a slight increase compared to 2018. 
However, settlement activity shows that only 6 CSDs provide settlement services to more 
than 75% of participants from other Member States, while two-thirds of EU CSDs settle 
less  than  50%  of  instructions  for  participants  from  other  Member  States  (in  value  of 
instructions settled). A similar concentration is noted for notary and central maintenance 
services  provided  in  relation  to  financial  instruments  issued  by  issuers  from  other 
Member States with 3 CSDs (including the two ICSDs) providing more than 80% of their 
services  to  issuers  from  other  Member  States,  while  most  EU  CSDs  do  not  provide  or 
dedicate less than 5% of their notary and central maintenance activity to securities issued 
by issuers from other Member States.57  

Figure  II:  Member  States  in  which 
activities  of  CSDs  from  other  Member 
States are of substantial importance 

Figure  III:  Central  maintenance  services 
provided 
from  other 
Member States 

to  participants 

Source:  Report  to  the  European  Commission:  cross-border  services  and  handling  of  applications  under 
Article 23 of CSDR, ESMA70-156-356, 5 November 2020, par. 40. 

CSDs  can  provide  all  types  of  services,  including  of  notary  and  central  maintenance 
services, to participants and issuers from other Member States. In that case, a CSD may 
become of  ‘substantial  importance for the functioning of the securities  markets  and the 
protection  of  the  investors’58  in  the  host  Member  State  which  allows  to  estimate  the 
progression  of  cross  border  services.  There  was  a  slight  increase  in  the  number  of 
Member  States  in  which  the  activities  of  CSDs  from  other  Member  States  are  of 
substantial  importance  and  to  this  date,  in  19  Member  States  there  is  no  substantial 

56   Of  the  value  of  financial  instruments  centrally  maintained  in  securities  accounts  by  the  CSD  for 

participants and other holders of securities accounts from other Member States. 

57   ESMA Report on cross-border services (see note 50), paras. 41 and 43. 
58   Commission Delegated Regulation (EU) 2017/389 of 11 November 2016 supplementing Regulation (EU) 
No 909/2014 of the European Parliament and of the Council as regards the parameters for the calculation 
of  cash  penalties  for  settlement  fails  and  the  operations  of  CSDs  in  host  Member  States,  OJ  L  65, 
10.3.2017,  specifies  the  criteria  to  be  considered  in  order  to  determine  whether  a  CSD  is  of  substantial 
importance for the functioning of the securities markets and the protection of investors in the host Member 
States concerned. 

15 

 
 
 
 
 
 
 
 
                                                           
activity from CSDs from other Member States  (Figure  II).  In line with  this trend, there 
has been a slight increase in the share of EU CSDs providing central maintenance (Figure 
III) and settlement services59 to participants in other Member States. 

Third,  Target2-Securities  (T2S),  launched  in  2015,  aimed  to  address  fragmented 
securities settlement in the EU and the resulting complex cross-border settlement. It 
offers  delivery  versus  payment  settlement  in  central  bank  money.  It  also  provides 
harmonised and commoditised securities settlement to CSDs and applies a single set of 
rules,  standards  and  prices  to  all  participants.  T2S  facilitates  cross-border  settlement, 
resulting in increased integration of Europe’s financial markets infrastructure by: 

reducing costs of cross-border settlement; 
increasing competition among providers of post-trade services; 

  simplifying the purchase of securities in other EU countries;  
 
 
  pooling collateral and liquidity; 
 

reducing settlement risk by using central bank money for transactions on T2S. 

It  connects  21  CSDs60  from  18  Member  States  and  Switzerland.  It  offers  settlement  in 
Euro and Danish Krone and processes 687 476 securities transactions worth EUR 672.53 
billion per day.61 T2S has also helped encourage harmonisation of market practices and 
competition in the EU.  

1.4. Legal and political context  

1.4.1.  Legal context: Central Securities Depositories Regulation 

CSDR is one of the key regulations adopted by the EU following the financial crisis of 
2008  to  ensure  that  securities  settlement  is  safe,  stable  and  efficient.  It  entered  into 
force on 17 September 2014.62  

CSDR provides a set of common requirements for CSDs across the EU by introducing:  

  shorter settlement periods;  
  cash penalties and other deterrents for settlement fails;  
  strict  authorisation,  organisational,  conduct  of  business  and  prudential 

requirements for CSDs;  

  a passport procedure allowing authorised CSDs to provide services across the EU;  
 
increased prudential and supervisory requirements for CSDs and other institutions 
providing banking services that support securities settlement; 
increased  cooperation  requirements  for  authorities  across  Member  States  with 
respect  to  CSDs  providing  their  services  in  relation  to  financial  instruments 
constituted under the law of a Member State other than that of their authorisation 
and to CSDs establishing a branch in another Member State. 

 

59  See para 41, ESMA Report on cross-border services, ESMA70-156-3569, 05 November 2020. 
60  In case of Belgium (Euroclear Belgium and National Bank of Belgium Securities Settlement System) and 
France  (Euroclear  France  and  ID2S)  more  than  one  CSD  participates  to  T2S.  For  a  list  of  CSDs 
see: 
participating 
https://www.ecb.europa.eu/paym/target/t2s/profuse/shared/pdf/List_of_CSDs_connected_to_T2S.pdf.   

T2S 

to 

61  Eurosystem T2S Annual Report 2020.  
62  CSDR was incorporated in the EEA Agreement with Council Decision (EU) 2019/134 of 21 January 2019 
on  the  position  to  be  adopted,  on  behalf  of  the  European  Union,  within  the  EEA  Joint  Committee, 
concerning the amendment of Annex IX (Financial Services) to the EEA Agreement, OJ L 25, 29.1.2019. 

16 

 
 
                                                           
The CSDR legal  framework also  includes  Level  263 and  Level  3 measures  (e.g.  ESMA 
guidelines and Q&As). 

CSDs may also be subject to other EU legislation depending on their status, e.g. CSDs 
operating  with  a  banking  license  are  also  subject  to  the  relevant  banking  legislation. 
Moreover, they may have to  comply with  certain  national  laws in  the Member State in 
which  they  are  incorporated,  e.g.  securities,  corporate  or  civil  law.  As  securities 
settlement  systems,  CSDs  qualify  as  systems  under  the  Settlement  Finality  Directive64 
and are therefore subject to the applicable national transposing laws.  

Finally,  CSDs  should  also  consider  the  International  Principles  for  financial  market 
infrastructures65  issued  by  the  Committee  on  Payments  and  Market  Infrastructures 
(CPMI)66,  the  International  Organization of Securities Commissions  (IOSCO)67 and the 
FSB68. 

1.4.2.   Political context: Capital Markets Union (CMU), Brexit, Recovery post Covid-19  

The Commission launched its follow-up CMU Action Plan to create a single market for 
capital across the EU. The aim is to increase investment and savings flowing throughout 
the  EU,  benefitting  citizens,  investors  and  companies,  regardless  of  where  they  are 
located. A fully functioning and integrated market for capital will allow the EU economy 
to grow in a sustainable way and be more competitive.  

63   Commission Delegated Regulation (EU) 2017/389 (see note 58); Commission Delegated Regulation (EU) 
2017/390 of 11 November 2016 supplementing Regulation (EU) No 909/2014 of the European Parliament 
and  of  the  Council  with  regard  to  regulatory  technical  standards  on  certain  prudential  requirements  for 
central  securities  depositories  and  designated  credit  institutions  offering  banking-type  ancillary  services, 
OJ  L  65,  10.3.2017;  Commission  Delegated  Regulation  (EU)  2017/392  of  11  November  2016 
supplementing Regulation (EU) No 909/2014 of the European Parliament and of the Council with regard to 
regulatory  technical  standards  on  authorisation,  supervisory  and  operational  requirements  for  central 
securities  depositories,  OJ  L  65,  10.3.2017,  Commission  Implementing  Regulation  (EU)  2017/394  of  11 
November  2016  laying  down  implementing  technical  standards  with  regard  to  standard  forms,  templates 
and  procedures  for  authorisation,  review  and  evaluation  of  central  securities  depositories,  for  the 
cooperation between authorities of the home Member State and the host Member State, for the consultation 
of authorities involved in the authorisation to provide banking-type ancillary services, for access involving 
central  securities  depositories,  and  with  regard  to  the  format  of  the  records  to  be  maintained  by  central 
securities depositories in accordance with Regulation (EU) No 909/2014 of the European Parliament and of 
the  Council,  OJ  L  65,  10.3.2017;  Commission  Delegated  Regulation  (EU)  2018/1229  of  25  May  2018 
supplementing Regulation (EU) No 909/2014 of the European Parliament and of the Council with regard to 
regulatory  technical  standards  on  settlement  discipline,  OJ  L  230,  13.9.2018,  (‘RTS  on  settlement 
discipline’);  Commission  Delegated  Regulation  (EU)  2017/391  of  11  November  2016  supplementing 
Regulation  (EU)  No  909/2014  of  the  European  Parliament  and  of  the  Council  with  regard  to  regulatory 
technical  standards  further  specifying  the  content  of  the  reporting  on  internalised  settlements,  OJ  L  65, 
10.3.2017;  Commission  Implementing  Regulation  (EU)  2017/393  of  11  November  2016  laying  down 
implementing  technical  standards  with  regard  to  the  templates  and  procedures  for  the  reporting  and 
transmission of information on internalised settlements in accordance with Regulation (EU) No 909/2014 
of the European Parliament and of the Council, OJ L 65, 10.3.2017. 

64   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, OJ L 166, 11.6.1998. 

65   https://www.iosco.org/about/?subsection=cpmi_iosco.  
66  Committee  on  Payments  and  Market  Infrastructures  (CPMI)  of  the  BIS  sets  international  standards  to 
promote, monitor and recommend about safety and efficiency of payment, clearing, settlement and related 
arrangements. See: https://www.bis.org/cpmi/about/overview.htm .   

67  International  Organization  of  Securities  Commissions  (IOSCO)  is  an  association  of  organizations  that 

regulate the world’s securities and futures markets. See: https://www.iosco.org  

68  Financial  Stability  Board  (FSB)  is  an  international  body,  operating  in  the  framework  of  the  G20,  that 
monitors and makes recommendations about the global financial system. See: https://www.fsb.org/about/  

17 

 
                                                           
The  2020  CMU  Action  Plan69  and  the  2021  Commission  Work  Programme 
announced  the  Commission’s  intention  to  come  forward  with  a  legislative  proposal  to 
amend CSDR to improve its efficiency and effectiveness (CSDR REFIT) and contribute 
to  the  development  of  a  more  efficient  post-trading  landscape  in  the  EU.  This  follows 
from  the  work  of  the  High  Level  Forum  for  the  CMU70  that,  amongst  others,  made 
recommendations  to  facilitate  the  emergence  of  a  common  EU  CSD  market.  Resilient 
and  efficient  markets  for  settlement  in  the  EU  should  remove  barriers  to  cross-border 
settlement,  ensure  adequate  powers  to  monitor  risks  and  reduce  administrative  burden 
and  compliance  costs.  As  such,  costs  of  securities  transactions  should  fall,  and  trust  in 
securities transactions rise, contributing to a better financing of the economy.  

More generally, any forthcoming EU legislative proposal, including on CSDR, will have 
to take into account, where necessary, the consequences of Brexit as well as to identify 
how to contribute to the return to long-term growth of the EU following the crisis 
resulting from the Covid-19 pandemic and to finance the EU’s  environmental and 
digital transitions.  

Regarding  Brexit,  on  25  November  2020,  the  Commission  adopted  an  equivalence 
decision determining that, until 30 June 2021, the regulatory and supervisory framework 
applicable to CSDs established in the UK is equivalent in accordance with CSDR. On 11 
December 2020,71 ESMA announced that Euroclear UK & Ireland Limited, the UK CSD, 
would  be  recognised  as  a  third-country  CSD.  ESMA’s  recognition  decision  applied 
from 1 January until 30 June 2021. The aim was to give EU issuers, and in particular 
Irish issuers that used that CSD, sufficient time to transfer their securities to an EU CSD, 
a project which was completed on 15 March 2021.72 From its side, the UK introduced a 
transitional  regime73  under  which  certain  non-UK  CSDs  can  offer  CSD  services  until 
they are permanently recognised under the UK CSDR. As of 30 April 2021, 15 non-UK 
CSDs that have notified the Bank of England that they will offer CSD services in the UK 
under  the  transitional  regime.74  In  addition,  the  UK  Treasury75  announced  that  the  UK 
will not implement the CSDR settlement discipline regime. 

As concerns the Covid-19 crisis, post-trade infrastructures, and CSDs in particular, have 
remained resilient and continue to provide their services. Nevertheless, due to the impact 
of the Covid-19 pandemic on the implementation of regulatory projects and IT deliveries 
by CSDs and their participants, ESMA proposed postponing the date of entry into force 

69   Commission Communication ‘A Capital Markets Union for people and businesses – New Action Plan’ (see 

note 10). 

70   Final report of the High  Level Forum on the  Capital Markets Union  - A  new  vision for Europe’s capital 
markets  |European  Commission  (europa.eu):  https://ec.europa.eu/info/files/200610-cmu-high-level-forum-
final-report_en. 

71   ESMA  to  recognise  Euroclear  UK  &  Ireland  Limited  (EUI)  after  Brexit  transition  period  (europa.eu) 
https://www.esma.europa.eu/press-news/esma-news/esma-recognise-euroclear-uk-ireland-limited-eui-after-
brexit-transition-period.   

72   Successful migration of Issuer CSD Services for Irish Securities from Euroclear UK & Ireland to Euroclear 
Bank  -  Euroclear:  https://www.euroclear.com/newsandinsights/en/press/2021/2021-mr-07-irish-securities-
migration.html. 

73   As the Settlement Finality Directive is closely linked to CSDR, it is worth noting that the UK also allows 
certain  EEA  systems  to  receive  temporary  UK  settlement  finality  protection  under  the  temporary 
designation regime of the Financial Markets and Insolvency until they receive ‘steady state’ designation. 

74   List 

of 

third-country 

CSDs 

(bankofengland.co.uk), 

https://www.bankofengland.co.uk/-

/media/boe/files/financial-stability/financial-market-infrastructure-supervision/list-of-third-country-
csds.pdf?la=en&hash=824459A062CBB16DD1C8A42AD2D99A9DC36E3E31. 

75   Written  statements  -  Written  questions,  answers  and  statements  -  UK  Parliament,  https://questions-

statements.parliament.uk/written-statements/detail/2020-06-23/HCWS309 . 

18 

 
                                                           
of the Regulatory Technical Standards (RTS) on settlement discipline76 until 1 February 
2022.77 Stakeholders also noted that market developments during this crisis would have 
been significantly worse in terms of available market liquidity if the settlement discipline 
was  in  place.  In  this  regard,  the  European  Parliament,  in  its  resolution  on  further 
development of the Capital Markets Union,78 also invited the Commission to  review 
the settlement discipline regime under CSDR in view of Brexit and the Covid-19 crisis. 

Finally,  market  infrastructures  were  also  part  of  two  recent  packages  published  by  the 
Commission on digital finance79 and on fostering openness, strength and resilience of 
the European economic and financial system.80 In September 2020, in line with the 
Commission priorities to make Europe fit for the digital age and to build  a future-ready 
economy  that  works  for  people,  the  Commission  published  a  New  Digital  Finance 
Package,81 which included a legislative proposal on a pilot regime82. This proposal seeks 
to  collect  experience  and  to  provide  legal  certainty  and  flexibility  for  market 
participants (including CSDs) who wish to operate a DLT market infrastructure, by 
establishing  uniform  requirements  for  operating  these  DLT  systems.  Under  this  pilot 
regime trading facilities and CSDs using DLT can develop their businesses and provide a 
safe environment for market participants and investors. To this end, it provides optional 
exemptions  to  certain  requirements  of  CSDR.  The  New  Digital  Finance  Package  also 
includes  a  ‘Digital  Operational  Resilience  Act'  (DORA)83  that  aims  to  ensure  that  all 
participants  in  the  financial  system,  including  CSDs,  have  the  necessary  safeguards  in 
place to mitigate cyber-attacks and other risks.  

Furthermore, in January 2021, as part of a broader set of actions to strengthen the EU’s 
open strategic autonomy and resilience, the Commission published a communication on 
‘The  European  economic  and  financial  system:  fostering  openness,  strength  and 
resilience.84  This  Communication  sets  out  how  the  EU  can  reinforce  its  open  strategic 
autonomy in the macroeconomic and financial fields by, inter alia, further developing EU 
financial market infrastructures, including CSDs, and increasing their resilience.  

In conclusion, this REFIT initiative should be viewed within the context of the broader 
agenda to make the EU markets more competitive, digital and resilient as represented by 
the  CMU,  digital  and  open  strategic  autonomy  initiatives.  However,  developing 
internationally competitive CSDs is not a direct objective of CSDR per se. The main 
objectives of CSDR and this Review are to allow EU settlement markets to become 
more efficient and secure. However, market players will benefit from efficient and 

76   RTS on settlement discipline (see note 63). 
77   ESMA  proposes  to  further  postpone  CSDR  settlement  discipline,  https://www.esma.europa.eu/press-

news/esma-news/esma-proposes-further-postpone-csdr-settlement-discipline. 

78   European Parliament Resolution of 8 October 2020 on further development of the Capital Markets Union 

(CMU), (2020/2036,(INI)), see para. 21.  

79   https://ec.europa.eu/info/publications/200924-digital-finance-proposals_en.  
80   Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European  Central 
Bank, the  European Economic and Social Committee and the  Committee of the  Regions, ‘The European 
economic and financial system: fostering openness, strength and resilience’, COM/2021/32. 

81   https://ec.europa.eu/info/publications/200924-digital-finance-proposals_en.  
82   Proposal  for  a  Regulation  of  the  European  Parliament  and  the  Council  on  a  pilot  regime  for  market 

infrastructures based on distributed ledger technology, COM(2020) 594. 

83   Proposal for a Regulation of the European Parliament and of the Council on  digital operational resilience 
for  the  financial  sector  and  amending  Regulations  (EC)  No  1060/2009,  (EU)  No  648/2012,  (EU)  No 
600/2014 and (EU) No 909/2014, COM(2020) 595. 

84   Commission Communication, ‘The European economic and financial system: fostering openness, strength 

and resilience’ (see note 80). 

19 

 
                                                           
reliable settlement as well as increased competition in the EU capital market. This 
may  drive  the  emergence  of  internationally  competitive  EU  post-trade  service 
providers. 
1.4.3.  Stakeholder consultation 

Stakeholder consultation took different forms (see Annex 3), including: 

  a  Commission  targeted  consultation  between  8 December  2020  and  2  February 

202185; 

  ESMA  reports  -  four  reports  in  2020  and  2021  were  submitted  to  the 
Commission  on  internalised  settlement,86  the  cross-border  provision  of  services 
by  CSDs  and  the  handling  of  applications  to  provide  notary  and  central 
maintenance  services  cross-border,87  the  provision  of  banking  type  ancillary 
services88 and the use of FinTech by CSDs.89 Such reports also took into account 
answers to ESMA surveys from national authorities, CSDs and participants; 
  Meetings  with  Member  States’  Experts,  where  the  secretariat  of  the  Economic 
and  Monetary  Affairs  committee  of  the  European  Parliament,  the  ECB  and 
ESMA were also invited, on 22 September 2020 and 15 July 2021; 
Input  from  the  European  System  of  Central  Banks  (ESCB)  to  the  CSDR 
consultation  process,  including  an  anonymised  and  consolidated  outcome  of  a 
survey conducted among CSDs. 

 

  A meeting with Members of the European Parliament on 6 September 2021;  
  Bilateral meetings with stakeholders as well as confidential information received 

from a wide range of stakeholders. 

1.4.4.   Report to the Council and the Parliament  

Article 75 of CSDR required the Commission to review and prepare a general report 
on  the  Regulation  and  submit  it  to  the  Parliament  and  the  Council  by  19  September 
2019. Furthermore, Article 81(2c) of Regulation (EU) 2010/10  establishing a European 
Supervisory  Authority  (European  Securities  and  Markets  Authority),  required  the 
Commission,  after  consulting  all  relevant  authorities  and  stakeholders,  to  conduct  a 
comprehensive  assessment  of  the  potential  supervision  of  third-country  CSDs  by 
ESMA  exploring  certain  aspects,  including  recognition  based  on  systemic  importance, 
ongoing compliance, fines and periodic penalty payments.  

Taking  into  account  that  some  CSDR  requirements  did  not  apply  until  the  entry  into 
force  of  the  relevant  regulatory  technical  standards  in  March  2017  and  that  some  EU 
CSDs were only recently authorised under CSDR, the Commission report on CSDR was 
adopted in July 2021.90 The report identifies specific areas where targeted action may be 

85   Commission  targeted  consultation  on  the  review  of  regulation  on  improving  securities  settlement  in  the 
European  Union  and  on  central  securities  depositories,  https://ec.europa.eu/info/consultations/finance-
2020-csdr-review_en. 

86   ESMA  Report  to  the  European  Commission,  ‘CSDR  Internalised  Settlement’,  5  November  2020, 

ESMA70-156-3729. 

87   ESMA Report on cross-border services (see note 50). 
88   ESMA Report to the European Commission, ‘Provision of banking-type ancillary services under CSDR’, 

08 July 2021, ESMA70-156-4582. 

89   ESMA Report to the European Commission,  ‘Use of  FinTech by  CSDs’, 2  August 2021,  ESMA70-156-

4576. 

90   Report from the Commission to the European Parliament and the Council under Article 75 of Regulation 
(EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities 

20 

 
                                                           
 
necessary  to  ensure  the  fulfilment  of  the  objectives  of  CSDR  in  a  more  proportionate, 
efficient and effective manner. The five main areas identified are the following:  

  clarifying and simplifying the burdensome requirements related to  the provision 

 

of services by CSDs domestically and cross-border;  
improving  the  supervisory  convergence  amongst  authorities  involved  in  CSDs’ 
supervision;  
facilitating the provision of banking-type ancillary services; 
reducing the disproportionate burdens and costs related to settlement discipline; 

 
 
  enhancing the framework for third-country CSDs. 

In  its  report,  the  Commission  also  invited  ESMA  to  consider  whether  supervisory 
convergence  tools  could  be  used  or  amendments  to  existing  regulatory  technical 
standards may be required to facilitate the use of technological innovation by CSDs. 

2.  PROBLEM DEFINITION  

2.1. Methodology  

The  main  problems  assessed  in  this  impact  assessment  concern  areas  for  which  an 
evaluation has been carried91 out, as well as input received from various authorities and 
stakeholders (see section 1.4.3). These indicate that targeted action is necessary to ensure 
fulfilment of the CSDR objectives more proportionately, efficiently and effectively.  

The impact assessment considers the costs and benefits of targeted amendments to CSDR 
concerning the barriers to cross-border settlement, the disproportionate compliance costs 
and the insufficient insight into the activities of third-country CSDs. While the definition 
of  the  problems  is  targeted,  the  impact  assessment  considers  the  cumulative  impact  of 
targeted changes as presented in section 8. 

A  key  consideration  is  that  the  application  of  CSDR  remains  work  in  progress.  A 
sufficient number of EU CSDs was authorised only recently under CSDR, the regulatory 
technical  standards specifying CSDR  started  applying only  as  of  2017  and certain  core 
CSDR  requirements  (including  settlement  discipline)  are  yet  to  enter  into  application. 
This limits the availability of data on costs and benefits of the requirements. 

First,  while the full impact  of CSDR  is  still unfolding, feedback  from stakeholders and 
public  authorities92  indicates  that  CSDR  has  contributed  to  achieving  its  original 
objectives of ensuring safety of settlement and financial stability. The impact assessment 
therefore only considers targeted changes at this point in time. 

Second,  certain  issues  raised  by  authorities  and  stakeholders  are  not  covered  in  this 
impact assessment, because they cannot or should not at present be addressed within the 
context of CSDR, e.g.: 

a)  stakeholders  noted  that  CSDs  are  still  subject  to  Member  States’  national  laws 
for issues not regulated in CSDR, such as corporate or civil law matters. This 

settlement in the European Union and on central securities depositories and amending Directives 98/26/EC 
and 2014/65/EU and Regulation (EU) No 236/2012, COM(2021) 348. 

91  See Annex 6. 
92  See  Summary  report  of  the  targeted  consultation  document  on  the  review  of  regulation  on  improving 
securities settlement in the European Union and on central securities depositories (‘Summary report of the 
Commission CSDR targeted consultation’),   
https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/2020-
csdr-review-summary-of-responses_en.pdf.  

21 

 
                                                                                                                                                                            
may impact their ability to offer services cross-border as they may need to set up 
separate  operational  processes  and  procedures  to  comply  with  the  relevant  host 
Member  States’  requirements.  Nonetheless,  harmonisation  of  the  relevant 
national laws goes beyond the scope of CSDR and therefore is not considered.  

b)  stakeholders, including the High Level Forum on the CMU, raised concerns about 
CSDs’ access to central bank money93 which is subject to conditions set by the 
central  bank  in  question;  e.g.  in  the  Euro  area,  the  ECB  sets  the  access 
conditions.94  For  CSDs  that  want  to  settle  in  central  bank  money  in  a  currency 
other  than  that  of  the  jurisdiction  of  their  authorisation  (or  outside  of  the  EU), 
access to the respective central banks can be challenging95 and therefore limited. 
Indeed, very few EU CSDs  seem to have direct  access to foreign central banks; 
e.g. one EU CSD has locally incorporated licensed subsidiaries to obtain access to 
some  foreign  central  banks  (e.g.  Australian,  Canadian,  US),  however  access  to 
others remains impossible (e.g. Russia).96 This is particularly an issue for smaller 
CSDs, due to the cost and significant time the process requires. Nonetheless, due 
to the principle of central bank independence, CSDR cannot introduce obligations 
on central banks to facilitate CSDs’ access to central bank money within the EU.  

c)  digitalisation and new technologies are transforming the EU financial system and 
the way it provides financial services to EU businesses and citizens. This raised 
technology 
questions  of  whether  existing  CSDR  provisions  ensure 
neutrality.97 The Regulation for pilot regime for market infrastructures based on 
DLT (see section 1.4.2), which allows DLT entities to be exempted under certain 
conditions  from  complying  with  certain  CSDR  provisions,  should  enable  all 
stakeholders  to  gain  insights  into the use of DLT for market infrastructures and 
the  legislation  to  adapt  to  the  gathered  experiences.  It  therefore  seems  that  any 
fundamental changes  to  CSDR to  realise the full potential of technology  should 
be  postponed  until  the  lessons  can  be  drawn  from  the  pilot  regime’s 
implementation. This is a view that most respondents to the targeted consultation, 
as well as ESMA, share. Fintech, which is an area related to the existing CSDR 
framework, is therefore outside of the scope of this impact assessment. 

d)  Processes  for  withholding  tax  are  a  barrier  for  efficient  EEA  market 
infrastructures  and  for  cross-border  settlement.  It  was  identified  in  the  first 
Giovannini Report98 and reconfirmed in the 2020 CMU Action Plan.99 However, 

93   A securities trade typically results in an obligation for the seller to deliver securities and a corresponding 
obligation for the buyer to deliver cash. In principle, to deliver cash, CSDR promotes settlement in central 
bank  money.  Settling in central bank  money  meant the risk of the cash part of a securities transaction is 
settled in a central bank account. This offers more security than commercial banks in terms of continuity of 
the payment services as well as the availability of liquidity. When settlement in central bank money is not 
practical or available, CSDR allows settlement under commercial bank money under strict conditions (on 
settlement in commercial bank money see section 2.3.3). 

94   See https://www.ecb.europa.eu/paym/coll/coll/html/SSS_links_eligibility.en.html.  
95   European Post-Trade Forum Report (see note 11), p. 116; remote participation is not always allowed and 

most CSDs are not authorised as banks. 

96   ESMA Report ‘Provision of banking-type ancillary services under CSDR’ (see note 88), p. 16. 
97   The  technology  neutrality  principle  means  that  legislation  or  policy  should  not  prescribe  technological 
solutions on businesses, citizens or other stakeholders. Any product or service should be accessible through 
any means, platform or operating system. 

98   Cross-border  clearing  and  settlement  arrangements  in  the  European  Union  -  Giovannini  Group  –  22 

November 2001: Giovannini reports, https://ec.europa.eu/info/publications/giovannini-reports_en .  

22 

 
                                                           
as taxation aspects cannot be dealt with in CSDR, and as the Commission plans to 
propose a legislative initiative for introducing a common, standardised, EU wide 
system  for  withholding  tax  relief  at  source,  accompanied  by  an  exchange  of 
information and cooperation mechanism among tax administrations, this issue is 
outside the scope of this impact assessment.  

2.2. What are the problems? 

For a detailed description of the identified problem areas see Annex 6.  

2.2.1.  Barriers to cross-border settlement 

One of the main objectives of CSDR was to facilitate cross-border settlement in order to 
limit the risks and costs involved. Nevertheless, most stakeholders see limited progress in 
the  provision  of  cross-border  services  by  CSDs  (see  point  (c)  in  Section  1.3.3).100  The 
evaluation,101  has  identified  three  main  reasons  for  this:  (i)  burdensome  passporting 
process; 
restrictive 
insufficient  cooperation  between  authorities;  and 
requirements for the provision of banking services related to settlement.  

(iii) 

(ii) 

First, the passporting process (i.e. the special procedure under which a CSD authorised 
in  a  Member  State  can  provide  services  in  relation  to  financial  instruments  constituted 
under the law of another Member State), is burdensome. It requires, where relevant, the 
agreement  of  the  host  national  supervisor,  regarding  the  assessment  by  the  CSD  of  the 
measures it intends to take to allow its users to comply with the national law referred to 
in  Article  49(1).  This  partially  shifted  the  burden  from  the  participants  to  CSDs  by 
requiring  the latter  to  demonstrate that they have the relevant  measures in  place, rather 

99   Commission  Communication,  ‘A  Capital  Markets  Union  for  people  and  businesses  -  New  Action  Plan’ 

(see note 10), see Action 10. 

100  ESMA Report on cross-border services (see note 50), p. 20. 
101  See “Annex 5 – Evaluation” and ESMA Report ‘Provision of banking-type ancillary services under CSDR’ 

(see note 88). 

23 

 
 
 
                                                                                                                                                                            
than  relying  on  users  to  directly  ensure  that  the  CSD  they  use  allows  them  to  comply 
with the applicable national legislation, despite the fact that it is the users’ responsibility 
to comply with such national legislation. The objective was to ensure that the provision 
of cross-border services by a CSD would not  affect the application of relevant national 
laws. The unintended consequence was to make the passporting process burdensome102, 
thereby deterring CSDs from expanding their activities across borders (see sections 1.3.3, 
2.2.1 and 2.3.1) or leading others to stop providing cross-border services. The fact that so 
far  there  have  been  no  refusals  by  host  national  supervisors  shows  that  although 
passporting is not used as tool to protect national markets, it has added a burdensome and 
costly  level  of  complexity.  Simultaneously,  certain  third-country  CSDs  seem  to  be 
exempted from  these requirements (See section 2.3.5),  making it is  easier for  them  to 
operate cross-border in the EU than for an EU CSD. 

Second,  cooperation  between  authorities  in  home  and  host  Member  States  and 
supervisory  convergence  is  insufficient  (see  section  2.3.2).  Despite  the  existence  of 
provisions  enabling  the  use  of  cooperative  arrangements  or  voluntary  supervisory 
colleges,  there  is  no  evidence  of  their  extensive  use  (only  one  college  of  supervisors 
has been set up and no information is available to ESMA on whether the other required 
cooperative arrangements under CSDR have been set up). This means that the same CSD 
is likely to be subject to different supervisory arrangements and requirements depending 
on the Member States of operation (see also section 2.3.2).  

Third,  CSDR  contains  strict  conditions  for  CSDs  to  settle  a  transaction  in 
commercial  bank  money  (see  section  2.3.3).  A  securities  trade  typically  results  in  an 
obligation  for  the  seller  to  deliver  securities  (securities  leg)  and  a  corresponding 
obligation for the buyer to deliver cash (cash leg). To ensure delivery of the cash, a CSD 
may use accounts at a central bank103 or commercial bank (i.e. CSDs may open accounts 
in  their  own  books  or  in  a  commercial  bank).  Access  to  central  banks  depends  on  the 
respective  central  bank,  brings  cost  and  therefore  requires  economies  of  scale. 
Consequently,  settlement  in  commercial  bank  money  is  sometimes  the  only  option 
available for CSDs that want to settle in currencies other than that of the jurisdiction in 
which  they  are  authorised  (e.g.  because  the  CSD  does  not  have  an  account  with  the 
central bank of the transaction’s currency). However due to the restrictive nature of the 
conditions,  the  percentage  of  EEA  CSDs’  settlement  activity  in  foreign  currencies 
(Figure V) and the level of settlement in foreign currencies remains limited. 104  

Figure V: Settlement in foreign currencies by EEA CSDs 

102  Summary report of the Commission CSDR targeted consultation (see note 92). 
103  CSDR, in line with international standards, gives preference to settlement in central bank money as a credit 
balance at a central bank implies no credit risk since what defines a central bank is its absolute ability to 
issue  currency  to  meet  its  needs.  CSDs  in  the  EU  in  principle  have  access  to  the  central  bank  of  the 
currency in their jurisdiction and can therefore settle trades in that currency in central bank money. 

104  As central banks can set their own access criteria, such as an obligation to be established in the jurisdiction 
of the relevant currency, this is even more pertinent for EEA CSDs considering activities outside the EEA. 

24 

 
                                                           
Furthermore, as seen in Figure VI, the vast majority of CSDs settle in only one or two 
foreign currencies.105 This means that issuers have a limited choice for multicurrency 
issuance which prevents genuine cross-border competition (especially since issuers seek 
one-stop-shop solutions)106 and the emergence of a single capital market.  

Figure VI: Number of CSDs per range of yearly settlement in foreign currencies107 

2.2.2.  Disproportionate compliance costs  

Market participants and authorities have identified targeted areas where the CSDR 
compliance  costs  are  disproportionate,  because  (a)  legal  requirements  are  unclear, 
and/or (b) they are considered excessively burdensome, and/or (c) the costs of complying 
with the rules appear to outweigh the potential benefits. Three areas have been identified 
as generating disproportionate compliance costs: passporting rules; rules on the provision 
of banking services related to settlement; and the settlement discipline regime.  

First,  the  CSDR  passporting  rules  allow  CSDs  to  provide  services  for  financial 
instruments  constituted  under  the  law  of  any  Members  State,  thus  allowing  CSDs  to 
benefit from access to a larger market and issuers to have more choice in where they 
issue  and  hold  their  securities.  However,  the  associated  the  legal  requirements  have 
turned out to be unclear and burdensome (see section 2.3.1).  

105  ESMA Report ‘Provision of banking-type ancillary services under CSDR’ (see note 88). 
106  Euronext 
consultation 

Commission 

response 

targeted 

the 

to 

on 

CSDR: 

https://www.euronext.com/it/regulation/government-affairs.    

107  Report to the European Commission: provision of banking-type ancillary services under CSDR, ESMA, 8 

July 2021: esma70-156-4582_report_to_the_ec_-_csdr_banking_services.pdf (europa.eu). 

25 

 
 
 
                                                           
In  addition,  the  objective  difficulty  to  comply  with  the  legal  requirements  and  the 
subsequent  threat  of  potential  legal  action,  generate  costs  that  present  an  unnecessary 
barrier to  the development  of CSD activities.  A CSD reported confidentially108 that the 
associated  internal  legal  support  required  throughout  the  passporting  process  was 
significant109.  Even  if  most  CSDs  applying  for  a  passport  to  operate  cross-border  have 
been  able  to  obtain  it,  stakeholders  have  indicated  that  this  process  is  difficult,  lengthy 
and demanding (see section 2.3.1).  

Second, the rules around the provision of banking services create disproportionate 
compliance  costs  for  CSDs.  This  negatively  impacts  the  provision  of  cross-border 
services.  The  lack  of  alternatives  to  settle  in  commercial  or  central  bank  money  could 
undermine  the  safety  of  settlement,  as  transactions  could  be  settled  free  of  payment 
instead of delivery versus payment, increasing risks for the market  as a whole.110 For a 
detailed explanation of specific problems faced and/ or risks created by CDS settling in 
commercial bank money see Annex 6.  

Third, certain elements of settlement discipline,111 although not yet applicable, would 
potentially  create  disproportionate  compliance  costs  for  CSDs  and  market  participants. 
To  ensure  the  safety  of  settlement,  any  participant  in  a  securities  settlement  system 
should settle its obligation on the intended settlement date (ISD); a settlement fail occurs 
when a transaction does not settle on that date.112 The settlement discipline regime aims 
to encourage market participants to avoid settlement fails; its two main elements are the 
measures  to  prevent  settlement  fails  (Article  6  of  CSDR)  and  the  measures  to  address 
settlement fails (Article 7 of CSDR). The latter comprise two main pillars; cash penalties 
and  mandatory  buy-ins.  CSDs  would  be  required  to  impose  cash  penalties  on  their 
participants  in  case  of  settlement  fails.  If  despite  the  cash  penalties,  the  original  seller 
fails  to  deliver  the  securities,  it  will  be  subject  to  a  mandatory  buy-in.  A  buy-in 
provides the buyer of securities with the right to buy the securities elsewhere, cancel the 
original transaction and put the costs of the buy-in, as well as any price difference, with 
the original seller.113  

The  original  objective  of  the  settlement  discipline  regime  as  contained  in  the  2012 
Commission proposal114 was mainly to harmonise the diverse market discipline measures 
across  EU  capital  markets.  Hence  the  proposed  measures  were  general,  with  detailed 
technical standards to be set in secondary legislation115. The impact assessment could not 
quantify  ex  ante  the  costs  and  benefits  of  these  general  settlement  discipline  measures 
relying  rather  on  qualitative  assessments.  The  final  set-up  of  the  settlement  discipline 
regime and the associated costs and benefits, became evident to the market participants 
only when the 2018 regulatory technical standard116 (RTS) was published. Furthermore, 

108  Based on confidential information provided to DG FISMA services.  
109 Information provided to DG FISMA services confidentially. In addition to the internal legal support, it is in 
practice  impossible  to  provide  a  formalised  assessment  per  market  and  per  type  of  securities  in  all  EEA 
countries without external legal advice.  

110  European Post-Trade Forum Report (see note 11), p. 117. 
111  Articles 6 and 7 of CSDR. 
112  CSDR  defines  settlement  fails  as  the  non-occurrence  of  settlement,  or  partial  settlement  of  a  securities 
transaction  on  the  intended  settlement  date,  due  to  the  lack  of  securities  or  cash  and  regardless  of  the 
underlying cause (Article 2(15) of CSDR).  

113  More details regarding the buy-in process is included in Annex 9. 
114  COM (2012) 73 final.  
115  See the Impact Assessment supporting the 2012 CSDR proposal.  See SWD92012) 22 final, Option 1.1.2: 

Introduce common EU principles for settlement discipline 

116  Commission Delegated Regulation (EU) 2018/1229. 

26 

 
                                                           
market  volatility  of  spring  2020  triggered  reflections  about  the  potential  impact  of  the 
regime on trading conditions or ability to fulfil certain market functions. 

Although settlement discipline rules would incentivise improvements in settlement rates, 
it  would  also  create  high  one-off  (i.e.  connecting  to  buy-in  agents,  repapering  existing 
contracts to take account of mandatory buy-in rules) and ongoing costs (i.e. in terms of 
pricing  and  reduced  liquidity  of  instruments  potentially  at  risk  of  being  bought-in  or 
trades being abandoned or migrating to non-EU trading venues (see section 2.3.4)).  

Evidence provided seems to show that these costs are disproportionate and would stem 
both  from  the  lack  of  clarity  around  the  rules  governing  the  process  (i.e.  what 
transactions are in-scope or how to use buy-in agents), from the framework’s impact on 
market  conditions  (deterioration  of  liquidity  for  some  instruments,  higher  bid-ask 
spreads)  and  market  participants’  trading  behaviour  (migration  of  trading  from 
peripheral  instruments  to  liquid  instruments,  doubts  around  the  viability  of  the  market 
maker role for less liquid instruments). The costs of applying in particular the rules on 
mandatory buy-in could outweigh their benefits for three main reasons:  

First,  the  market  volatility  of  March/April  2020  gave  stakeholders  the  opportunity  to 
reflect  on  how  the  upcoming  settlement  discipline  regime  would  have  impacted  the 
market.117  In  essence,  mandatory  buy-ins  could  have  exacerbated  the  negative  impacts 
linked  to  the  crisis;  in  particular  they  could  have  increased  liquidity  pressure  and 
increased the costs of securities at risk of being bought-in.118  

This would affect negatively market makers that take on risk onto their balance sheet to 
provide immediate execution to clients. They119 are an important source of liquidity and 
often offer securities they do not hold,120 based on the reasonable assumption of sourcing 
these securities when necessary. For securities not held on their balance sheet, or which 
cannot  be  readily  sourced,  the  introduction  of  mandatory  buy-ins  would  impact  the 
ability  of  market  makers  to  make  markets.  To  adjust  for  the  expected  cost  of  being 
bought-in, market makers will have to add a premium to their prices – which will widen 
the  bid-offer  spread  (which  will  in  turn  increase  costs  to  end-investors)  –  or  they  may 
simply not make an offer price on an enquiry thereby deteriorating market liquidity.  

Although these liquidity effects are most pronounced in choices made by market makers, 
all investors, even in liquid securities, could face similar trade-offs between entering into 
a  trade  (providing  liquidity),  the  availability  of  the  instrument  and  the  cost  of  being 
bought-in. These impacts are likely to be reflected in behavioural change, rather than a 
price adjustment.121  

117  Summary Report of the Commission CSDR targeted consultation (see note 92).  
118  More  than  half  of  respondents  to  the  targeted  consultation,  all  categories  included,  considered  that  the 
CSDR settlement discipline regime  would have  had a  significant negative impact on the market if it  had 
been  in  place  during  the  market  turmoil  provoked  by  Covid-19.  Summary  Report  of  the  Commission 
CSDR targeted consultation (see note 92). 

119  By  providing  a  buy  and  sell  price  for  securities  (bid-ask  spread)  market  makers  establish  liquidity  and 
pricing,  and  help  end-investors  to  redeem  funds  or  transact  in  a  timely  fashion  in  instruments  for  which 
there may not be a counterparty with an immediate opposite intention.  

120  Market makers aim to run low levels of inventory since high levels of inventories have high risk, capital 

and funding costs. 

121 Especially during a credit crunch, this effect could be amplified as lenders would want to have the ability to 
sell  holdings  at  short  notice  to  raise  cash  liquidity  and  the  amount  they  will  be  willing  to  lend  will  be 
further reduced. 

27 

 
                                                           
Periods  of  market  stress  could  be  exacerbated  by  mandatory  buy-ins  as  participants 
would  have  to  buy  back  the  securities  that  already  had  limited  availability  adding 
further liquidity pressure.122 Investors would have chased a small number of available 
securities,  driving  up  prices  and  potentially,  further  driving  volatility  in  a  stressed 
market. Evidence provided by one bank, showed that the application of mandatory buy-
ins to EU government bonds in the current liquidity context  could have led to a 50%-
100% increase in bid-offer spreads.123 

Second,  the  settlement  discipline  regime  could  also  give  rise  to  unintended 
consequences  for  the  competitiveness  of  the  EU  capital  markets.  Capital  markets 
outside the EU do not have a comparable settlement discipline regime.124 These markets 
rather rely on industry-led measures125, i.e. the UK announced it is not implementing the 
CSDR settlement discipline regime and will rely on settlement rules set by CREST, the 
UK-based CSD.126 In particular mandatory buy-ins may create an additional cost and risk 
for EU-settled securities that could disadvantage EU companies. Wider spreads and less 
liquidity  will  reduce  the  investment  returns  of  pension  funds,  asset  managers  and, 
ultimately,  end  investors,  which,  according  to  some  stakeholders,  could  risk  driving 
issuance, trading and investment activity outside of the EU.127 Furthermore, application 
of mandatory buy-ins could lead to a potentially loss of counterparties and liquidity for 
the EU capital market.128 The potential negative impact on the attractiveness of the EU 
market  would  be  at  odds  with  the  objectives  making  the  EU  capital  market  more 
attractive by increasing the safety of settlement. 

Finally,  against  the  above  arguments,  it  should  be  noted  that  despite  the  dramatic 
increase in trading (settlement instructions increased by 30% between 2015 – 2019 in EU 

122 Based on responses to the Commission CSDR targeted consultation from AFME,  Association of German 

Banks, European Fund and Asset Management Association (EFAMA), et al. 

123  Based on confidential information provided to DG FISMA services.  
124  During the CSDR consultation process stakeholders referred to SHO Regulation and SEC Rule 204, which 
however relates only to short-selling and the obligation that broker and dealer must close-out unresolved 
equities  transactions.  This  was  introduced  to  discourage  the  market  from  naked  short-selling.  Also 
examples of buy-in were given for Asian markets, in particular Singapore Exchange where any unsettled 
buy-in  trade  is  carried  forward  to  the  next  business  day  for  settlement.  If  the  buy-in  and  procurement 
remains unsuccessful by ISD +6, cash settlement will be initiated against the seller to provide resolution of 
the sale trade. However the Singapore Exchange has a very low failure rate because of DvP and very few 
trades go to buy-in. 

125  For instance, the International Capital Markets Association (ICMA) provides voluntary buy-in and sell-out 
rules  that  allow  non-defaulting  parties  the  right  to  enforce  physical  settlement  of  failed  trades  without 
incurring any direct losses, while the Global Master Repurchase Agreement allows non-defaulting parties 
to  remedy  failed  repo  transactions.  These  tools  are  voluntary  and  application  is  subject  to  contractual 
agreements between trading parties. “How to survive in a mandatory buy-in world?”, ICMA, June 2018. 

126  Written 

statement  by  Chancellor  of 

June  2020,  https://questions-
statements.parliament.uk/written-statements/detail/2020-06-23/HCWS309.  In  the  meantime  the  UK  will 
continue 
(p.37): 
discipline 
https://www.crh.com/media/3376/crest-rules-january-2021.pdf It provides for fines on either failed bought 
or sold transactions.  

the  Exchequer  on  23 

apply  CREST 

transactions 

settlement 

failed 

rules 

on 

to 

127  See  AFME 

response 

to 

the  Commission  CSDR 

targeted 

consultation, 

p. 

36, 

https://www.afme.eu/Portals/0/DispatchFeaturedImages/AFME_CSDR_CP_Response_Final.pdf. 

128  ‘Who Owns the European Economy? Evolution of the Ownership of EU-Listed Companies between 1970 
INSEAD  OEE  Data  Services,  2013, 
Institute  & 

and  2012’,  The  European  Savings 
https://ec.europa.eu/info/sites/default/files/file_import/1308-report-who-owns-european-
economy_en_0.pdf. 

28 

 
                                                           
CSDs129) the settlement fail rate has remained relatively stable in the EU, both as a 
share  of  value  and  number  of  total  transactions  (See  Annex  8,  Figure  II  ).  It 
experienced  a  spike  for  both  types  of  instruments  only  during  March/  April  2020  from 
which both  have recovered (albeit  more slowly in  the case of equity instruments).  This 
indicates  that  in  normal  market  circumstances  settlement  in  the  EU  can  be  relatively 
efficient. Quantitative evidence suggests that, in relative terms, the buy-in regime targets 
a  small  proportion  of  the  total  volume  of  transactions  but  will  have  an  impact  on  the 
pricing and liquidity of a much larger percentage of overall transactions.130 

Nevertheless,  even  if  settlement  efficiency  in  the  EU  seems  to  be  stable  or  improving 
slightly, fail rates in the EU still remain higher than in, e.g. the US where about 2% of all 
US  treasuries  and  mortgage  backed  securities  transactions  fail.131  Different  levels  of 
settlement  efficiency  between  national  capital  markets  can  partly  explain  the  lower 
overall EU settlement efficiency132. 

2.2.3.  Insufficient insight into the activities of third-country CSDs 

Under  CSDR,  third-country  CSDs  providing  services  in  the  EU  provide  insufficient 
insight into their activities in relation to financial instruments constituted under the law 
of  a  Member  State,  in  particular  when  they  provide  services  under  the  grandfathering 
clause  (see  section  2.3.5).  This  leads  to  potential  risks  for  the  whole  settlement 
ecosystem, and in particular on EU authorities, EU CSDs and issuers. 

First,  EU  authorities  are  not  aware  of  the  activities  of  third-country  CSDs  in  the 
EEA,  a  fact  underlined  both  by  ESMA  and  several  respondents  to  the  targeted 
consultation133.  Some  third-country  CSDs  operating  in  the  EU  are  not  subject  to  any 
notification requirement (see section 2.3.5). EU authorities therefore have no information 
on  which  services  they  provide,  their  volume  or  the  Member  States  affected  by  them. 
This means that, if needed, neither issuers nor public authorities at national and EU level 
can assess the impact of these CSDs on the financial stability of the EU. 

Second,  certain  third-country  CSDs  follow  different  rules  than  those  EU  CSDs  are 
subject to, and provide services in relation to the same financial instruments (see section 
2.3.5).  The  lack  of  information  on  third-country  CSDs’  activities  may  create  a  risk  for 
investors  in  those  cases  where  the  legislation  governing  them  does  not  offer  the  same 
level of protection than EU legislation would.  

129  Data  generated  through  the  Securities  Trading,  Clearing  and  Settlement  Statistics  Database,  European 

Central Bank, https://sdw.ecb.europa.eu/browse.do?node=9691131.  

130  Ibid. 
131  K. Burne, ‘How to succeed in fixing settlement fails’, Aerial View, Bank of New York Mellon, 2020. 
132  Based on confidential information provided to DG FISMA services. 
133  ESMA  letter  to  the  European  Commission,  ‘ESMA’s  Proposals  regarding  the  Review  of  the  CSD 
Regulation  (CSDR),  20  May  2021,  https://www.esma.europa.eu/sites/default/files/library/esma70-156-
4519_letter_to_ec_-_csdr_review.pdf . 

29 

 
                                                           
Third,  the  lack  of  information  on  third-country  CSDs’  activities  may  create  a  risk 
for  investors.  The  Commission  has  not  assessed  the  rules  to  which  CSDs  operating 
under the grandfathering clause are subject, despite the fact that they provide services in 
relation  to  the same financial instruments  EU CSDs do  (see section 2.3.5).  The lack of 
information  on  those  CSDs’  activities  may  create  a  risk  for  investors  where  the 
legislation governing them does not offer the same level of protection as EU legislation. 

2.3. What are the problem drivers? 

2.3.1.  Burdensome and unclear passporting requirements for CSDs  

A core objective of CSDR was to dismantle the barriers to cross-border settlement in 
order for authorised CSDs to enjoy the freedom to provide services within the EU.  

To ensure an appropriate level of safety in the provision of services by CSDs in another 
Member State, CSDs are currently subject to a specific procedure in Article 23 of CSDR. 
Under this article, when CSDs wish to provide notary and central maintenance services 
in  relation  to  financial  instruments  “constituted  under  the  law  of  another  EU  Member 
State”  or  to  set  up  a  branch  in  another  Member  State  a  specific  procedure  needs  to  be 
followed, involving the approval by the host national authority. In particular, they should 
communicate  to  the  competent  authority  of  their  home  Member  State  information 
including, where relevant, an assessment of the measures the CSD intends to take to 
allow its users to comply with the national law referred to in Article 49(1).  

These  requirement  of  the  CSDR  passporting  process  aimed  to  ensure  that  the  relevant 
pieces  of  national  legislation  would  be  taken  into  account  and  would  still  be  complied 
with. However, such requirements allow the host competent authority to verify this only 
once,  when  assessing  the  passporting  request,  and  not  on  a  continuous  basis. 
Furthermore, the possibility to  refuse  the passport does not  seem  to  have been used by 
host competent authorities134.  

26  CSDs  have  been  authorised  under  CSDR,  out  of  which  15  provide  cross-border 
services in the EEA.135 
Further  to  these  first  passporting  procedures,  the  majority  of  stakeholders136  and 
Members States137 now generally agree that the passporting procedure is burdensome 
(one CSD even noted that it stopped providing services with respect to foreign securities 
in  order  to  avoid  it138)  and  some  of  its  requirements  are  unclear  and  could  result  in 
divergent  interpretations  by  national  authorities,  thus  reducing  CSDs’  cross-border 
activity  and  leading  to  disproportionate  compliance  costs  (see  sections  2.2.1  and 
2.2.2). As underlined by one stakeholder: “the rules in CSDR Article 23 – together with 
divergent  application  by  National  Competent  Authorities  (NCAs)  of  Article  23  and  the 
closely related Article 49.1 list – have reduced the possibility for CSDs to offer services 
as Issuer CSDs for instruments issued under the law of another Member State.”139  

134  ESMA Report on cross-border services (see note 50). 
135  https://ecsda.eu/. 
136  Summary Report of the Commission CSDR targeted consultation (see note 92).  
137  Member  States,  based  on  the  Member  States’  Experts  Group  meeting  held  in  July  2021  and  September 
2020 as well as the targeted consultation, also agree that the CSDR passporting requirements are unclear 
and burdensome. 

138  Summary Report of the Commission CSDR targeted consultation (see note 92). 
139  Euronext, response to the Commission CSDR targeted consultation (see note 106), page 16. 

30 

 
                                                           
The costs per passport are estimated to amount on average to ca. EUR 30 000.140 This 
means that, at least theoretically, for a CSD to be able to provide services for financial 
instruments  constituted under the law of 26 other Member States it may  be required to 
pay on average about EUR 780 000.141 Similarly, internal resources in terms of the time 
required to prepare an application for a passport are estimated at 1-3 months (1 FTE). 142 
At  least  theoretically,  for  a  CSD  to  be  able  to  provide  its  services  throughout  26  other 
Member  States  it  needs  to  dedicate  one  FTE  that  would  have  to  spend  between  26 
and 78 months (i.e. 6.5 years).143 Once a passport is granted, the applicant CSD also has 
to continue to monitor it to ensure ongoing compliance, which also entails costs.  These 
costs  are  estimated  at  on  average  ca.  EUR 2 000  per  passport  per  year.144  This  means 
that,  at  least  theoretically,  when  the  CSD  has  obtained  a  passport  in  26  other  Member 
States it may be required to pay on average about EUR 52 000 per year. 

Given, amongst others, the high cost of the passport, CSDs require a minimum amount of 
activity in order to provide services cross-border. This means that cross-border services 
are  generally  provided  to  larger  issuances  in  order  to  make  them  more  economically 
viable,  potentially  limiting  the  access  of  smaller-  and  medium-sized  companies  to  the 
benefits of the single market.145  

The costs of passporting are less significant for authorities; ranging from ca. EUR 1 000 
per  passport  for  the  home  national  authority146  to  EUR 3 000  for  the  host  national 
authority. This means that, at least theoretically, a CSD that would decide to passport in 
26 Member States would generate estimated costs of ca. EUR 79 000.147  

Annex 6 provides further examples of burdensome and unclear passporting requirements.  

Finally,  the  effects  of  the  burdensome  and  unclear  passporting  requirements  are 
illustrated by the figures showing the slow progression of provision of cross-border 
services (see section 1.3). According to ESMA “there has been a limited progression of 
the provision of CSD services on a cross-border basis within the EU since of the entry 
into force since 2017 and in the context of the progressive entry into force of CSDR”.148  

2.3.2.  Insufficient coordination and cooperation between authorities  

CSDR  requires  the  cooperation  of  authorities  that  have  an  interest  in  the  operations  of 
CSDs  that  operate  domestically  and  cross-border.  Nonetheless,  the  supervisory 
arrangements remain fragmented and can lead to differences in the allocation and 
nature  of  supervisory  powers  depending  on  the  EU  CSD  concerned.  This  in  turn 
creates barriers to the cross-border provision of CSD services, perpetuates the remaining 
inefficiencies  in  the  EU  settlement  market  and  has  negative  impacts  on  the  stability  of 
EU financial markets. 

140  Commission calculations based on confidential information provided to DG FISMA services.  
141  Commission calculations based on confidential information provided to DG FISMA services.  
142  Commission calculations based on confidential information provided to DG FISMA services.  
143  Commission calculations based on confidential information provided to DG FISMA services.  
144  Commission calculations based on confidential information provided to DG FISMA services. 
145  Supported by confidential provided to DG FISMA services. 
146  Commission estimates based on confidential data provided by one authority to DG FISMA services. This 
estimate covers only the costs of interactions between the host and home NCAs. The costs of analysing of 
the passporting request by the home NCA is much higher in itself and varies depending on the complexity 
of the file.  

147  Commission calculations based on confidential information provided to DG FISMA services. 
148  ESMA Report on cross-border services (see note 50), para. 127. 

31 

 
                                                           
Notwithstanding  ESMA's  competence  to  promote  supervisory  convergence,  the  powers 
of national supervisors and the requirements for CSDs are interpreted differently across 
the  EU  resulting  in  a  significant  heterogeneity  in  supervisory  practices,  in  particular  as 
regards CSDs that operate cross-border.  

First,  insufficient  cooperation  between  home  and  host  supervisors  prevents  the 
creation  of  a  single  market  for  CSD  services,  as  acknowledged  amongst  others  by 
ESMA  and  the  CMU  High  Level  Forum.  CSDR  does  not  ensure  the  effective 
cooperation between home and host national supervisors for several reasons:  

 

formal cooperation of home and host authorities on a continuous basis (through 
the  establishment  of  the  so-called  ‘cooperation  arrangements’)  is  required  only  for 
CSDs that establish a branch in a host Member State or when the activities of a 
CSD are of substantial importance for the functioning of the securities markets 
and the protection of the investors in that host Member State. This means that only 
for  certain  CSDs  with  activities  in  host  Member  States  structural  and  ongoing 
cooperation  between  home  and  host  authorities  is  required.  For  other  situations, 
home  and  host  authorities  may  cooperate  on  an  ad  hoc  basis  on  request.  CSDs  of 
substantial  importance  to  different  host  Member  States  are  subject  to  national 
supervisors’  divergent  interpretations  as  to  the  content  of  CSDs’  reporting 
obligations,  which  can  be  burdensome  especially  for  small  CSDs.149  Furthermore, 
due to the absence of structured cooperation between the home and host authorities 
before the granting of the passport, CSDs face widely divergent interpretations of the 
same  requirements,  as  illustrated  by  the  differences  in  the  time  and  cost  that  each 
passport requires (see Section 2.3.1). 

 

It is not specified what these cooperation arrangements should entail in practice. 
This means that it is up to each home supervisor to decide when setting them up.  

  CSDR states that when a CSD is of substantial importance for the functioning of the 
securities markets and the protection of the investors in more than one host Member 
State,  it  is  up  to  the  home  Member  State  to  decide  that  such  cooperation 
arrangements are to take the form of a college. To date only one college has been 
set  up  (with  six  authorities  from  four  Member  States,  without  ESMA’s 
participation). The experience of that home supervisor has been positive, as it serves 
as  good  forum  for  discussion,  information  exchange  and  enables  an  exchange  of 
expertise, potentially even dividing tasks. 

Second, CSDR does not sufficiently consider the fact that several CSDs are part of 
larger groups comprising several CSDs or financial market infrastructures. CSDs in 
a  group  may  outsource  key  IT  infrastructure  components,  activities  and  processes  (e.g. 
risk  management,  cyber  security)  to  other  group  entities  and  major  strategic,  business, 
risk management decisions and governance may be established (directly or indirectly) at 
group level. While during the authorisation process CSDR provides for the consultation 
of competent authorities from other Member States where the CSD is part of a group of 
CSDs,  the  current  supervisory  and  cooperation  approach  focuses  on  individual  CSDs, 
and not on the group or the entity which has been outsourced to. Nonetheless, decisions 
made  by  the  authority  of  one  CSD  in  the  group  can  impact  the  other  financial  market 
infrastructures in the group.150 

149  Based on confidential information provided to DG FISMA services. 
150  Information received from the ESCB. 

32 

 
                                                           
As an example to illustrate the above, Figure III in Annex 8151 includes the governance 
structure of one of the biggest groups of CSDs in the EU, Euroclear. Euroclear SA is 
the  parent  company  for  six  domestic  CSDs  and  an  ICSD,  Euroclear  Bank.  Three  of 
those domestic CSDs (Euroclear France, Belgium and the Netherlands) use a common 
settlement  platform  (ESES)  and,  amongst  others,  use  a  common  admission  process. 
While  the  Belgian  national  supervisor  cooperates  with  the  French  and  Dutch  overseers 
and  market  supervisors,152  this  cooperation  does  not  take  place  under  the  CSDR 
framework and ESMA is not involved. 

Finally,  regarding  domestic  CSDs,  there  is  insufficient  cooperation  and  supervisory 
convergence  amongst  authorities  interested  in  CSDs’  activities.  This  means  that  their 
concerns  may  not  be  sufficiently  taken  into  account  by  the  national  authority  when 
making decisions. One stakeholder noted that it was not easy to get a good understanding 
of  the  overall  functioning  of  the  CSD,  the  supervisory  approach,  the  interpretation  and 
application  of  the  regulatory  provisions,  the  aspects  of  concern  for  the  competent 
authority,  the  views/opinions  of  the  other  authorities  if  others  were  involved,  etc. 
Furthermore,  some  authorisation  and  review  and  evaluation  processes  revealed  a 
different  understanding  and  application  of  various  requirements  as  well  as  different 
readings  of  background  documents,  which  may  impact  the  consistent  application  of 
CSDR and distort the level playing field.  

Additionally,  while  CSDR  requires  national  supervisors  to  involve  other  relevant 
authorities, i.e. central banks, in the authorisation of CSDs, the former are not required to 
inform  the  latter  if  and  how  their  views  have  been  considered  in  the  outcome  of  the 
authorisation  process  and  if  additional  issues  have  been  identified.  This  means  that 
relevant  central  banks  may  not  be  able  to  express  their  views  on  newly  identified 
issues or they may not know that their concerns have not been taken on board, in which 
they could adopt a more rigorous oversight approach, especially in areas of concern.  

2.3.3.  Restrictive requirements for provision of banking services related to settlement in 

foreign currencies 

An important element of the functioning of CSDR is the banking services that CSDs can 
offer to clients153 in addition to the core CSD services and other non-banking settlement 
services.154  As  noted,  the  provision  of  banking  services  is  a  prerequisite  to  settle  in 
foreign  currencies,  if  no  access  to  the  relevant  central  bank  is  practical  or  available.155 
Nonetheless, the requirements for the provision of banking-type services related to 
settlement are restrictive, leading to both a reduction of CSDs’ cross-border activity 
and to disproportionate compliance costs (see sections 2.2.1 and 2.2.2).  

First, under CSDR, apart from being authorised themselves to provide banking services, 
CSDs may  also  use a  designated credit institution for such services.  Nonetheless,  the 
conditions  set  out  in  CSDR  for  such  institutions  are  very  strict156  to  mitigate  risks  to 
financial stability: in addition to having to be authorised as a credit institution under the 

151  https://www.euroclear.com/about/en/business/Becomingaclient/BecomingaclientESES.html. 
152 National Bank of Belgium ‘Financial Market Infrastructures and Payment Services Report 2021’, p. 33. 
153  Section C of the Annex of CSDR lists the banking type ancillary services that must be directly related to 
the  core  settlement  services  of  a  CSD  of  which  the  2  most  important  are  providing  cash  accounts  and 
intraday credit. 

154  Section B of the Annex of CSDR. 
155  In  addition,  one  of  the  objectives  of  CSDR  is  to  promote  Delivery  versus  Payment,  to  reduce  risks  for 

participants in securities transactions. 

156  Article 54(4) of CSDR.  

33 

 
                                                           
legislation 

applicable  EU  banking 
(Capital  Requirements  Regulation,  Capital 
Requirements  Directive157)  and  to  comply  with  additional  prudential  and  liquidity 
requirements under CSDR,158 designated credit institutions can only offer services in 
relation to settlement.  This  means that there is a  very limited business  case  for such 
entities,  as  also  evidenced  by  the  fact  that  no  such  institutions  exist  to  date. 
Furthermore,  CSDR  requires  that  designated  credit  institutions  do  not  carry  out 
themselves any of the core CSDR services (i.e. notary, central maintenance, settlement). 
This  means  that  CSDs  that  have  been  authorised  to  provide  banking-type  services 
themselves cannot function as designated credit institutions to other CSDs (even if 
they  are  part  of  the  same  corporate  group),  which  greatly  limits  synergies  and  restricts 
access to commercial bank money. 

Second,  the  threshold  under  which  a  commercial  bank  may  provide  banking 
services  (i.e.  the  total  value  of  cash  settlement  is  less  than  1%  of  the  total  value  of  all 
securities transactions against cash settled in the books of the CSD and does not exceed a 
maximum of EUR 2.5 billion per year)159 is considered by the majority of stakeholders, 
including  CSDs  and  their  association  as  well  as  a  public  authority,  as  too  low  for  the 
majority of EU CSDs to be able to compete in the settlement in foreign currencies. 
CSDs  without  a  banking  license  could  increase  their  settlement  activity  in  foreign 
currencies over a 5 year horizon to ca. 5% of their total yearly settlement activity.160 As 
an example, for smaller CSDs with lower turnover ratio,161 e.g. 11, the current threshold 
of EUR 2.5 billion settlement per year would be reached with issuance corresponding to 
EUR 229 million162  –  less  than  half  the  size  of  a  regular  bond  issue,  leaving  no 
possibility to offer issuance to others in the same or other currencies in commercial bank 
money or even allow the same entity to do other issuances. 

2.3.4.  Unclear and complicated requirements for settlement discipline 

CSDR  introduced  rules  on  settlement  discipline  to  prevent  and  address  failures  in  the 
settlement  of  securities  transactions  and  therefore  ensure  the  safety  of  settlement  (see 
section 2.2.2). Despite the absence of experience in applying the rules, the development 
and specification of the framework in the relevant RTS has allowed all interested parties 
to  better  understand  the  regime  and  the  challenges  its  application  could  give  rise  to, 
especially at times of crisis, e.g. the COVID-19 crisis in spring 2020.  

A  large  majority  of  respondents  to  the  Commission  targeted  consultation  (public 
authorities, CSDs, CCPs, banks, asset management companies, market makers, and their 
respective  associations),  considered  that  the  settlement  discipline  framework  should  be 

157  Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on 
prudential  requirements  for  credit  institutions  and  investment  firms  and  amending  Regulation  (EU)  No 
648/2012, OJ L 176, 27.6.2013, and Directive 2013/36/EU of the European Parliament and of the Council 
of  26  June  2013  on  access  to  the  activity  of  credit  institutions  and  the  prudential  supervision  of  credit 
institutions  and  investment  firms,  amending  Directive  2002/87/EC  and  repealing  Directives  2006/48/EC 
and 2006/49/EC, OJ L 176, 27.6.2013. 

158 Articles 54(4)(e) and 54(8) of CSDR and Commission Delegated Regulation (EU) 2017/390. 
159  Article 54(5) of CSDR. 
160  Based on confidential information provided to DG FISMA services.  
161  The  asset  turnover  ratio  measures  the  value  of  a  company's  sales  or  revenues  relative  to  the  value  of  its 
assets. The asset turnover ratio can be used as an indicator of the efficiency with which a company is using 
its  assets  to  generate  revenue.  The  higher  the  asset  turnover  ratio,  the  more  efficient  a  company  is  at 
generating revenue from its assets.  

162  Euronext response to the Commission CSDR targeted consultation (see note 106). 

34 

 
                                                           
reviewed.163 Member States took a similar position in the Member States' Experts Group 
meeting  in  July  2021.  They  almost  unanimously  expressed  concerns  about  the  current 
design  of  mandatory  buy-ins  and  their  influence,  in  particularly  on  trading  activity, 
liquidity or the competitiveness of EU capital markets. ESMA also supported a delay in 
the application of the buy-in regime noting that “ESMA is aware of market participants’ 
serious difficulties regarding the implementation of the buy-in regime.” 

Two main issues have been identified: the lack of clarity and the complexity/burden of 
the  settlement  discipline  requirements.  These  drivers 
to  disproportionate 
compliance  costs,  in  so  far  as  the  costs  of  complying  with  the  framework  potentially 
seem to outweigh the achievable benefits (see section 5.1.4). 

lead 

First, the requirements of the settlement discipline regime are often unclear, creating 
legal uncertainty, thus increasing compliance costs. This lack of clarity is also shown by 
the number of Q&As received by ESMA and the Commission.  Since 2017, ESMA has 
frequently updated its CSDR Q&As, with currently164 seven Q&A’s related to settlement 
discipline.  More  than  25  Q&As  on  settlement  discipline  are  also  currently  being 
assessed. The need to clarify questions related to the settlement discipline regime puts an 
additional  burden  on  market  participants,  but  also  the  relevant  authorities.  This 
uncertainty  means  that  companies  have  to  obtain  additional  legal  opinions  on  how  the 
rules  should  be  applied,  to  enable  them  to  adapt  existing  trading  and  reporting 
procedures.  Should  those  rules  subsequently  be  interpreted  differently,  additional  costs 
will be incurred to re-adapt. 

The  unclear  requirements  are  primarily  linked  to  the  scope  of  cash  penalties  and 
buy-in rules. One business association stated “…the different provisions of CSDR setting 
out  the  scope  of  the  requirements  such  as  settlement  fails  reporting,  cash  penalties  or 
buy-ins  are  not  always  clear.  This  lack  of  legal  certainty  could  potentially  lead  to 
reducing the efficiency in securities settlement.”165 

  Unclear scope of rules on cash penalties:166 A cash penalty applies for each day 
that a transaction fails to be settled after its intended settlement date. Examples of 
lack of clarity relate to the types of securities transactions covered and the scope 
of  entities  concerned  by  cash  penalties.167  As  an  example,  the  scope  of 
“transactions”  is  not  defined  in  CSDR;  however  certain  transactions  are  outside 
CSD participants’ control. It is therefore unclear whether such transactions should 
be within the scope of the cash penalty regime. This uncertainty generates costs 
when  CSDs  implement  the  IT  systems  to  monitor  cash  penalties,  requires 
additional legal advice and increases potential legal risks. The questions about the 
interpretation  of  CSDR  stem  not  only  from  the  text  of  the  Regulation  itself  but 
also  from  the  delegated  acts;  e.g.  Commission  Delegated  Regulation  (EU) 
2017/389  states  that,  in  certain  circumstances,  the  calculation  of  penalties  rates 
should  use  the  official  interest  rate  for  overnight  credit  charged  by  the  central 
bank issuing the settlement currency. However, in at least two Member States, it 
has  been  reported  recently  that  central  banks  do  not  have  this  official  rate  and 
therefore the calculation of the penalties cannot fulfil this requirement. 

163   Summary Report of the Commission CSDR targeted consultation (see note 92). 
164  CSDR 

ESMA70-156-4448, 
https://www.esma.europa.eu/sites/default/files/library/esma70-708036281-2_csdr_qas_2.pdf. 

Q&As, 

March 

31 

2021, 

165  ESCDA, response to the Commission targeted consultation on the CSDR review. 
166  A cash penalty applies for each day that a transaction fails to be settled after its intended settlement date. 
167  Summary Report of the Commission CSDR targeted consultation (see note 92). 

35 

 
                                                           
  Unclear  scope  of  rules  on  buy-ins:  there  is  lack  of  clarity  on  a  wide  range  of 
issues, i.e. types of securities covered, scope of entities concerned,  and in-scope 
transactions.168  For example, while CSDR  refers only to  participants (i.e.  failing 
participant  and  receiving  participant),  multiple  terms  are  used  in  Level  2  (e.g. 
failing  trading  party,  failing  trading  venue  member,  failing  clearing  member) 
which could create difficulties of interpretation and lead to legal challenges.169 

Second, the requirements of the settlement discipline regime are often complicated 
and  increase  compliance  costs.  In  addition  to  one-off  costs  incurred  to  adapt  IT 
systems,170  the  two  examples  below  on  contractual  repapering  (i.e.  update  of  existing 
contracts)  and  the  use  of  buy-in  agents  show  how  the  actual  application  of  the 
requirements could increase costs for market participants. 

Trading  parties  that  settle  transactions  in-scope  of  mandatory  buy-ins  would  need  a 
global  repapering  exercise.171  This  would  ensure 
that  appropriate  contractual 
arrangements  are  in  place  between  the  relevant  counterparties  to  guarantee  effective 
application  and  enforceability  of  the  buy-in  requirements,  even  where  some  parties  are 
located  outside  the  EU.172  EU  securities  valued  EUR 33.5 trillion  and  bonds  valued  at 
EUR 13.2 trillion  could  be  subject  to  this  exercise173  showing  the  one-off  compliance 
costs it could generate. Data suggests that, on average, each firm would need to repaper 
27 120  agreements,  taking  on  average  10  months  to  complete.174  The  scope  of  the 
repapering is however related to and reliant on the interpretation of the scope of the rules. 

Increased compliance costs result also from the requirement to use buy-in agents.175 The 
concerns  relate  mainly  to the  limited number of third-party buy-in agents (currently 
only  one  stakeholder  has  made  substantial  investments  to  comply  with  these  rules  and 
establish themselves as buy-in agent). This adds one-off investment and ongoing costs to 
trading  for  asset  managers  in  terms  of  onboarding,  connectivity,  fees  and  collateral 
requirements  as  well  as  impacting  best  execution  and  adding  concentration  risk176.  In 

168  To the question 34 of the Commission targeted consultation on whether the scope of the buy-in regime and 
the exemptions applicable should be clarified, 62 responded that they agree, while 2 being neutral and one 
disagreeing. 

169  AFME  response  to  the  Commission  CSDR  targeted  consultation  (see  note  127)  “the  term  participant 
including  references  to  ‘failing  participant’ and  ‘receiving participant’  is  used  inconsistently  throughout 
the Level 1 and Level 2 texts (…). Without a clear distinction of what provisions relate to which actor in 
the ‘trade through to settlement chain’ the SDR may be, in its application, fraught with disputes and legal 
challenges”. 

170  “CSDR: Settlement discipline regime toolkit”, Deutsche Bank, September 2019. 
171  Article  25  of  the  RTS  on  settlement  discipline.  According  to  a  joint  trade  association  letter  “  […]  the 
implementation of the CSDR mandatory buy-in regime is a significant undertaking for the entire financial 
market,  not  only  in  Europe,  but  globally.  This  involves not  only  extensive  system  developments,  but also 
major  client  outreach  across  multiple  markets  and  jurisdictions  to  undertake  contractual  papering  and 
remediation  in line with the requirements set out in Article 25 of the Commission Delegated Regulation 
(EU) 
Joint-Trade-Association-Letter-regarding-Implementation-of-the-CSDR-
Settlement-Discipline-Regime_Final.pdf (ebf.eu) 

2018/1229 

(‘RTS’)” 

172 Association of Global Custodians response to the Commission CSDR targeted consultation, Q. 32.1 
173  Based on confidential information provided to DG FISMA services. 
174  Based on confidential information provided to DG FISMA services.  
175  If the settlement of a transaction fails, the receiving party of the transaction is obligated to appoint a buy-in 

agent to execute a buy-in 

176  BlackRock 

response 

to 

the  Commission 

CSDR 

targeted 

consultation,  Q. 

34.1, 

https://www.blackrock.com/corporate/literature/publication/ec-consultation-on-the-review-of-regulation-
on-improving-securities-settlement-in-the-european-union-and-on-central-securities-depositories-
020221.pdf. 

36 

 
                                                           
addition, some stakeholders claim that the current buy-in offering may not be compatible 
with  the  diverse  needs  of  market  participants.177  Therefore,  certain  market  participants 
(e.g., asset managers) may have to provide the buy-in agent with sufficient liquidity even 
if they will use the service rarely.178 Due to the costs and risks linked to the role of buy-in 
agents, some market-makers traditionally acting as buy-in agents for specific instruments 
have stopped providing that service. Other concerns related to high costs,179 the potential 
risk  associated  with  abuse  of  a  dominant  position  by  the  agents  or  the  difficulty  to 
execute a buy-in for instruments with limited supply (the use of substitute instruments 
has been advocated in such a case). These further drive up firms’ compliance costs. 

2.3.5.  Insufficient reporting for third-country CSDs  

Under  CSDR,  certain  third-country  CSDs  providing  services  for  financial 
instruments  constituted  under  the  law  of  a  Member  State  could  benefit  from  a 
lighter  regulatory  regime.  The  insufficient  reporting  by  third-country  CSDs  leads  to 
insufficient insight into their activities (see section 2.2.3), mainly due to two factors.  
First,  third-country  CSDs180  that  provide  services  in  relation  to  financial  instruments 
constituted  under  the  law  of  a  Member  State  under  the  national  laws  applicable  before 
the adoption of CSDR can continue to do so until they have been recognised by ESMA 
(the “grandfathering clause”).181 The objective of that clause was to defer application of 
CSDR  to  provide  CSDs  with  sufficient  time  to  apply  for  recognition.  However,  even 
though CSDR was adopted in July 2014,182 the grandfathering clause still applies and 
does not have an end-date.183 This means that third-country CSDs have no incentive to 
apply for recognition to ESMA. To date, no third-country CSD, other than the UK CSD, 
has applied for recognition. 

Under the current regime, third-country CSDs benefiting from the grandfathering clause 
can indefinitely provide services  in  relation  to  financial instruments  constituted under 
the law of a Member State even though: (a) they do not have to comply with CSDR or 
rules that have been considered as equivalent by the Commission and, (b) they have not 
been recognised by ESMA - while authorised EU CSDs with which they compete have to 
comply with  CSDR.  Third-country  CSDs  benefiting from  the  grandfathering clause are 
also not under any notification requirements regarding their activities in the EU. Hence, 
they are not required to provide any information to EU authorities. 

Second, settlement services are outside the scope of the CSDR third-country regime. 
Under CSDR,184 third-country CSDs that do not benefit from the grandfathering clause, 

177  Confidential  information  provided  to  DG  FISMA  services.  Some  asset  management  firms  claim  that 
because no transactions are concluded on asset managers’ own accounts, (they are all executed as an agent 
for fund and client accounts), all fund and client accounts globally have to be on-boarded with the buy-in 
agent even though only a fraction of these accounts  may  ever require a buy-in. This requires prefunding 
ahead of the execution of a buy-in. 

178 Confidential information provided to DG FISMA services. 
179  Confidential information provided to DG FISMA services.  
180  It is worth noting that both third-country CSDs and EU CSDs can benefit from the grandfathering clause. 
As of May 2021, to our knowledge, CSDs of one Member State and one EEA country are still operating 
under the grandfathering clause.  

181 Article 69(4) of CSDR. 
182  However, please note that the deadline to apply CSDR in EEA countries was 30 June 2020. 
183  As  an  exception,  in  Liechtenstein  the  grandfathering  clause  for  third-country  CSDs  providing  services 
therein (i.e. Six, the Swiss CSD) ends 5 years after the date of entry into force of Council Decision (EU) 
2019/134. 

184  Article 25 of CSDR. 

37 

 
                                                           
may  provide  services  in  relation  to  financial  instruments  issued  under  the  law  of  a 
Member State, including through setting up a branch, only if they comply with the CSDR 
third-country framework. Requirements applying to third-country CSDs differ however 
depending on the type of service (notary, central maintenance, settlement) they intend 
to  provide.  A  recognition  by  ESMA  is  required  for  notary  or  central  maintenance 
services;  a  condition  of  this  recognition  is  that  the  Commission  has  adopted  an 
equivalence  decision,  determining  that  the  legal  and  supervisory  arrangements  of  the 
third  country  ensure  that  CSDs  authorised  therein  comply  with  legally  binding 
requirements  which  are  in  effect  equivalent  to  the  requirements  of  CSDR.  Settlement 
services provided by third-country CSDs do not require recognition by ESMA.  

Despite the fact that settlement is one of the three core services provided by CSDs, third-
country  CSDs  may  provide  settlement  services  for  securities  issued  under  the  law  of  a 
Member  State  without  applying  for  recognition  by  ESMA.  In  that  case,  third-country 
CSDs do not have to comply with CSDR or at least equivalent rules nor are they required 
to  provide  any  information  or  notification  regarding  their  activity.  They  are  also  not 
subject to any type of supervisory activity by an EU supervisor.  

To conclude, third-country CSDs operating in the EU under the grandfathering clause or 
providing settlement services might not comply with CSDR or equivalent rules. National 
and  EU  authorities  have  very  little  information  on  the  activities  of  these  third-
country CSDs, as confirmed also by ESMA.185 

2.4. How will the problem evolve? 

2.4.1.  Ongoing inefficiencies in the EU settlement market 

The ongoing inefficiencies in the EU settlement  market stem from two main problems: 
barriers  to  cross  border  settlement  (see  section  2.2.1)  and  disproportionate  compliance 
costs (see section 2.2.2). 

Under  a  baseline  scenario,  CSDR  is  unchanged,  barriers  to  cross-border  settlement 
through:  burdensome  passporting  requirements; 
insufficient  coordination  among 
authorities;  burdensome,  even  restrictive,  requirements  for  the  provision  of  banking 
services; and a disproportionate settlement discipline regime would remain.  

Competition  among  CSDs  within  the  EU  would  not  improve.  For  example,  challenges 
accessing banking services and in particular settling in foreign currencies would reduce 
the  possibility  of  CSDs  offering  multi-currency  services  therefore  reducing  their 
attractiveness.  Consequently,  cross-border  investment  will  remain  at  a  lower  level  than 
could otherwise be achieved, leading to a sub-optimal pan-EU settlement market.  

The  entry  into  application  of  mandatory  buy-ins  could  further  increase  the  costs  for 
CSDs,  investors  and  market  makers  (see  section  2.3.4).  This  could  lead  to  a  reduced 
willingness by liquidity providers to create markets and offer prices for a security when 
they do not  have access  to  inventory or  for  securities which cannot  be readily sourced. 
Market  makers will find price-setting complicated  for these  instruments  as it is  unclear 
whether the trade will be subject to a mandatory buy-in. This could also lead to increased 
higher  bid-offer  spreads  for  investors  as  market  makers  hedge  risks  related  to  such 
difficulty  to  set  prices  of  less  liquid  instruments.  This,  in  particular,  could  affect 
negatively  less  liquid  instruments  and  even  lead  to  a  substantial  drop  of  liquidity,  as 
market makers withdraw from making markets for these instruments.  

185  ESMA letter to the Commission (see note 133). 

38 

 
                                                           
The  EU  post-trade  landscape  will  remain  fragmented  along  national  lines,  impairing 
cross-border  investment  due  to  additional  costs  caused  by  added  complexity  relative  to 
other jurisdictions, e.g. the US and the UK. Transaction costs in the EU  could increase 
with full entry into force of the settlement discipline regime (see section 2.2.1).  

If nothing is done, it will continue to be easier to do business outside the EU than within 
the EU. Participants will increasingly be attracted to issuing their  securities and settling 
in non-EU 27 countries as EU CSDs’ ability to offer a wide range of services including 
in  different  currencies  is  limited  by  burdensome  passporting  processes  and  restrictive 
requirements for the settlement in commercial bank money.  In addition, lending market 
participants may increase the amount of stock they hold back as buffer by up to 10% to 
reduce the risk of buy-ins.186 This would represent a fall of EUR 398 billion in securities 
available to facilitate market liquidity and banking financing activities.187  

Together  these  impacts  negatively  impact  the  safety  and  efficiency  of  EU  financial 
markets,  limiting  the  potential  benefits  of  a  larger-scale  integrated  EU  market.  They 
would be to the detriment of the EU financial system as a crucial building block of CMU 
would perform sub-optimally, to the detriment of EU investors and businesses. 

2.4.2.  Negative impacts on stability of EU financial markets 

The negative impacts of CSDR on the stability of EU financial markets stem from three 
main problems: barriers to cross border settlement (see section 2.2.1), insufficient insight 
on  third-country  CSDs  activities  (see  section  2.2.3)  and  disproportionate  compliance 
costs (see section 2.2.2). 

First,  cross-border  settlement  remains  difficult,  limiting  competition  in  the  EU, 
hampering  the  development  of  CMU.  Inability  to  ensure  swift  cross-border  settlement 
may  restrict  activity  to  national  capital  markets,  which  would  make  them  more 
vulnerable  to  country-specific  asymmetric  shocks  that  may  over  time  endanger  the 
stability  of  the  EU  capital  market.  If  nothing  is  done,  CSDs  will  continue  to  find 
providing  cross-border  services  difficult.  The  level  of  cross-border  activity  will  remain 
reduced, limiting competition and entrenching fragmentation of EU capital markets along 
national  borders,  potentially  exposing  EU  capital  markets  to  asymmetric  shocks,  in 
particular for some shallow national markets that cannot rely on abundant liquidity.  

Second, the insufficient insight into third-country CSDs’ activities could potentially 
lead to financial stability risks. EU and national authorities alike currently do not have 
information on most third-country CSDs activities in the EU; this means that they cannot 
evaluate whether any of these CSDs are important for the EU financial stability, which in 
itself creates a potential risk to financial stability. If nothing is done, this risk will persist. 
Furthermore, market participants may choose to  use the services of third-country CSDs 
outside the transparency arrangements set by CSDR, potentially allowing for a build-up 
of risk that may threaten the stability of the EU capital market.  

Third, if no specialised credit institution can provide access to commercial bank money 
to CSDs under the CSDR due to disproportionate compliance costs, the risk is that non-
bank  CSDs  may  not  be  able  to  provide  DvP  settlement  in  foreign  currencies  to  their 
participants. This could lead to transactions being processed free of payment instead 
of  versus  payment,  leading  to  less  safe  markets  and  undermining  the  CSDR’s 
objective  of  promoting  DvP  settlement.  The  decrease  in  foreign  currency  settlement  at 

186  Based on confidential data provided to DG FISMA services. 
187  Based on confidential data provided to DG FISMA services. 

39 

 
                                                           
non-bank CSDs would constitute a step backwards if it results in the settlement of these 
transactions outside CSDs.188 

3.  WHY SHOULD THE EU ACT? 

3.1. Legal basis 

CSDR  has  a  comprehensive  regulatory  framework  for  the  settlement  of  financial 
instruments in the EU as well as common rules on the organisation and conduct of CSDs 
to promote safe, efficient and smooth settlement. The legal basis for CSDR was Article 
114 of the Treaty on the Functioning of the European Union (TFEU) as it aimed to create 
an  integrated  market  for  securities  settlement  with  no  distinction  between  national  and 
cross-border  securities  transactions.  Considering  that  this  initiative  proposes  policy 
actions  to  allow  the  achievement  of  these  objectives  more  effectively  and  efficiently, 
amendments to CSDR would be adopted under the same legal basis. 

3.2. Subsidiarity: Necessity of EU action  

The review could amend certain provisions of CSDR, in particular to clarify and simplify 
burdensome  and  unclear  requirements,  reduce  administrative  burden  and  costs,  and 
ensure  that  authorities  have  enough  information  to  monitor  risks.  EU  action  should 
therefore  ensure  that  CSDR’s  regulatory  requirements  are  more  effective,  efficient  and 
proportionate,  are  applied  uniformly,  and  guarantee  a  sound  and  consistent  regulatory 
framework for securities settlement in the EU and the operations of CSDs, both of which 
are essential foundation stones for the development of CMU as well as to ensure a safe 
and efficient single market for financial services. 

3.3. Subsidiarity: Added value of EU action 
The 2020 CMU Action Plan189 explicitly acknowledged that amending CSDR could help 
develop  a  more  integrated  post-trading  landscape  in  the  EU  and  thus  contribute  to  the 
development  of  CMU.  The  objectives  of  CSDR,  namely  to  lay  down  uniform 
requirements  for  the  settlement  of  financial  instruments  in  the  EU  and  rules  on  the 
organisation  and  conduct  of  CSDs,  to  promote  safe,  efficient  and  smooth  settlement 
cannot be sufficiently achieved by the Member States alone, as the co-legislators already 
acknowledged  in  2014  when  adopting  CSDR.  Similarly,  today  Member  States  and 
national  supervisors  cannot  solve  on  their  own  the  challenges  arising  from  the 
burdensome  and  unclear  CSDR  requirements  or  the  risks  resulting  from  diverging 
national supervisory practices, in particular where those stem from primary or secondary 
legislation.  In  addition,  Member  States  and  national  authorities  cannot  address  on  their 
own the risk to the EU financial stability that the lack of information on the activities of 
third-country CSDs may pose, as the conditions for the regime are contained in CSDR.  

As such, the objectives of CSDR cannot be sufficiently achieved by the Member States 
and  can  therefore,  by  reason  of  the  scale  of  actions,  be  better  achieved  at  EU  level  in 
accordance with the principle of subsidiarity as set out in Article 5 of the TEU. 

188  European Post-Trade Forum Report, (see note 11), p. 117. 
189  Commission Communication ‘A Capital Markets Union for people and businesses – New Action Plan’ (see 

note 10). 

40 

 
                                                           
4.  OBJECTIVES: WHAT IS TO BE ACHIEVED? 

4.1. General objectives 

The  general  objective  of  CSDR  remains  to  create  a  safe  and  efficient  market  for  the 
settlement  of  securities  transactions  in  the  EU.  This  could  be  achieved  by  enhancing 
cross-border competition between CSDs, improved risk monitoring for EU and non-EU 
CSDs,  more  efficient  supervisory  cooperation  and  reduced  compliance  costs,  where 
appropriate,  for  post-trade  service  providers,  market  participants  and  competent 
authorities.  The  benefits  should  however  not  come  at  the  expense  of  the  resilience  and 
stability of the EU financial system. In this respect, the present initiative aims to render 
the application of CSDR more  proportionate, effective and efficient and, by fine-tuning 
certain  requirements,  to  reduce  the  regulatory  and  compliance  burden  for  market 
participants where compliance costs outweigh benefits, but without endangering financial 
stability.  The  initiative  thus  contributes  to  the  Commission's  Better  Regulation  Agenda 
and the Regulatory Fitness and Performance (REFIT) programme.  

The  overarching  policy  objective  will  be  achieved  via  the  pursuit  of  the  following 
specific objectives: 

  Minimise barriers to cross border settlement; 
  Ensure adequate powers and information to monitor risks; 
  Reduce  administrative  burden  and  compliance  costs,  without  endangering 

financial stability; 

This initiative is also in line with the objectives of the CMU. Efficient and resilient post-
trading systems are essential elements for the well-functioning of the CMU. Better means 
of  cooperation  between  competent  authorities,  streamlined  procedures,  better  access  to 
liquidity  for  CSDs  and  credit  institutions  will  contribute  to  integrating  the  EU  capital 
market,  that  is  currently  fragmented  along  national  lines,  will  strengthen  cross-border 
investment  and  will  lower  investment  costs  for  market  participants  while  ensuring  that 
the associated risks are contained and managed. Effective and efficient CSDR rules thus 
contribute to achieving the objectives of the CMU and help making post-trade markets an 
important building block of an economy that works for people, in line with the strategic 
priorities of the Commission.  

Figure VII: Objective tree 

41 

 
 
4.2. Specific objectives 

There are three specific objectives, relating to the five problem drivers (see section 2.3).  

4.2.1.  Reduce  administrative  burden  and  compliance  costs,  without  endangering 

financial stability 

The effectiveness and efficiency of applying CSDR should be improved by simplifying 
and clarifying the passporting process. This should, in turn, enable more competition for 
CSD services across borders. Furthermore, to facilitate settlement in foreign currencies, 
and  promote  more  cross-border  activity,  the  requirements  faced  by  CSDs  and  credit 
institutions  when  providing  banking-type  ancillary  services  should  be  more 
proportionate. Lastly, the efficiency and safety of settlement  should be ensured through 
more  proportionate  requirements  for  settlement  discipline,  which  balance  the  reliability 
of  settlement  with  potential  negative  impacts  on  trading  behaviour  and  markets, 
including financial stability. 

Problem 

Problem drivers 
Burdensome and unclear passporting requirements for CSDS  

Specific objective 

Disproportionate 
compliance 
costs 

Restrictive  requirements  for  provision  of  banking  services 
related to settlement 

Complicated  and  unclear 
discipline 

requirements 

for  settlement 

Reduce 
administrative 
burden  and  compliance 
costs,  without  endangering 
financial stability 

4.2.2.  Minimise barriers to cross-border settlement 

Provision of cross-border services should be enhanced by: (a) clarifying and streamlining 
the passporting process for CSDs offering such services or setting up a branch in another 
Member  State;  (b)  increasing  the  cooperation  between  authorities  involved  in  the 
supervision of the relevant CSDs; and (c) improving access to banking services related to 
settlement.  

Problem 

Problem drivers 
Burdensome and unclear passporting requirements for CSDs  

Specific objective 

to 

Barriers 
cross-border 
settlement 

Insufficient coordination and cooperation between authorities 

Restrictive  requirements  for  provision  of  banking  services 
related to settlement 

Minimise barriers to cross-
border settlement 

4.2.3.  Ensure adequate powers and information to monitor risks 

The insufficient insight of EU authorities into the activities of third-country CSDs should 
be addressed by increasing the reporting obligations for such CSDs. This should ensure 
that  adequate  information  is  available  to  monitor  risks.  Furthermore,  while  better 
coordination  and  cooperation  between  authorities  involved  in  the  supervision  of  EU 
CSDs aims primarily at minimising barriers to the cross-border provision of services, it 
will also provide authorities with increased powers and information to monitor any risks 
that may be arising from the operation of these CSDs. 

Problem 

Insufficient 
insight  into  the 
activities 
of 
third-country 
CSDs 

Insufficient reporting by third-country CSDs  

Problem drivers 

Specific objective 

Insufficient 
authorities  

coordination 

and 

cooperation 

between 

Ensure adequate powers and 
information to monitor risks 

42 

 
 
 
 
5.  WHAT ARE THE AVAILABLE POLICY OPTIONS? 

5.1. What is the baseline from which options are assessed? 

This  section  describes,  for  each  policy  option,  the  most  likely  scenario  is  going  to  be 
without any further intervention.  

5.1.1.  Burdensome and unclear passporting requirements  

All  issues  identified  in  Section  2.3.1  remain.  The  passporting  requirements  are  unclear 
and  burdensome  for  CSDs  and  national  authorities,  generating  costs  and  lengthy 
processes.  Consequently,  cross-border  activities  of  CSDs  may  stagnate  or  fall  and  the 
administrative burden for CSDs and national authorities remains high. Indirectly, issuers 
could  be  negatively  impacted  as  less  cross-border  CSD  activities  would  mean  less 
competition  and  reduced  choice,  preventing  them  from  benefitting  from  an  integrated 
capital market for financial services. National authorities would continue to face unclear 
requirements when assessing CSDs’ applications to obtain a passport. 

5.1.2.  Insufficient coordination and cooperation between authorities 

All  issues  identified  in  Section  2.3.2  remain.  Cooperation  between  authorities  in  home 
and host Member States is insufficient, creating obstacles in the cross-border operations 
of  CSDs  and  hindering  the  creation  of  a  true  single  market  for  CSD  services.  In 
particular,  communication  between  authorities  in  different  Member  States  is  not 
standardised and the same CSD may be subject to different supervisory arrangements and 
requirements in the different Member States in which it may be operating. Inefficiencies 
in  the  cooperation  of  authorities  interested  in  the  activities  of  CSDs  operating 
domestically also remain. 

5.1.3.  Restrictive requirements for provision of banking services related to settlement in 

foreign currencies 

All issues identified in section 2.3.3 will remain regarding CSDs’ access to commercial 
bank money. In particular, settlement in foreign currencies by CSDs will continue to be 
limited  as  no  designated  credit  institution  is  likely  to  be  established  and  commercial 
banks will remain limited in their service offering (mostly intraday- credit and liquidity 
to  the  participants  of  the  CSD).  This  situation  will  hamper  cross-border  securities 
transactions,  e.g.  bond  issuances  in  foreign  currencies,  due  to  the  disproportionate 
compliance  costs  of  obtaining  these  services.  CSDs  will  be  limited  in  their  choice  of 
providers to settle in foreign currencies, be it designated credit institutions (which do not 
exist  currently)  or  commercial  banks  that  are  only  allowed  to  provide  these  services 
within the limits set by CSDR. This runs counter to the EU’s objective to ensure a true 
single market for CSD services. 

Although  the  requirements  to  provide  banking  services  have  a  positive  effect  on  the 
stability  of  the  financial  system  as  liquidity  and  credit  risks  attached  to  these  services 
remain limited,  they also affect  competition  on the EU settlements  markets.  Due to  the 
restrictiveness in the provision of these services and the compliance costs, new players, 
whether in the form of a designated credit institutions or commercial banks offering these 
services, will not enter the market. This runs counter to the core of the CMU Action Plan 
to enhance the Union’s capital markets. 

5.1.4.  Unclear and complicated requirements for settlement discipline  

The  settlement  discipline  regime,  as  described  in  Art.  6  and  Art.7  of  CSDR  and 
Regulation (EU) 2018/1229, would enter into force on 1 February 2022. Retail investors 
should  benefit  from  improved  settlement  efficiency  due  to  the  fact  that  market  makers 

43 

 
often provide prices for many financial instruments without having immediate access to 
these  securities.  In  case  of  smaller  equity  trades  which  are  often  carried  out  by  retail 
investors,  the  coverage  of  these  sales  may  be  considered  as  too  expensive  and 
cumbersome, leading to no delivery taking place. Settlement discipline measures aim at 
incentivising  market  makers  to  avoid  this  kind  of  situation.  The  settlement  discipline 
regime would also potentially allow investors to consolidate trading positions and rely on 
cross-border  settlement  to  settle  trades,  as  they  would  have  more  confidence  that  they 
would  be  settled.  Finally,  mandatory  buy-ins  can  be  applied  by  the  market.  Regulation 
(EU)  No  236/2012  (Short  Selling  Regulation  (SSR))  introduced  them  for  centrally 
cleared  equity  transactions.  According  to  some  stakeholders,  settlement  efficiency  on 
intended settlement date is now almost 100% for centrally cleared equity transactions190. 
However, it should be noted that equity trading generally features high levels of liquidity. 
Implementation  and  the  resulting effect  cannot  therefore  be directly compared to  other, 
less liquid markets.  

However,  the  impact  of  a  miscalibrated  settlement  discipline  regime  on  overall  market 
conditions  could  outweigh  these  benefits  for  investors.  The  majority  of  the  potential 
negative impacts of the settlement discipline regime are likely to be related to mandatory 
buy-ins. In particular, mandatory buy-ins as currently designed could theoretically widen 
bid-offer spreads and negatively impact market liquidity, favouring settlement in non-EU 
CSDs particularly for less liquid securities,191 remove incentives for securities lending in 
the  securities  lending  and  repo  markets  and  ultimately  lead  to  increased  costs  for  end 
investors  without  providing  additional  benefits  to  markets  or  investors.192  This  could 
affect  a  broad  range  of  asset  classes  including  corporate  bonds,  sovereign  bonds, 
securities  lending  /  repo  transactions  and  other  exchange  traded  products.193  These 
increased costs would negatively impact investors’ returns and their ability to save, and 
companies’  access  to  capital  market  funding,  especially  in  times  of  market  stress.194 
Estimates195  provided  suggest  that  in  normal  market  conditions  a  mandatory  buy-in 
regime  would  theoretically  increase  the  mid-offer  price  by  21  cents  or  59%  when  the 
regime  applies.  In  times  of  stress  the  regime  could  theoretically  increase  the  mid-offer 
price  by  146  cents  or  291%  in  the  event  that  the  current  settlement  discipline  regime 
applies unchanged. It is thus estimated that up to 4%-5% of trade volume could cease to 
occur (estimated at up to EUR 7 trillion in 2020, combining debt and equity instruments) 
in  the  future.  Therefore,  applying  a  mandatory  buy-in  regime  in  its  current  form  could 
potentially impact negatively the efficiency of EU capital markets, leading to wider bid-
offer  spreads,  reduced  market  efficiency  and  less  incentives  to  lend  securities  in  the 
securities  lending  and  repo  markets.  Such  developments  may  ultimately  favour  the 
settlement of less liquid securities in non-EU CSDs. 

In particular both equity and debt instruments with a lower floatation, such as less liquid 
bonds  or  shares  of  SMEs,  could  be  negatively  affected  as  investors  withdraw  from 

190  Clearstream 

response 

to 

the 

Commission 

CSDR 

targeted 

consultation, 

https://ec.europa.eu/info/consultations/finance-2020-csdr-review_en.   

191  See BlackRock response to the Commission CSDR targeted consultation, Q. 34.1 (see note 176). 
192  See  EFAMA 

the  Commission  CSDR 

consultation,  Q. 

response 

targeted 

to 

34.1, 

https://www.efama.org/sites/default/files/publications/21-4005_0.pdf.   

193  Ibid.  
194  See  for  instance  International  Capital  Markets  Association  (ICMA),  EFAMA,  ECSDA,  European 
Association of CCP Clearing Houses (EACH) responses to the CSDR targeted consultation, (all available 
at https://ec.europa.eu/info/consultations/finance-2020-csdr-review_en).   

195  Based on confidential information provided to DG FISMA services.  

44 

 
                                                           
making  markets/  trading  in  those  instruments.  Traders  would  either  have  to  keep 
securities  on  their  books  to  cover  any  buy-ins,  freezing  capital,  or  trade  only  in 
instruments  where  the  supply  is  easily  available.  This  could  lead  to  an  even  greater 
concentration of trading on a limited number of instruments, both threatening investors’ 
risk diversification strategies and creating systemic risk. Asset managers may not be able 
to obtain the securities they want on behalf of investors, and thus may have to make sub-
optimal  investment  decisions  or  may  have  to  pay  a  liquidity  premium.  Furthermore, 
national  authorities,  ESMA  and  the  Commission  would  need  to  issue  numerous  Q&As 
and guidelines to address the lack of clarity in the relevant provisions.  

Introducing  a  mandatory  buy-in  regime  as  of  1  February  2022  could  also  lead  to  a 
duplicative re-papering exercise of existing contracts between market players in order to 
take  account  of  the  upcoming  rules  change  potentially  introduced  under  the  ongoing 
review of CSDR; one estimate puts the number of clients’ contracts to be repapered at a 
financial institution at between 30 - 40 000196 over a period of 10 months. Repapering of 
client-facing  documentation  would  have  to  go  beyond  updates  to  generic  terms  and 
conditions  adding  complexity  to  interdependent  sets  of  client  documents.  A  law  firm 
concluded  that  clauses  reflecting  clients’  mandatory  buy-in  obligations,  including  the 
necessity to appoint a buy-in agent, would be difficult and impracticable to understand in 
particular for retail investors.197 

Another  related  cost  will  be  the  obligation  to  connect  to  a  buy-in  agent.  Market 
participants will have to appoint a buy-in agent to carry out the mandatory buy-in in case 
of delayed settlement. The costs for appointing and connecting to a buy-in agent are high. 
One estimate provided in the targeted consultation shows that the estimated annual cost 
of appointing buy-in agents to handle government bond fails in one CSD could amount to 
between  EUR 598 900 294  to  EUR 1 197 800 588.198  One  investment  fund199  indicated 
that  connecting  all  their  funds  to  a  buy-in  agent  would  require  a  one-off  cost  of 
EUR 1 million.  Operational  costs  of  running  a  buy-in  framework  are  also  potentially 
high,  leading  some  market  participants  to  consider  changing  their  business  model  to 
avoid the requirement to connect to a buy-in agent.200 This would outweigh the potential 
postponed cost related to the setting up of a buy-in agent offering by one entity (only one 
buy-in agent service provider that has emerged so far).201 

A  mandatory  buy-in  regime  could  also  indirectly  negatively  affect  issuers.  Issuance 
ability  and  pricing  is  related  to  the  expected  liquidity  of  the  instrument.  A  decrease  in 
liquidity,  from  the  knock-on  effects  of  the  mandatory  buy-in  regime,  could  increase 
borrowing costs for issuers, with the greatest impact likely to fall on smaller and lower 
credit  rated  companies,  especially  in  times  of  stress  where  access  to  a  wide  range  of 
financing channels is needed. Higher issuance costs and limited liquidity  could increase 

196  Based on confidential information provided to DG FISMA services.   
197  Simmons  &  Simmons  LLP  response  to  the  Commission  CSDR  targeted  consultation  Q.  34.1, 

https://ec.europa.eu/info/consultations/finance-2020-csdr-review_en. 
the 

provided 

response 

ICMA 

by 

its 

in 

198  Data 

CSDR 

targeted 

consultation, 

https://www.icmagroup.org/assets/documents/Regulatory/Secondary-markets/CSDR-Settlement-
Regulation/ICMACSDR-Review-Targeted-ConsultationFeb-21Detailed-response-020221.pdf.  Estimates 
based on cost of buy-in agents varying between 25 cent and 50 cent handling a  volume  of fails equal to 
EUR 239 569 million on Euroclear only.  

199  Based on confidential information provided to DG FISMA services. 
200  BVI 

Commission 

response 

the 

to 

CSDR 

targeted 

consultation, 

https://www.bvi.de/fileadmin/user_upload/2021_02_02_BVI_position_CSDR_review.pdf.  

201  This is supported by confidential information provided to DG FISMA services. 

45 

 
                                                           
the  cost  of  capital  for  EU  issuers,  including  innovative  start-ups  and  SMEs,  who  may 
continue  to  rely  on  bank  loans  or  private  placements202  for  financing,  inhibiting  the 
development of the EU capital market. 

Furthermore, there is some evidence that these costs could be born to potentially address 
a less significant problem, as the majority of fails seem to be resolved between one and 
five days  after the intended settlement  date, meaning they  would not  enter buy-in.203  It 
should  also  be  noted  that,  in  general,  fails  are  most  likely  to  appear  in  less  liquid 
instruments,  increasing  the  probability  that  even  the  eventual  buy-in  may  not  be 
successful due to the inability to source the necessary securities.204 This holds true both 
for bonds and equity instruments.  

Since  market  participants  will  not  know  which  transactions  will  enter  a  buy-in, 
stakeholders argue that they will have to disperse the costs of a potential buy-in across a 
wide  spectrum  of  transactions.  At  the  end  of  the  day,  if  this  were  to  happen,  end-
investors  would  have  to  pay  a  higher  price  for  the  same  security  (because  of  its  lower 
liquidity) and will ask for a higher return. The consequence at the end of the chain would 
be  a  higher  funding  cost  for  issuers.  Hence,  some  stakeholders  argue  that  in  order  to 
incrementally  improve  a  relatively  low  level  of  settlement  fails,  a  mandatory  buy-in 
would impact the costs of trading more widely.205 

While mandatory buy-ins are expected to negatively impact all asset classes, the impact 
will be most detrimental for less actively traded/illiquid securities, e.g. instruments issued 
by SMEs, high yield and emerging markets securities. The mandatory buy-in regime in 
its current form could therefore be perceived to be contrary to the wider CMU objectives, 
especially  when  aiming  to  provide  efficient  financing  to  smaller  corporate  clients  and 
SMEs,  whose  securities  will  have 
liquidity  and  would  be 
lower 
disproportionately affected by this regime.  

inherent 

Lastly,  there  is  some  limited  evidence  that  the  mandatory  buy-in  regime  may  also 
indirectly undermine the CSDR objectives of safe and efficient settlement as companies 
may  migrate  to  internalised  settlement  to  avoid  the  burden  of  the  discipline  regime. 
ESMA  observed  increasing  levels  of  internalised  settlement  in  several  jurisdictions 
accompanied  by  a  high  degree  of  concentration.  As  such,  they  called  for  continuing 
monitoring, including of this activity and the associated risks.206 

5.1.5.  Insufficient reporting for third-country CSDs  

All  issues  identified  in  Section  2.3.5  remain.  In  particular,  there  would  be  little 
information on third-country CSDs’ activities. This would directly negatively impact the 
EU’s  financial  stability  as  ESMA  and  national  authorities  will  continue  to  have  no 
information on these CSDs’ activities and therefore will not be able to monitor risks. It 
would  also  directly  negatively  impact  EU  CSDs  which  have  to  comply  with  CSDR  as 

202  A private placement is a sale of shares or bonds to pre-selected investors and institutions rather than on the 

open market. 

203  “ESMA Report on trends, risks and vulnerabilities”, European Securities and Markets Authority, ESMA-

50-165-1287, No. 2, 2020  

204  In  instances  where  the  supply  of  the  security  is  so  low  it  cannot  be  easily  sourced  or  bought-in  if  the 
settlement  fail  has  aged  the  failed-to  entity  will  receive  from  the  failing  seller  a  cash  compensation  to 
restore  the  economic  terms  of  the  transaction.  Currently  the  buy-in  may  be  automatic/mandatory  or 
optional,  upon  the  request  of  the  buyer,  depending  on  the  contractual  arrangements.  Under  the  CSDR 
settlement discipline regime the cash compensation would be mandatory.  

205  Based on confidential information provided to DG FISMA services. 
206  ESMA Report on internalised settlement (see note 86). 

46 

 
                                                           
issuers  considering 

well  as 
the 
grandfathering clause, their national supervisory and regulatory framework has not been 
deemed as equivalent by the Commission.  

third-country  CSDs  operating  under 

that  for 

5.2. Description of the policy options 

5.2.1.  Burdensome and unclear passporting requirements  

The  objective  is  to  minimise  barriers  to  cross-border  settlement  to  enhance  the  cross-
border provision of services. Options 3 and 4 may be complementary. 

Policy option 

Option 1 – Do nothing 
(baseline) 

Option 2 – Reduce the 
scope of the passporting 
requirements 

Option 3 – Clarify the role 
and powers of competent 
authorities and requirements 
related to national laws 

Option 4 – Replacing the 
passporting procedure at the 
host Member State level 
with a notification 

This is the baseline scenario (see section 5.1). 

Description 

The scope of instruments subject to the passporting requirements could be reduced, 
i.e.  they  could  apply  to  equities  instruments  only.  Any  authorised  CSD  would  be 
able to provide services for non-equity instruments  within  the  EEA  without being 
subject to the passporting requirements. 

Certain  passporting  requirements  would  be  clarified,  i.e.  those  related  to  national 
laws  and  regarding  the  role  of  the  host  national  authority.  For  instance, 
clarifications  could  include:  clarifying  which  national  laws  should  be  considered; 
deleting  the  words  “where  relevant”  in  Articles  23(3)(e)  and  23(6)(a)  of  CSDR; 
specifying which provisions need to be considered by non-domestic CSDs for their 
assessment; specifying the information required; clarifying the role of the home and 
host authorities, including whether the host authority can oppose the passport. 

The  current  possibility  for  host  Member  State  authorities  to  reject  a  passporting 
request  would  be  removed  and  replaced  by  a  standardised  notification  from  the 
home Member State authorities. CSDs wishing to passport their services within the 
EU would only have to obtain an approval from the home Member State competent 
authorities. As long as the CSD is authorised in one Member State, the competent 
authorities  of  the  host  Member  State  would  not  have  to  approve  or  reject  the 
passport. 

Option 5 – Combination of 
Option 3 and Option 4 

The current requirements laid down in Article 23 of CSDR would be  simplified as 
per Option 4 and certain aspects of the passporting procedure would be clarified as 
per Option 3.  

5.2.2.  Insufficient coordination and cooperation between authorities 

The  objective  is  to  minimise  barriers  to  cross-border  settlement  by  enhancing 
coordination  and  cooperation  between  authorities  involved  in  the  supervision  of  CSDs. 
All of the options presented are alternatives.  

Policy Option 
Option 1: Do nothing 
(baseline) 

Option 2: Enhance the 
existing CSDR rules for 
cooperation arrangements  

Option 3: Introduce 
mandatory supervisory 
colleges 

This is the baseline scenario (see section 5.1). 

Description 

Introduce clarifications to the existing framework for cooperation arrangements that 
are  established  between  competent  authorities  of  home  and  host  Member  States 
where  a  CSD  is  of  substantial  importance  for  the  functioning  of  the  securities 
markets and the protection of the investors in that host Member State.  

Supervisory  colleges  would  be  required  to  enhance  the  cooperation  between 
different  authorities.  Elements  to  be  considered  are:  the  CSDs  for  which  the 
establishment of a college would be required; the composition, e.g. home and host 
authorities,  other  relevant  authorities;  the  powers  of  the  college  (only  information 
sharing, or consultation/issuance of opinion before the adoption of certain decisions 
by the home authority (see also next option)). 

Option 4: More supervision  ESMA would be granted more supervisory powers in relation to EU CSDs. Several 

47 

 
 
 
of CSDs at EU level 

aspects  would  have  to  be  considered,  including:  scope,  i.e.  the  CSDs  over  which 
ESMA could have supervisory powers; the powers granted to ESMA, ranging from 
participation  in  colleges  (as  above),  via  the  need  for  them  to  approve  all  or  some 
decisions of national authorities, to direct supervisory powers. 

5.2.3.  Restrictive requirements for provision of banking services related to settlement in 

foreign currencies 

The  objective  is  to  enhance  the  cross-border  provision  of  CSD  services,  through 
improved  access  to  banking-type  services  while  ensuring  financial  stability.  Options  2 
and 3 may be complementary.  

Policy option 

Option 1 - Do nothing 
(baseline) 

Option 2 – Introduce 
targeted amendments for 
banking type services 

Option 3 – Amend the 
threshold below which 
CSDs can use a commercial 
bank for banking-type 
ancillary services. 

Option 4 – Combination of 
options 2(b) and 3 

This is the baseline scenario (see section 5.1). 

Description 

Clarifications and targeted enhancements would help CSDs to provide cross-border 
settlement  less  costly  while  keeping  financial  stability  risk  limited.  These  could 
include,  (a)  removing  certain  restrictions  for  designated  credit  institutions  under 
article  54(4)  of  CSDR  and/or  (b)  allowing  CSDs  with  a  banking  license  to  offer 
banking services to other CSDs (inside and outside their group). 

More flexibility for CSDs to offer services in foreign currencies, depending on the 
threshold  set,  while  mitigating  additional  financial  stability  risks  and  reducing 
compliance costs.  

Amend threshold and broaden the potential banking-services providers by allowing 
CSDs  with  a  banking  license  to offer  banking  services  to other  CSDs  (inside  and 
outside their group). 

5.2.4.  Unclear and complicated requirements for settlement discipline 

The objective is to minimise the burden and compliance costs of the settlement discipline 
regime, avoid negative impacts on EU capital markets, while ensuring a high degree of 
settlement efficiency. 

Policy option 

Description 

Option 1 - Do nothing  

This is the baseline scenario (see section 5.1). 

Option 2 – Introduce targeted 
amendments for cash penalties 
and mandatory buy-ins 

Amendments could be introduced to both cash penalties and mandatory buy-ins 
to  clarify  the  rules,  e.g.  on  scope  exempting  certain  instruments,  adjusting 
provisions on the use of buy-in agents207 and pass-on mechanisms.208 

207  The  buyer  in  a  securities  transaction  is  obliged  to  initiate  a  buy-in  process  against  the  seller  should  the 
settlement of a transaction fail after a certain period of time. This needs a neutral third-party who acts as a 
buy-in agent. 

208  Sales in non-cleared markets are contingent on the settlement of an outright purchase of the same security. 
In  some  markets,  this  can  create  chains  of  transactions  with  dependent  settlements.  As  such,  a  single 
settlement fail (at the start of the chain) can cause a sequence of settlement fails in the entire chain. 

48 

 
 
 
                                                           
Option 3 – Follow a two-step 
approach 

Initially only cash penalties and reporting requirements would be introduced. If 
no  further  improvement  in  settlement  rates  is  observed,  mandatory  buy-ins 
would be introduced.  

Option 4 – Introduce voluntary 
buy-ins 

Buy-ins  would be  made voluntary  for some or all asset classes. Rules on cash 
penalties and reporting requirements would remain. 

Option 5 – Targeted 
amendments combined with a 
two-step approach 

Clarifications  with  regards  to  in-scope  transactions  will  apply  immediately  to 
cash  penalties,  while  amendments  linked  to  pass-on  mechanism  and  buy-in 
agents will be deferred until the potential launch of mandatory buy-ins.  

The objective is to minimise the burden and compliance costs of the settlement discipline 
regime, avoid negative impacts on EU capital markets, while ensuring a high degree of 
settlement efficiency. Options 2, 3, and 4 are complementary, Option 3 and 4 alternative. 

5.2.5.  Insufficient reporting for third-country CSDs  

The  objective  is  to  increase  information  available  on  third-country  CSDs’  activities  in 
relation  to  financial  instruments  constituted  under  the  law  of  a  Member  State  to  allow 
authorities  in  the  EU  to  assess  potential  risks  (see  section  2.3.5).  Options  2  and  3  may 
also be complementary whereas Option 4 is an alternative. 

Policy option 

Description 

Option 1 - Do nothing  

This is the baseline scenario (see section 5.1). 

Option 2 – Introduce an end-
date to the grandfathering 
clause 

An  end-date  to  the  grandfathering  clause  would  be  introduced209  (e.g. 
requirement  for  CSDs  to  apply  for  recognition  3  years  from  entry  into  force, 
and/or introduce a maximum period).   

Option 3 – Introduce a 
notification requirement for 
third-country CSDs 

Option 4 – Enhance the regime 
for third-country CSDs 

Option 5: combination of 
Options 2 and 3 

As  proposed  by  ESMA210,  third-country  CSDs  providing  services  in  the  EEA 
under  the  grandfathering  clause  or  offering  settlement  services  (for  which 
recognition  by  ESMA  is  not  required)  could  be  required  to  notify  ESMA  of 
their  activity.  ESMA  could  also  be  able  to  submit  requests  for  access  to 
information directly to these CSDs. The main information collected by ESMA 
would be made available to the public. 

The  requirements  applicable  to  third-country  CSDs  would  be  enhanced.  For 
instance,  settlement  services  could  be  included  within  the  scope  of  the  ESMA 
recognition  regime  and/or  ESMA  could  become  a  fully-fledged  supervisor  for 
third-country CSDs.  

Introduction  of  an  end-date  to  the  grandfathering  clause  and  a  notification 
requirement  for  third-country  CSDs  operating  under  the  grandfathering  clause 
or  offering  settlement  services  in  relation  to  financial  instruments  constituted 
under the law of a Member State. 

5.3. Options discarded at an early stage 

Certain options have been discarded at  an early stage as inconsistent with the EU legal 
framework or the objectives of this initiative to ensure a resilient and efficient market for 
settlement  in  the  EU.  These  relate  in  particular  to  the  restrictive  requirements  for  the 
provision  of  banking-type  ancillary  services  and 
the  unclear  and  complicated 
requirements for settlement discipline. 

209 The end-date to the grandfathering clause would be introduced for both for EEA and third-country CSDs. 
210  ESMA letter to the Commission (see note 133). 

49 

 
 
 
                                                           
Regarding the former, the option to introduce in CSDR a requirement for central banks to 
facilitate CSDs’ access  to central  bank money was discarded.  CSDR should  be without 
prejudice  to  the  independence  of  central  banks,  which  is  enshrined  in  the  TFEU,  as 
concerns their policies on access  of domestic or  foreign financial market  institutions to 
central  banks’  accounts  and  central  banks’  facilities.  Therefore,  CSDR  is  not  an 
appropriate place to impose obligations on the EU central banks.211 

With  regards  to  the  unclear  and  complicated  requirements  for  settlement  discipline  the 
option to suspend the framework in its entirety was discarded. Settlement fails in the EU 
remain consistently higher than in other major financial markets which affects negatively 
the  standing  of  EU  financial  markets  as  a  target  of  investment  and  source  of  financing 
among EU market participants, while also undermining the international competitiveness 
of EU financial markets.  

Similarly the option to differentiate the settlement discipline regime based on instrument 
type, market or the existence of a clearing obligation was disregarded for several reasons. 
First, this would create a two-tier market structure leading to arbitrage risks and investors 
fleeing to the lighter regulated market. This runs clearly against the objectives of CMU. 
Second, tougher settlement discipline measures only on the less performing markets will 
likely  drive  away  any  liquidity  and  trading  from  these  venues  undermining  financial 
markets  in  these  Member  States  while  leading  to  concentration  of  market  activity  on  a 
few Union markets. Finally, it could encourage failing market participants to migrate to 
venues that are not  subject  to  the tougher settlement  discipline measures. These  effects 
combined could lead to a two-tier capital market in the EU, with a small number of liquid 
and efficient markets and a large number of smaller, less liquid and risky national capital 
markets,  undermining  the  role  of  financial  markets  as  drivers  of  growth  and  economic 
stability.  

6.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? 

This section describes the impact of each policy option against the drivers. In addition, 
each  policy  option  considered  (other  than  Option  1  (baseline))  will  be  assessed  against 
the  specific  objectives  presented  in  Section  4.  In  essence,  under  Option  1  (see  section 
5.1), all problems identified will remain, meaning that inefficiencies and disproportionate 
costs will remain, to the detriment of the competitiveness of EU financial markets.  

For readability and flow of the text, the sections below focus on the effectiveness of each 
option in meeting the specific objectives, its coherence with the EU framework as well as 
the rationale for selecting each preferred policy option. A detailed description of the costs 
and benefits (efficiency) of each option can be found in Annex 7. 

6.1. Impact of the policy options regarding passporting requirements  

6.1.1.  Option 2 - Reduce the scope of the passporting requirements 

Effectiveness in meeting the specific objectives  

Passporting requirements would not apply for non-equity securities. There would be no 
need  for  CSDs  to  apply  for  a  passport  when  providing  services  for  these  instruments 
cross-border. This  would provide legal clarity (no requirements) for CSDs and national 
authorities, reducing the administrative burden and compliance costs for both.  

211  CSDR review report (see note 9). 

50 

 
                                                           
The  two  specific  objectives  would  however  only  be  partially  met,  as  the  problems 
identified would remain for equities. As such, cross-border settlement activities of CSDs 
for equities may stagnate or reduce, and the administrative burden for CSDs and national 
authorities  would  remain.  In  addition,  as  passporting  requirements  would  not  apply  to 
non-equity securities, national authorities would not have a clear overview of the services 
provided  for  non-equity  instruments  by  CSDs  established  outside  their  jurisdiction  and 
the  risks  that  they  may  or  may  not  entail.  This  could  impact  the  specific  objective  to 
ensure  adequate  powers  and  information  to  monitor  risks.  Finally,  there  is  no  strong 
justification why two categories of securities should be treated differently. 

Coherence 

This option ensures that CSDs benefit from a less burdensome passporting process, but 
only for non-equity securities (and not for equity securities). This is only partly coherent 
with the objective of CSDR to provide CSDs with the freedom to provide services across 
the  EU.  In  addition,  it  is  only  partially  coherent  with  the  CMU  Action  Plan212  which 
favours amendments to the functioning of the CSD cross-border passport in general, and 
not only for non-equity securities, to contribute to the development of a more integrated 
post-trading landscape in the EU.  

6.1.2.  Option 3 - Clarify the role and powers of competent authorities and requirements 

related to national laws  

Effectiveness in meeting the specific objectives  

Clarifying  the  passporting  requirements  would  help  CSDs  and  national  authorities  to 
reduce the costs of trying to understand them (e.g. legal opinion, discussions with legal 
counsel). The requirements will however remain burdensome, in particular those related 
to national laws. As such, while the specific objective of reducing administrative burden 
and costs could be partially met through more clarity and thus legal certainty, the specific 
objective to minimise barriers to cross-border settlement will not.  

Coherence 

This option would ensure that CSDs benefit from clearer passporting requirements. This 
would however only in part be coherent with the CMU Action Plan213 as the content of 
requirements, in particular those related to national laws, will remain burdensome and, in 
turn,  not  fully  enhance  the  functioning  of  the  CSD  passport.  The  CMU  Action  Plan214 
favours amendments to the functioning of the CSD cross-border passport to contribute to 
the development of a more integrated post-trading landscape in the EU. 

6.1.3.  Option  4  -  Replace  the  passporting  procedure  at  the  host  Member  State 

level with a notification. 

Effectiveness in meeting the specific objectives  

Replacing  the  passporting procedure at  the host  Member State level  with  a notification 
procedure would remove that unclear and burdensome passporting requirement. As such, 
it would meet the specific objectives of reducing administrative burden and costs as well 
as  minimising  barriers  to  cross-border  settlement.  Option  4  does  not  waive  the 
obligations  stemming  from  national  corporate  legislation  since  harmonisation  of  the 

212  Commission Communication ‘A Capital Markets Union for people and businesses – New Action Plan’ (see 

note 10). 

213  Ibid. 
214  Ibid. 

51 

 
                                                           
corporate  laws  is  not  the  objective  of  CSDR  and  such  national  corporate  legislation 
applies  to  participants  directly215.  Furthermore,  as  a  notification  procedure  will  still 
remain  in  place,  it  would  ensure  that  authorities  have  adequate  information  to  monitor 
risks. Not only would the host national supervisor be notified of the passport by the home 
national supervisor (and would have the possibility to discuss it with the home national 
supervisor  during  and  after  the  passporting  procedure),  but  the  former  would  also 
potentially  be  able,  through  the  establishment  of  colleges  (see  Section  6.2.2)  to  have  a 
better overview of the supervision of the CSD on an ongoing basis, better cooperate and 
raise its concerns with the home national supervisor.  

Finally, Option 4 is aligned with the status of one of the main core services, settlement, 
for which no passport process is currently required.216  

Coherence 

This option is fully coherent with the CMU Action Plan217 which favour amendments to 
the  functioning  of  the  CSD  cross-border  passport  that  could  contribute  to  the 
development of a more integrated post-trading landscape in the EU. It is also consistent 
with the aim of EU regulation, i.e. harmonising laws for Member States, and removing 
barriers stemming from national laws.  

6.1.4.  Option 5 – combination of Option 3 and Option 4 

Effectiveness in meeting the specific objectives  

Combining  Option  3  and  Option  4  would  allow  to  meet  both  of  the  following  specific 
objectives:  (i)  reducing  administrative  burden  and  costs  through  more  clarity  and  thus 
legal certainty and (ii) minimising barriers to cross-border settlement. 

Coherence 

This option would ensure that CSDs benefit from clearer passporting requirements and is 
fully  coherent  with  the  CMU  Action  Plan218  which  favours  amendments  to  the 
functioning of the CSD cross-border passport to contribute to the development of a more 
integrated post-trading landscape in the EU. Finally, it is consistent with the aim of EU 
regulation,  i.e.  harmonising  laws  for  Member  States,  and  removing  barriers  stemming 
from national laws. 

6.1.5.  Choice of preferred policy option 

The  tables  below  provide  a  high-level  summary  of  how  the  described  options  compare 
(for the sake of readability, the labels of the options have been shortened). For a detailed 
overview  of  the  costs  and  benefits  (efficiency)  of  each  option  and  impacts  on  different 
stakeholders see Annex 7. 

Option  2  would  only  partially  satisfy  the  objectives  of  minimising  barriers  to  cross-
border  settlement  and  of  reducing  administrative  burden  and  costs,  as  the  alleviations 
would apply only to  non-equity securities and not  to  equity securities.  Option 3 is  also 

215  It stems from the combined reading of  Articles 23 and 49(1) of CSDR  that it is the responsibility of the 
participants  to  comply  with  the  relevant  national  legislation.  The  proposed  policy  options  do  not 
contemplate any change in this respect. 

216  Article 23(2) of CSDR. 
217  Commission Communication ‘A Capital Markets Union for people and businesses – New Action Plan’ (see 

note 10). 

218  Commission Communication ‘A Capital Markets Union for people and businesses – New Action Plan’ (see 

note 10). 

52 

 
                                                           
only partially meeting the objectives as it only addresses the lack of clarity and not the 
burdensome  nature  of  the  requirements.  Option  4    would  meet  these  specific 
objectives.This  option  would  be  consistent  as  it  would  focus  on  a  core  aim  of  EU 
regulation, i.e. mutual recognition. Option 5, which is the preferred policy option, would 
combine the benefits from Option 3 and Option 4.  

Minimise 
barriers to 
cross-border 
settlement 

Effectiveness 
Ensure adequate 
powers and 
information to 
monitor risks 

Reduce 
administrative 
burden and costs 

Efficiency (cost-
effectiveness) 

Coherence 

0 

+ 

- 

0 

- 

+ 

0 

+ 

+ 

0 

+ 

+ 

0 

+ 

+ 

+++ 

+/- 

+++ 

+++ 

+++ 

+++ 

+ 

+++ 

+++ 

+++ 

Option 1 – baseline 
scenario 
Option 2 – Reduce 
scope of the 
passporting 
requirements 
Option 3 – Clarify 
uncertainties 
Option 4 – Replacing 
passporting 
procedure at the host 
Member State level  
with a notification 
Option 5 – 
Combination of 
Option 3 and Option 
4 

Option 1 
Option 2 
Option 3 
Option 4 
Option 5 

CSDs 

0 
+ 
+ 
+++ 
+++ 

Summary of winners and losers 

Issuers 

Investors 

0 
+ 
+ 
+++ 
+++ 

0 
+ 
+ 
+++ 
+++ 

Supervisory 
authorities 
0 
- 
+ 
+/- 
+/- 

Legend: +++ = Very positive 

++ = Positive 

+ = Slightly positive  

+/- = Mixed effect 0 = no 

effect 

- = Slightly negative 

-- = Negative 

--- = very negative 

6.2. Impact of the policy options regarding cooperation between authorities  

6.2.1.  Option 2: Enhance the existing CSDR rules for cooperation arrangements 

Effectiveness in meeting the specific objectives 

Clarifications  to  the  existing  framework  for  cooperation  arrangements  would  be 
introduced  in  certain  cases,  i.e.  when  a  CSD  is  operating  cross-border.  These  would 
partly  meet  the  objective  of  minimising  barriers  to  cross-border  settlement  and 
ensuring adequate powers for authorities to monitor risks for several reasons: 

  cooperation  arrangements  are  established  bilaterally,  i.e.  if  a  CSD  is  of  substantial 
importance  to  more  than  one  host  Member  State,  then  the  home  authority  needs 
multiple  cooperation  arrangements.  This  leads  to  duplication  and  an  increased 
administrative burden for the home national authority, who would have to negotiate 
and manage multiple parallel cooperation arrangements; 

53 

 
 
 
 
 
 
 
 
  cooperation  arrangements  are  established  for  a  limited  number  of  CSDs.  The 
problems  identified  in  Section  2.2.1  for  all  other  cases  for  CSDs  and  national 
authorities would therefore remain;  

  ESMA does not participate in CSDR cooperation arrangements, which means that it 
cannot be ensured that a similar approach will be adopted by all such arrangements. 
Even if the framework was amended to provide that ESMA does participate, it would 
not have the guarantees provided by the ESMA Regulation.  

Coherence 

This  option  is  coherent  with  the  current  CSDR  framework,  as  it  builds  on  the  already 
foreseen  arrangements.  However,  it  is  partly  coherent  with  the  CMU  Action  Plan,219 
which highlights the need to develop a more integrated post-trading landscape in the EU 
and states that if there are indications that the supervisory set-up is inadequate, stronger 
supervisory  coordination  or  direct  supervision  by  the  ESAs  should  be  considered. 
Furthermore,  this  option  is  not  coherent  with  the  ESMA  Regulation,  which  already 
foresees a specific framework for the cooperation of supervisors in Article 21. 

6.2.2.  Option 3: Introduce mandatory supervisory colleges 

Effectiveness in meeting the specific objectives 

Under  Option  3,  supervisory  colleges  would  be  established  for  some  or  all  EU  CSDs, 
depending on the design of the framework.  In general, the experiences with colleges in 
other EU financial frameworks are positive and colleges are  genuinely seen as a forum 
where authorities with direct interest in the activities of a financial market infrastructure 
gather  and  exchange  views.  As  such,  colleges  are  already  enshrined  in  the  ESMA 
Regulation and for example put to practice in the context of EMIR for CCPs. 

To  meet  the  specific  objectives  of  minimising  barriers  to  cross-border  settlement  and 
ensuring adequate powers to monitor risks, colleges could in particular be established for 
CSDs offering services in  relation  to  financial instruments constituted under the law of 
another Member State as well as CSDs that are part of corporate groups that include at 
least  another CSD.  Participation  to  these colleges  could  be reserved for  authorities that 
have an interest in those CSDs’ operations, e.g. the CSDs’ home and relevant authorities, 
the host competent and relevant authorities in the case of CSDs that operate cross-border, 
other  CSDs’  competent  and  relevant  authorities  in  the  case  of  CSDs  that  are  part  of  a 
group  of  CSDs  as  well  as  the  EBA,  where  a  CSD  has  been  authorised  to  provide 
banking-type ancillary services. 

This  option  would  partly,  but  more  than  Option  2,  meet  the  aforementioned  specific 
objectives of this initiative. The main reasons for this are twofold.  

First, while colleges would be set up primarily for information-sharing purposes and the 
home  supervisor  would  maintain  supervisory  powers,  the  input  of  other  authorities 
participating to colleges would be taken more into account through their participation in 
colleges, compared to under cooperation arrangements (which are only applicable where 
a CSD is of substantial importance to another Member State). The involvement of other 
authorities  through  the  college  will  strengthen  the  passport  effect  and  enhance  the 
cooperation of supervisors and relevant authorities for groups of CSDs, as barriers related 
to lack of trust and/or sharing of information are reduced.  

219  Commission Communication ‘A Capital Markets Union for people and businesses – New Action Plan’ (see 

note 10). 

54 

 
                                                           
Second, ESMA’s role would be strengthened, as it would participate in all colleges and 
have  all  the  powers  entrusted  to  it  under  the  ESMA  Regulation.  This  would  ensure 
consistency across colleges, it would allow the centralisation of supervisory information, 
the  earlier  identification  of  issues  linked  to  CSDR  implementation  (compared  to  now, 
where  ESMA  is  only  aware  of  issues  when  raised  by  national  supervisors  or  market 
participants)  and  the  building  of  a  common  supervisory  culture  across  EU  CSDs.  By 
increasing cooperation between all authorities involved in the supervision of CSDs, this 
option  allows  for  a  more  holistic  approach  which  more  adequately  responds  to  the 
increasingly systemic nature of these infrastructures within the  EU financial system.  In 
addition, ESMA would be able to build up its supervisory competence in this field. 

Colleges  would  ensure  that  while  supervisory  responsibilities  are  aligned,  a  more 
coherent  application  of  CSDR  in  the  EU  is  guaranteed  and  the  current  supervisory 
arrangements are more effective. Nonetheless, this option does not completely eliminate 
the possibility for potential divergences in the application of CSDR in the EU. 

Coherence 
This  option  is  coherent  with  the  CMU  Action  Plan,220  which  highlights  the  need  to 
develop  a  more  integrated  post-trading  landscape  in  the  EU  and  states  that  if  there  are 
indications  that  the  supervisory  set-up  is  inadequate  for  the  desired  level  of  market 
integration,  stronger  supervisory  coordination  or  direct  supervision  by  the  European 
Supervisory Authorities should be considered. In addition, it is coherent with the ESMA 
Regulation, which already foresees in Article 21 a specific framework for the cooperation 
of supervisors through the establishment of colleges of supervisors.  

6.2.3.  Option 4: More supervision of CSDs at EU level 

Effectiveness in meeting the specific objectives 

Under  this  option,  a  single  supervisor  would  be  established  for  CSDs.  The  single 
supervisor  could  be  ESMA,  the  ECB,  or  a  new  entity  as  was  the  case  for  the  Single 
Supervisory Mechanism (SSM) in the field of banking. Depending on the exact design, 
the  single  supervisor  would  be  given  full  responsibility  for  the  supervision  of  all  or 
certain  CSDs  in  the  EU,  including  powers  to  authorise  CSDs  and  oversee  compliance 
with  conduct  of  business  rules.  In  performing  these  tasks,  it  would  be  required  to 
cooperate closely with other bodies, such as the ESCB, as well as the ESAs. However, 
none of these authorities would have binding powers over the single supervisor. 

This option would eliminate barriers to the cross-border provision of services (as CSDs 
would  be  authorised  and  supervised  at  EU  level)  and  ensure  a  coherent  application  of 
CSDR within the EU, addressing effectively the need for supervisory convergence. 

However, it should be noted that some CSDs in the EU are already exempt from certain 
CSDR requirements,221 therefore it is not clear whether they would be able to be subject 

220  Commission Communication ‘A Capital Markets Union for people and businesses – New Action Plan’ (see 

note 10). 

221  Article 1(4) of CSDR stipulates that  Articles 10 to 20, 22 to 24 and 27, Article 28(6), Article 30(4) and 
Articles  46  and  47,  the  provisions  of  Title  IV  and  the  requirements  to  report  to  competent  authorities  or 
relevant authorities or to comply  with their orders under this  CSDR, do not apply to the members of the 
ESCB,  other  Member  States’  national  bodies  performing  similar  functions,  or  to  other  public  bodies 
charged with or intervening in the management of public debt in the Union in relation to any CSD which 
the aforementioned bodies directly manage under the responsibility of the same management body, which 
has access to the funds of those bodies and which is not a separate entity. 

55 

 
                                                           
to  supervision  by  an  EU  body.  In  addition,  no  EU  body  has  substantial  supervisory 
experience over CSDs now in order to be able to be immediately operational.  

It is worth noting that the main advantages and disadvantages of moving supervision of 
EU  CSDs  at  EU  level  are  broadly  the  same  regardless  of  whether  EU  supervision  is 
exercised over all or a subset of EU CSDs.  

Coherence 
This option is coherent with the CMU 2020 Action Plan,222 which highlights the need to 
develop  a  more  integrated  post-trading  landscape  in  the  EU  and  states  that  if  there  are 
indications  that  the  supervisory  set-up  is  inadequate  for  the  desired  level  of  market 
integration,  stronger  supervisory  coordination  or  direct  supervision  by  the  European 
Supervisory  Authorities  should  be  considered.  In  addition,  it  is  coherent  with  the 
approach followed in the case of other financial institutions for which ESMA has already 
been  granted  either  a role in  their supervision  through its participation  in  colleges (e.g. 
for CCPs) or direct supervisory powers (for credit rating agencies and trade repositories).  

6.2.4.  Choice of preferred policy option 

The  tables  below  provide  a  high-level  summary  of  how  the  described  options  compare 
(for the sake of readability, the labels of the options have been shortened). For a detailed 
overview  of  the  costs  and  benefits  (efficiency)  of  each  option  and  impacts  on  different 
stakeholders see Annex 7. 

In view of the high political priority of the review to facilitate CSDs’ access to markets 
other  than  that  of  their  authorisation  as  well  as  ensure  financial  stability  by  providing 
supervisors with more powers to monitor risks, Option 3 is deemed more appropriate 
and  proportionate  for  the  following  reasons:  first,  it  attains  the  right  balance  between 
achieving the aforementioned objectives and Member States’ responsibilities; second, it 
reflects  the  fact  that  ESMA  does  not  currently  have  experience  in  the  supervision  of 
CSDs  and  gives  it  time  to  build  up  its  supervisory  capacity;  third,  it  is  the  most  cost-
effective  option  at  this  point  in  time  (see  Annex  7  on  the  costs  colleges  and  EU  level 
supervision would entail for all interested stakeholders). 

Minimise barriers 
to cross-border 
settlement 

Effectiveness 
Ensure adequate 
powers and 
information to 
monitor risks 

Reduce 
administrative 
burden and costs 

Efficiency 
(cost-
effectiveness) 

Coherence 

0 

+ 

++ 

+++ 

0 

+/- 

++ 

+++ 

0 

+ 

++ 

+/- 

0 

+/- 

++ 

-- 

0 

+/- 

++ 

+++ 

Option  1  –  baseline 
scenario 
Option  2  –Enhance 
cooperation 
arrangements 
Option  3  –  Establish 
colleges 
Option 
4 
supervision 

EU 

– 

Summary of winners and losers 

Option 1 

CSDs 

0 

Issuers 

0 

Investors 

0 

Supervisory 
authorities 
0 

222  Commission Communication ‘A Capital Markets Union for people and businesses – New Action Plan’ (see 

note 10). 

56 

 
 
 
 
 
 
                                                           
Option 2 
Option 3 
Option 4 

+/- 
++ 
++ 

+/- 
++ 
+++ 

+/- 
++ 
+++ 

+/- 
+ 
-- 

Legend: +++ = Very positive 

++ = Positive 

+ = Slightly positive  

+/-  =  Mixed  effect0  =  no 

effect 

- = Slightly negative 

-- = Negative 

--- = very negative 

6.3. Impact of the policy options regarding provision of banking services related to 

settlement in foreign currencies 

6.3.1.  Option 2: Introduce targeted amendments for designated credit institutions 

Effectiveness in meeting the specific objectives 

Targeted  amendments  would  be  made  to  the  regime  for  the  provision  of  banking-type 
ancillary  services.  Financial  stability  considerations  led  to  strict  rules  to  limit  the 
liquidity  and  credit  risks  incurred  by  CSDs.  As  outlined  in  section  2.3.3,  these 
requirements mean that no designated credit institution exists and compliance costs limit 
foreign currency settlement as banking CSDs are unable to offer services to non-banking 
CSDs  even  within  their  group.  Targeted  amendments  could  consist  of  removing  some 
restrictions  for  designated  credit  institutions,  allowing  more  banks  to  provide  these 
services  (Option 2a), or  allowing  CSDs authorised to  provide banking services to  offer 
CSD services (e.g. within their corporate group of companies) (Option 2b). 

For  both  options,  cross-border  settlement  would  improve  as  options  for  CSDs  will 
increase, providing issuers and investors with more opportunities and choice. In addition, 
economies  of  scale  could  be  more  easily  reached,  increasing  the  attractiveness  for  new 
CSD entrants in this market, in particular those based on new technologies. This would 
also  be  consistent  with  the  CMU  Action  Plan  aiming  for  more  integrated  post-trade 
markets  and  enhanced  capital  markets  in  the  EU,  as  well  as  efforts  to  promote  new 
technologies.  

Financial stability risks would however increase as credit and liquidity risks could rise. 
This  would  be  the  case  for  both  options  2a  and  2b.  For  Option  2b,  concentration  risk 
would  increase  as  exposures  would  be  concentrated  in  the,  at  present,  five  CSDs  that 
have been authorised to provide banking-type ancillary services including within groups 
of CSDs. Nevertheless, the potential wider risks for financial stability would potentially 
be  greater  for  Option 2a as the  risk of contagion  to  the wider banking sector would be 
larger.  In  addition,  credit  institutions  would  not  be  subject  to  the  additional  capital 
surcharge  that  CSDs  are  under  CSDR,  further  amplifying  the  potential  risks  for  the 
banking  sector.  Nevertheless,  for  both  options,  it  is  unsure  whether  and  if  yes,  to  what 
extent,  the market will  make use of the  additional opportunities,  which  in  particular, is 
especially true for Option 2a where the market cannot benefit from existing established 
structures, such as they could in Option 2b. 

Coherence 

The  option  to  partially  or  completely  remove  restrictions  for  the  designated  credit 
institution is not coherent with the current CSDR framework, as it will introduce possibly 
unlimited  risk  into  the  financial  system,  whereas  2b  could  introduce  more  risks  but 
within  the  current  arrangements  of  CSDR.  At  the  same  time,  Option  2a  could  bring 
further risks as potentially a greater level of risk could spread beyond CSDs to the wider 
banking system,  when  compared to  2a.  Both  2a  and 2b are however, coherent  with  the 
CMU  2020  Action  Plan,  which  highlights  the  need  to  develop  a  more  integrated  post-
trading landscape in the EU and aims to improve cross border transactions within the EU. 

57 

 
 
Option 2b is relatively better than 2a in this respect. Both sub-options are coherent with 
existing banking regulations as they will continue to apply on the CSDs in this option. 

6.3.2.  Option  3: Amend the thresholds under  which CSDs can use a commercial  bank 

for banking-type ancillary services. 

Effectiveness in meeting the specific objectives 

Under  this  option  targeted  amendments  would  be  made  to  the  threshold  for  CSDs 
(currently  maximum  of  1%  of  total  assets  and  EUR 2.5 billion)  to  provide  ancillary 
banking services. This would make the provision of these services less burdensome and, 
due  to  lower  compliance  costs,  economies  of  scale  for  the  provision  of  settlement  in 
foreign  currencies  could  be  more  easily  achieved.  Achieving  these  economies  of  scale 
would also facilitate CSDs to transition to settlement of foreign currencies in central bank 
money (one of CSDR’s aims) by enabling them to reach appropriate economies of scale 
to  justify  connecting  to  the  relevant  central  bank.  This  would  help  make  cross-border 
transactions  more  available  to  investors  against  a  minimum  of  compliance  costs  for 
CSDs. The price for this is in terms of financial stability risks, since credit and liquidity 
risks of the CSD could potentially increase, could be mitigated by increased supervisory 
monitoring by the relevant  banking  authority.  Changing  the thresholds  would  also  help 
improve  the  efficiency  of  settlement  markets  as  competition  in  settlement  in  foreign 
currencies  will  increase  and  current  settlement  arrangements  can  remain  in  place  for 
CSDs.  

Coherence 

This  option  is  coherent  with  the  current  CSDR  framework,  as  it  builds  on  the  already 
foreseen arrangements. It is also coherent with the CMU Action Plan,223 which highlights 
the  need  to  develop  a  more  integrated  post-trading  landscape  in  the  EU  and  aims  to 
improve cross-border transactions in the EU while preserving financial stability. It is also 
coherent with banking regulations in taking financial stability as a starting point. Option 
3 does not entail a big change to CSDR’s requirements which is positive. It will increase 
cross-border provision of settlement services as compliance costs are limited to internal 
operational  risk  processes  and  external  compliance  costs  are  limited.  It  could  be 
relatively simple to apply as the prudential framework already covers the additional risks. 

6.3.2.  Option  4: Amend the thresholds under which CSDs can use a commercial bank 
for banking-type ancillary services and allow banking CSDs to provide services. 

Effectiveness in meeting the specific objectives 

The  combination  of  options  2(b)  and  3  will  help  achieve  the  specific  objectives  of 
increasing cross-border settlement and efficiency of the provision of banking services as 
well  as  reducing  administrative  costs,  as  elaborated  under  options  2  and  3,  in  a  more 
comprehensive  manner  than  what  could  be  achieved  by  applying  only  one  of  these 
options.  A  combination  of  options  2(b)  and  3  would  have  as  an  additional  benefit  as 
compared  to  the  above.  While  reviewing  the  threshold  for  banking  services  would 
potentially  increase  the  notional  amounts  available  for  banking  services  (including 
foreign currency settlement) in EU settlement markets, including banking CSDs into the 
potential providers of these services would increase potential notional amounts available 
for foreign currency even further through broadening the range of providers. 

223  Commission Communication ‘A Capital Markets Union for people and businesses – New Action Plan’ (see 

note 10). 

58 

 
                                                           
Coherence 

The combination of options 2(b) and 3 is coherent with EU policies, such as the objective 
of CMU to create a more integrated post-trading landscape in the EU contributing to the 
EU internal market as elaborated in the respective sections. 

6.3.3.  Choice of preferred policy option 

The  tables  below  provide  a  high-level  summary  of  how  the  described  options  compare 
(for the sake of readability, the labels of the options have been shortened). For a detailed 
overview  of  the  costs  and  benefits  (efficiency)  of  each  option  and  impacts  on  different 
stakeholders see Annex 7. 

In  view  of  the  political  priority  of  CMU  and  to  create  a  single  European  market  for 
capital, improving possibilities for CSD to offer settlement in foreign currencies adds to 
the aim of this review to facilitate CSDs’ access to other markets other than their home 
market and minimise cross-border barriers. At the same time, this should be done while 
preserving financial stability and keeping settlement markets safe. Hence, and since not 
mutually exclusive, a combination of options 2b and 3 are deemed more appropriate 
and  proportionate  (Option  4)  in  attaining  the  right  balance  between  achieving  the 
aforementioned objectives. 

Reduce 
administrative 
burden and costs 

Efficiency 
(cost-
effectiveness) 

Coherence 

Minimise 
barriers to 
cross-border 
settlement  
0 

Effectiveness 
Ensure adequate 
powers and 
information to 
monitor risks  
0 

++ 

++ 

+++ 

+++ 

+ 

+ 

+ 

+ 

Option 1 – baseline scenario 
Option 2a –Targeted 
Amendments- Remove 
restrictions 
Option 2b –Targeted 
Amendments-allow banking 
CSDs to offer services to 
other CSDs 
Option 3 – Amend threshold 
Option 4 – combination of 
2(b) and 3 

0 

+ 

+ 

+++ 

+++ 

Summary of winners and losers 

CSDs 

Issuers 

Investors 

Option 1 
Option 2a 
Option 2b 
Option 3 
Option 4 

0 
+ 
++ 
++ 
++ 

0 
+ 
++ 
+++ 
+++ 

0 
+ 
++ 
+++ 
+++ 

0 

- 

++ 

+++ 

+++ 

0 

-- 

++ 

++ 

++ 

Supervisory 
authorities 
0 
-- 
0 
+ 
+ 

Legend: +++ = Very positive 

++ = Positive 

+ = Slightly positive  

+/-  =  Mixed  effect0  =  no 

effect 

- = Slightly negative 

-- = Negative 

--- = very negative 

6.4. Impact of the policy options regarding settlement discipline 

6.4.1.  Option  2  –  Introduce  targeted  amendments  for  cash  penalties  and  mandatory 

buy-ins 

Effectiveness in meeting the specific objectives 

This  option  includes  amendments  that  would  simplify  elements  of  the  settlement 
discipline regime, e.g. with regards to the pass-on mechanism, in-scope transactions and 
buy-in  agents.  These  changes  would  be  limited,  introduced  only  in  areas  where  the 
regime would benefit from minor corrections or amendments.  

59 

 
 
 
 
 
 
 
First,  amendments  to  the  pass-on  mechanism  would  allow  to  solve  all  settlement  fails 
along  the  same  chain  by  one  buy-in  in  the  original  settlement  fail  which  provoked  the 
other fails. This would be combined with measures to address the rigidness in timing of 
when a buy-in is initiated and the asymmetry in price differentials.224 This would reduce 
the complexity and the burden of managing a buy-in process.  

Second, certain transactions may no longer be subject to the settlement discipline regime, 
e.g. corporate actions on stock (e.g. initial creation transactions and redemptions), certain 
central  bank  transactions  (e.g.  monetary  policy  operations  which  are  not  credit 
operations225),  and  certain  other  transactions  (e.g.  auto-generated  transactions  by 
CSDs)226. In addition to mandatory buy-ins, certain transactions could be exempted from 
the  cash  penalties  regime.  These  changes  would  permanently  reduce  the  compliance 
burden on market participants by removing transactions that do not form part of market 
turnover  or  lie  outside  their  control.  Compliance  costs  for  regulators,  i.e.  replying  to 
Q&As, will also be reduced permanently. Furthermore these amendments would reduce 
the number of settlement fails and improve settlement efficiency. 

Third,  more  choice  could  be  enabled  as  concerns  buy-in  agents,  i.e.  appoint  a  broader 
range of actors as buy-in agents. A major concern for many stakeholders227 is that so far 
only  one  service  provider  has  emerged  with  a  buy-in  solution  and  that  the  offer  is  not 
consistent  with  the  needs  of  all  stakeholders228.  Subject  to  best  execution  requirements 
and clearly defined limitations and conflicts of interest,229 firms could be able to execute 
their  own  buy-ins.  Buy-ins  already  exist  today  without  a  buy-in  agent,  e.g.  at  CCPs, 
many of which do not use a buy-in agent but go to auction, sourcing the liquidity from 
their network on a best execution basis.  Allowing parties, within limits to execute their 
own buy-ins based on underlying contractual requirements, could allow flexibility to act 
in  the  best  economic  interest  of  the  non-receiving  party  and  tailor  buy-ins  to  the 
characteristics of different types of financial instruments.  

Such amendments would effectively and permanently reduce administrative burden and 
compliance costs. In particular clarifications with regards to in-scope transactions would 
effectively reduce complexity, administrative burden and compliance costs for all market 
participants. Furthermore, fewer buy-ins would improve settlement efficiency. 

Coherence 

This  option  would  be  coherent  with  the  overall  objectives  of  CMU,  as  well  as  specific 
objectives  of  CSDR.  It  would  also  be  coherent  with  the  REFIT  initiative  to  have 
proportionate  requirements  in  that  it  would  permanently  lessen  to  a  certain  extent  the 
administrative burden and compliance costs for investors, CSDs and regulators without 
endangering financial stability. These benefits would be long-term.  

224  Responses 

to 

the  Commission  CSDR 

targeted  consultation  by  ICMA  (see  note  198),  ISLA 

(https://www.islaemea.org/wp-
content/uploads/2019/03/ISLA_Response_EC_Targeted_Consultation_CSDR.pdf), AFME (see note 127). 
225  Currently  these  would  include  outright  operations  conducted  under  the  Eurosystem’s  Asset  Purchase 
Programme  or  the  Pandemic  Emergency  Purchase  Programme,  and  the  associated  securities  lending 
transactions. Based on confidential information provided to DG FISMA services. 

226  Responses  to  the  CSDR  targeted  consultation  by  ECSDA  (ESCDA  response  to  the  Commission  CSDR 
targeted  consultation,  https://ecsda.eu/archives/13474),  Clearstream  (see  note  190),  Euronext  (see  note 
106), Q. 33.2.  

227 Summary Report of the Commission CSDR targeted consultation (see note 92). 
228  It is claimed that the legal structure of the buy-in agent and its collateral requirements are more suitable for 

banking customers. Based on confidential information provided to DG FISMA services. 

229  Article 24 of the RTS on settlement discipline. 

60 

 
                                                           
The negative market impacts of this option would be similar to Option 1, and would be 
related  to  the  introduction  on  the  mandatory  buy-in.  The  clarifications  contained  in 
Option 2 would not considerably diminish their negative market impacts. 

6.4.2.  Option 3 – Introduce a two-step approach 

Effectiveness in meeting the specific objectives 

Under this option cash penalties would apply immediately, while the implementation of 
mandatory  buy-ins  would  be  deferred  and  triggered  only  where  necessary,  if  the  other 
settlement discipline measures (i.e. reporting and cash penalties) prove to be insufficient 
to achieve an acceptable level of settlement efficiency within the Union. Any delay in the 
application  of  mandatory  buy-ins  should  apply  equally  to  the  full  market  (i.e.  both  the 
cleared and uncleared space) to prevent an unlevel playing field. This is essential to avoid 
an  unintended  shift  of  trading  volumes  to  a  non-cleared  environment,  notably  for  less 
liquid securities. The monitoring and reporting obligations under CSDR and the relevant 
RTS will remain unchanged.230  

Under the two-step approach it would therefore first need to be determined, following a 
granular analysis of the fails in the EU settlement market and at international level, where 
the  main  settlement  fails  occur,  at  which  level  and  for  which  reasons.  ESMA  could  be 
required to produce on a regular basis (e.g. every two years) a report on settlement fails 
in the market that would focus, amongst others, on the levels of fails and their evolution, 
the  underlying  drivers,  the  main  instruments  affected,  an  international  comparison  of 
settlement fail rates, as well as assess whether cash penalties remain a proportionate and 
effective tool to  address  these fails. The entry into application of the mandatory buy-in 
regime  could  be  left  to  a  Level  2  act  to  be  adopted  by  the  Commission,  taking  into 
account, where available, ESMA’s report.  

This option will be effective in addressing one of the main reasons for settlement fails, 
i.e.  insufficient  capacity  among  market  participants  for  post-trade  functions.  Practical 
experience  from  other  capital  markets231  suggests  that  cash  penalties  may  provide 
sufficient incentive for the necessary capacity improvements to address settlement fails. 
Furthermore,  these  improvements  will  particularly  benefit  the  processing  of  smaller 
trades which are more prone to fail. While encouraging improved settlement, this option 
allows to avoid the most negative impacts of mandatory buy-ins related to liquidity, bid-
ask  spreads  or  market  stability.  It  will  also  discourage  strategic  behaviour  by 
counterparties.  Cash  penalties,  like  positive  interest  rates,  will  be  an  incentive  for  the 
selling party to source the securities, whether outright or in  repo (particularly when the 
penalty is more punitive than the repo rate for the security). Furthermore, in the absence 
of  mandatory  buy-ins,  alternatives  will  be  available  to  the  buyer  to  initiate  a  buy-in 

230  Articles 13 and 14 of the RTS on settlement discipline. 
231  The US experience shows that the introduction of a ‘fail charge’ for US Treasury Securities reduced fails 
significantly.  On  12  November  2008,  the  Treasure  Market  Practices  Group  (TMPG)  published  their 
recommendations  to  introduce  a  fails  charge  (known  as  the  ‘TMPG  fails  charge’),  which  went  live  on  1 
May 2009. Studies showed that the anticipation of the implementation of  the rule had a significant effect 
on settlement fails. A paper published in the ‘FRBNY Economic Policy Review/ October 2010’  states that 
“primary dealer fails declined from a daily average of $379 billion during the week of October 16-2 to a 
daily average of $70 billion during the week of November 13-19 and averaged less than $50 billion a day 
in December”. The paper also shows that fails averaged just over $14.4 billion per day during the first four 
months of 2009, but only $4.2 billion per day since the implementation of the fails charge. Based on: ‘The 
introduction of the TMPG fails charge  for U.S Treasure Securities’, Federal Reserve Bank of New York 
(FRBNY), Economic Policy Review/ October 2010. 

61 

 
                                                           
against a failing seller: cash compensation, bilateral cancellation or to extend the delivery 
time  to  a  date  when  the  seller  can  make  the  delivery  which  will  ensure  that  the  buyer 
receives  the  securities  and  not  a  cash  settlement.  Buy-in  arrangements  are  usually  a 
standardised  process  and  are 
terms  of  business  between 
counterparties,  to  cover  specific  markets.  Lastly,  this  option  will  minimise  the  pro-
cyclical effects as they are related to buy-ins rather than cash penalties.232 The main costs 
of this approach is setting the conditions that would justify the introduction of mandatory 
buy-ins as a second step of the two-step approach. 

incorporated 

the 

in 

Coherence 

This  option  would  be  coherent  with  the  objectives  of  CMU  and  CSDR  as  it  would 
provide  the  necessary  incentives  to  further  improve  EU  settlement  efficiency.  It  would 
also be coherent with the REFIT initiative as it would better comply with the principle of 
proportionality  in  that,  to  the  extent  that  cash  penalties  can  enhance  on  their  own 
settlement  efficiency,  the  application  of  additional  measures  (i.e.  mandatory  buy-ins) 
would go beyond what is necessary to achieve the pursued objectives. Concerns related 
to market stability or the ability of market participants to fulfil certain functions, such as 
market making, would not materialise.  

6.4.3.  Option 4 – Introduce voluntary buy-ins 

Effectiveness in meeting the specific objectives 

Under this option cash penalties would be mandatory while buy-ins would be voluntary. 
Even if buy-ins would be voluntary, all EU investment firms would need to put in place 
contractual  arrangements for  buy-ins  with  their relevant  counterparties.  The monitoring 
and reporting obligations under CSDR and the relevant RTS would remain unchanged.233  

The decision to initiate a buy-in would be the discretionary right of the purchasing party 
giving  it  more  flexibility  in  achieving  its  investment  objectives.  This  will  apply  in 
relation to both transactions with and without the involvement of a CCP in order not to 
incentivise  migration  of  trading  to  non-cleared  markets  and  indirectly  undermine  a  key 
EU policy objective in financial markets. In order for voluntary buy-ins to be effective a 
number of high-level principles234 could be developed in CSDR. To ensure their clients’ 
access  to  voluntary  buy-ins,  market  participants  could  still  need  to  enter  into  a  re-
papering exercise, similar in scope and cost to the described under Option 3.  There are 
also doubts about the use of and effectiveness of voluntary buy-ins to reduce settlement 
fails. In markets dominated by large dealers, investors may be discouraged from adopting 
buy-ins for fear of retaliation235. There is evidence that buy-ins are currently rarely used 
as  a  voluntary  contractual  arrangement  between  market  participants.236  Already  today, 
the  trading  parties  have  the  right  to  request  buy-ins,  whether  through  market  standards 
(ICMA  rules),  legal  standards  (stock  exchange  regulations)  or  contractual  rights. 

232  The potential for a buy-in impacts the starting bid-offer spread and its impact will be pro-cyclical, i.e. when 
liquidity reduces, the price increase due to the buy-in will be greater further reducing trading activity and 
thus liquidity. 

233  Articles 13 and 14 of the RTS on settlement discipline.  
234  For instance, the ICMA response to the  Commission CSDR targeted consultation reply  suggests that the 
following principles should form part of a voluntary buy-in: (i) the contractual right for the failed-to party 
to initiate a buy-in, (ii) ability to recover costs incurred in executing the process, (iii) ensuring that the non-
failing  party  is  restored  to  the  equivalent  economic  position  and  (iv)  providing  for  a  cash  settlement 
alternative (see note 198).  

235  Reply to the Commission targeted consultation by Clearstream, Q. 34.1 (see note 190). 
236  Reply to the Commission targeted consultation by Clearstream, Q. 34.1 (see note 190). 

62 

 
                                                           
However,  that  is  hardly  practiced.  Hence,  voluntary  buy-ins  do  not  seem  efficient  in 
ensuring settlement efficiency. 

Coherence 

This option is partly coherent with the objectives of CMU and CSDR as it will provide 
incentives  to  further  improve  settlement  efficiency  in  the  form  of  cash  penalties.  It 
contains major disadvantages in the form of increased compliance costs for traders who 
will need to  keep in  place  a  system allowing them  to  carry out  buy-ins  if contractually 
agreed. It opens the possibility for abusive market practices as firms may be discouraged 
from applying buy-ins if it will hurt established trading relationships. This option is also 
not  proportional.  Due to their voluntary nature and evidence so far buy-ins will remain 
unused,  although  market  participants  would  incur  re-papering  costs  and  regulators  face 
compliance costs related to clarifications and guidance. 

6.4.4.  Option 5 – Combination of targeted amendments to settlement discipline regime 

with a two-step implementation of cash penalties and mandatory buy-ins 

Effectiveness in meeting the specific objectives 

The  combination  of  Option  2  and  Option  3  will  help  achieve  the  specific  objective  of 
reducing  administrative  burden  and  compliance  costs  without  endangering  financial 
stability, as explained in sections 6.4.2 and 6.4.3, more comprehensively than each option 
individually  by  targeting  both  procedural  aspects  of  the  regime  (Option  2)  and  market 
impacts (Option 3).  

Coherence 

The combination of Option 2 and Option 3 is coherent with the objectives of CMU and 
CSDR  as  it  would  provide  the  necessary  incentives  to  further  improve  EU  settlement 
efficiency  (Option  3).  It  would  also  be  coherent  with  the  REFIT  initiative  as  it  would 
the  principle  of  proportionality  (Option  3)  and  reducing 
better  comply  with 
administrative burden (Option 2), by introducing clarifications and simplifications to the 
operation of the settlement discipline regime.  

6.4.5.  Choice of preferred policy option 

The  tables  below  provide  a  high-level  summary  of  how  the  described  options  compare 
(for the sake of readability, the labels of the options have been shortened). For a detailed 
overview  of  the  costs  and  benefits  (efficiency)  of  each  option  and  impacts  on  different 
stakeholders see Annex 7. 

In  view  of  the  importance  attached  by  CMU  to  safe  and  efficient  financial  markets 
Option  3  offers  the  most  effective,  efficient  and  coherent  approach.  Thanks  to  cash 
penalties  it  will  support  improvements  in  settlement  efficiency,  without  however 
endangering  stability  and  liquidity  across  markets  and  financial  instruments.  It  is  more 
effective  in  addressing  this  objective  than  Option  4,  which  will  have  greater  negative 
impacts  on  market  stability,  liquidity  and  pricing  while  compliance  costs  for  market 
participants and regulators will be similar to Option 3. The effects of a voluntary buy-in 
will  be  similar  to  the  ones  described  under  Option  1,  although  they  may  be  smaller  as 
buy-ins will not be applied consistently by market participants. The targeted amendments 
(Option  2)  will  bring  benefits  irrespective  of  the  chosen  settlement  regime  in  terms  of 
effectiveness, efficiency or lower compliance costs. Hence it can be combined with either 
Option 3 or Option 4. The benefits will however be greatest when combined with Option 
3.  Settlement  efficiency  will  improve  thanks  to  cash  penalties,  which  will  themselves 
benefit  from  clarifications,  while  mandatory  buy-ins  will  be  delayed  and  also  further 

63 

 
refined. Hence the preferred policy option is Option 5 (combination of Options 2 and 3) 
and it will ensure the proportionality and efficiency of the Settlement Discipline Regime.  

Effectiveness 

Minimise 
barriers to cross-
border settlement 

Ensure adequate powers 
and information to 
monitor risks 

Reduce 
administrative 
burden and costs 

Efficiency 
(Cost-
effectiveness) 

Coherence 

Option 1 – Baseline 
scenario 
Option 2 –Targeted 
amendments 
Option 3 – Two-step 
approach 
Option 4 – Voluntary 
buy-ins 
Option 5 – Two-step 
approach with targeted 
amendments 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

+++ 

++ 

- 

+++ 

0 

+++ 

++ 

- 

+++ 

0 

++ 

++ 

+/- 

++ 

CSDs 

Issuers 

Investors 

Summary of winners and losers 

Option 1 
Option 2 
Option 3 
Option 4 
Option 5 

0 
+ 
+ 
- 
+ 

0 
++ 
+/- 
- 
++ 

0 
+++ 
++ 
++ 
++ 

Supervisory 
authorities 
0 
++ 
++ 
-- 
++ 

Legend: +++ = Very positive 

++ = Positive 

+ = Slightly positive  

+/-  =  Mixed  effect0  =  no 

effect 

- = Slightly negative 

-- = Negative 

--- = very negative 

6.5. Impact of the policy options regarding third-country CSDs  

6.5.1.  Option 2 – Introduce an end-date to the grandfathering clause 

Effectiveness in meeting the specific objectives 

Introducing  an  end-date  to  the  grandfathering  clause  would  ensure  that  third-country 
CSDs  currently  operating  under  the  grand-fathering  clause  are  subject  to  equivalent 
rules.237 It would therefore help ensure a more level playing field between EU authorised 
CSDs  (complying  with  CSDR)  and  third-country  CSDs  when  they  both  operate  in  the 
EU.  In  that  sense,  and  compared  to  Option  1,  it  would  ensure  adequate  powers  and 
information to monitor risks for issuers, as third-country CSDs would be forced to apply 
rules that are at least equivalent.  

Coherence 

This option is coherent with the aim of a grandfathering clause, which is to provide time 
for entities to adapt to a new situation created by the CSDR. In this case, CSDR entered 
into force in 2014.238 Both EU CSDs and non-EU CSDs have had sufficient time to adapt 
to CSDR. In addition, this option would  contribute to a level playing field  between EU 
and third-country CSDs and therefore contribute to create a more integrated post-trading 
landscape in the EU as aimed for by the new CMU Action Plan.239  

237  The end-date to the grandfathering clause would be introduced for both for EEA and third-country CSDs. 
238  NB: CSDR was included in the EEA Agreement on 1 January 2020.  
239  Commission Communication ‘A Capital Markets Union for people and businesses – New Action Plan’ (see 

note 10). 

64 

 
 
 
 
 
 
 
                                                           
6.5.2.  Option 3 – Introduce a notification requirement for third-country CSDs 

Effectiveness in meeting the specific objectives  

Third-country CSDs would have to notify to ESMA when they are providing services in 
the  EU.  It  would  therefore  help  authorities  (but  not  only)  to  have  more  information  on 
their  activities  and  to identify  and  monitor  any  potential  risks.  Options 2  and  3  are  not 
mutually  exclusive:  Option  3  helps  achieve  the  specific  objective  of  ensuring  adequate 
powers and information to monitor risks from an EU authorities’ point of view whereas 
Option  2 helps  the same specific objective  also  from an investors’/issuers’ perspective. 
These two options could therefore be complementary.  

Coherence 

This  option  is  coherent  with  the  REFIT  initiative  to  have  proportionate  requirements. 
While authorities have very little information on which third-country CSDs operate in the 
EU, a notification process would help to get this information. It would be coherent with 
the  CMU  objective  to  have  a  more  integrated  post-trading  landscape  in  the  EU  as  EU 
authorities would have more information on which CSDs operate in the EU and therefore 
more information to monitor potential risks. 

6.5.3.  Option 4 – Enhance the regime for third-country CSDs providing services 

Effectiveness in meeting the specific objectives  

A more comprehensive third-country regime either requiring ESMA recognition for the 
provision  of  all  CSD  services  by  third-country  CSDs  (i.e.  also  for  settlement  services) 
and/or ESMA supervision over third-country CSDs similar to that exercised over third-
country CCPs under EMIR (e.g. exercise of supervisory powers over all or certain third-
country CSDs) would ensure that adequate powers and information to monitor risks are 
available  at  EU  level.  However,  taking  into  account  that:  (a)  very  little  information  is 
available  as  to  whether  and  to  what  extent  third-country  CSDs  provide  services  in 
relation to financial instruments constituted under the law of a Member State; and (b) the 
increased  costs  these  options  would  imply  for  ESMA,  the  introduction  of  an  enhanced 
regime  for  third-countries  CSDs  does  not  seem  proportionate  now.  Only  the  specific 
objective  to  ensure  adequate  powers  and  information  to  monitor  risks  seems  to  be 
significantly met with Option 4.  

Coherence 
This  option  is  coherent  with  the  Parliament  Resolution  on  CMU240  where  it  calls  to 
consider gradually granting ESMA direct supervisory powers, including direct oversight 
over certain market segments such as CSDs. This option is also coherent with the ESMA 
Regulation241  that  requires  the  conduct  of  a  comprehensive  assessment  of  the  potential 
supervision of third-country CSDs. However, having done this assessment, it seems that 
it  could  be  deemed  excessive  to  require  third-country  CSDs  to  be  subject  to  a  new 
enhanced third-country regime while authorities do not even know how many operate in 
the EU and the volume of settlement it concerns. Due to this lack of proportionality, this 
option would therefore not be coherent with the REFIT initiative. 

240  European Parliament resolution of 8 October 2020 on further development of the Capital Markets Union 

(CMU), (2020/2036,(INI)), para. 21. 
241  Article 81(2c) of the ESMA Regulation. 

65 

 
                                                           
6.5.4.  Option 5 – combination of Options 2 and 3 

Effectiveness in meeting the specific objectives 

The combination of Options 2 and 3 will help achieve the specific objectives of ensuring 
adequate  information  and  powers  to  monitor  risks  as  well  as  reducing  administrative 
costs, as elaborated under Sections 6.5.1 and 6.5.2, in a more comprehensive manner than 
what could be achieved by applying only one of these options. 

Coherence 

The combination of Options 2 and 3 is coherent with a broad range of EU policies, i.e. 
the REFIT nature of this initiative, the objectives of the CMU to create a more integrated 
post-trading landscape in the EU as well as the rationale behind the introduction of the 
grandfathering clause in CSDR, as elaborated in Sections 6.5.1 and 6.5.2. 

6.5.5.  Choice of preferred policy option 

The  tables  below  provide  a  high-level  summary  of  how  the  described  options  compare 
(for the sake of readability, the labels of the options have been shortened). For a detailed 
overview  of  the  costs  and  benefits  (efficiency)  of  each  option  and  impacts  on  different 
stakeholders see Annex 7. 

Option 5 (i.e. the combination of Options 2 and 3) is the preferred option. Option 2 
would ensure adequate powers and information to monitor risks, as third-country CSDs 
would  be  forced  to  apply  rules  at  least  equivalent.  Option  3  would  help  to  meet  the 
specific objective of ensuring adequate powers and information to monitor risks for EU 
authorities. As the number of third-country CSDs is unknown and thus whether there is 
an issue for financial stability or not, Option 4 is premature and disproportionate. 

Effectiveness 

Minimise 
barriers 
cross-border 
settlement  

to 

Ensure  adequate 
and 
powers 
information 
to 
monitor risks  

Reduce 
administrative 
burden 
and 
costs 

Coherence 

Efficiency 
(cost-
effectiveness)  

Option  1  –  Baseline 
scenario 

Option 2 – Introduction 
of  an  end-date  to  the 
grand-fathering clause 

a 

Option 3 – Introduction 
of 
notification 
requirement  for  third-
country CSDs 

Option  4  –  Enhanced 
CSDR 
third-country 
regime 

5 

Option 
Combination 
Options 2 and 3 

– 
of 

0 

0 

0 

0 

0 

0 

++ 

+++ 

+++ 

+++ 

0 

++ 

+/- 

--- 

++ 

0 

++ 

++ 

--- 

++ 

Summary of winners and losers 

EU CSDs 

/Issuers 

Investors 

Option 1 
Option 2 
Option 3 
Option 4 

0 
++ 
++  
++  

0 
++ 
+/- 
+/- 

0 
++ 
+/- 
+/- 

66 

0 

+++ 

+++ 

+/- 

+++ 

Supervisory 
authorities 
0 
++ 
+++ 
++ 

 
 
 
 
 
 
Option 5 

++ 

++ 

++ 

+++ 

Legend: +++ = Very positive 

++ = Positive 

+ = Slightly positive  

+/-  =  Mixed  effect0  =  no 

effect 

- = Slightly negative 

-- = Negative 

--- = very negative 

7.  HOW DO THE OPTIONS COMPARE? 

The  preceding  section  analyses  the  policy  options  for  each  of  the  five  key  drivers 
considered  in  this  impact  assessment  and  explains  the  choice  of  the  preferred  policy 
options. A comparison of the different policy options is summarised in the table below. 

Objective 
1 
Minimise 
barriers to 
cross-
border 
settlement 

Effectiveness 

Objective 2 
Ensure 
adequate 
powers and 
information to 
monitor risks 

Objective 3 
Reduce 
administrative 
burden and 
compliance 
costs 

Efficiency 
(Cost 
effectiveness) 

Coherence 

0 

+ 

- 

0 

- 

+ 

0 

+ 

+ 

0 

+ 

+ 

0 

+ 

+ 

+++ 

+/- 

+++ 

+++ 

+++ 

+++ 

0 

0 

+ 

0 

0 

+++ 

+++ 

+++ 

0 

0 

0 

0 

0 

0 

++ 

++ 

++ 

++ 

++ 

+++ 

+++ 

0 

++ 

0 

+ 

67 

+/- 

0 

+ 

-- 

0 

- 

+++ 

0 

-- 

Option 1 
Do nothing 
(baseline) 
Option 2 
Reduce the 
scope of the 
passporting 
requirements 
Option 3 
Clarify 
uncertainties 
Option 4 
Replace 
passporting 
procedure at 
the host 
Member State 
level with a 
notification 
Option 5 
Combination 
of Option 3 
and Option 4 
Option 1 
Do nothing 
(Baseline) 
Option 2 
Enhance 
cooperation 
arrangements 
Option 3 
Establish 
colleges 
Option 4 
EU 
supervision 
Option 1 
Do nothing 
(Baseline) 
Option 2a 

Passporting 
require-
ments 

Cooperatio
n between 
authorities 

Banking 
services 

 
 
 
 
(remove DCI 
restrictions) 
Option 2b 
Banking 
CSDs to 
provide 
services to 
other CSDs 
incl. 
intragroup 
Option 3 
Amend 
threshold 
Option 4 
Combination 
of options 
2(b) and 3 
Option 1 
Do nothing 
(Baseline) 
Option 2 
Targeted 
amendments 
Option 3 
Two-step 
approach 
Option 4 
Voluntary 
buy-in 
Option 5  
Two-step 
approach with 
targeted 
amendments 
Option 1 
Do nothing 
(baseline) 
Option 2 
Introduction 
of an end-date 
to 
grandfatherin
g clause 
Option 3 
Introduction 
notification 
requirement 
for third-
country CSDs 
Option 4 
Enhance 
CSDR third-
country 
regime 
Option 5 – 
combination 
of Options 2 
and 3 

++ 

+++ 

+++ 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

Settlement 
discipline 

Third-
country 
CSDs 

+ 

+ 

+ 

0 

0 

0 

0 

0 

0 

+ 

++ 

++ 

+++ 

+++ 

+++ 

+++ 

++ 

++ 

0 

++ 

++ 

+/- 

0 

+++ 

++ 

- 

+++ 

++ 

0 

0 

0 

+++ 

++ 

- 

0 

0 

++ 

++ 

++ 

+++ 

+++ 

+/- 

++ 

+++ 

--- 

++ 

--- 

+/- 

++ 

+++ 

+++ 

+++ 

68 

 
 
 
Legend: +++ = Very positive 

++ = Positive 

+ = Slightly positive  

+/- = Mixed effect 0 = no 

effect 

- = Slightly negative 

-- = Negative 

--- = very negative 

8.  PREFERRED PACKAGE 

8.1. Summary of preferred aggregated options 

Section 7 analyses and compares the policy options for each of the drivers considered in 
this  impact  assessment.  The  section  below  explain  why  each  preferred  policy  options 
represents  the  best  overall  trade-off  between  effectiveness  and  costs,  hence  is  the  most 
proportionate and efficient one in the long run. 

Passporting  requirements:  Based  on  the  assessment  and  comparison  of  all  options, 
Option 5 (combination of Option 3 – clarification of uncertainties – and Option 4 – 
passporting  notification)  is  the  preferred  option.  The  analysis  shows  that  it  is  better 
suited  to  achieve  the  specific  objectives  of  reducing  administrative  burden  and 
compliance costs as well as minimising barriers to cross-border settlement than all other 
options.  Concerns  of  certain  national  authorities  that  their  powers  may  as  a  result  be 
reduced are addressed by the preferred policy option to enhance the cooperation between 
authorities by requiring the establishment of colleges. 

Cooperation  between  authorities:  Based  on  the  assessment  and  comparison  of  all 
options,  Option  3  (mandatory  colleges  of  supervisors)  is  the  preferred  option.  It 
allows  to  better  achieve  the  specific  objective  of  minimising  barriers  to  cross-border 
settlement and ensuring adequate powers for authorities to monitor risks than all the other 
options.  In  particular,  Option  3  is  more  appropriate  and  proportionate  in  attaining  the 
right balance between achieving the aforementioned objectives while reflecting the fact 
that responsibility remains with the Member States. 

Banking  services:  Based  on  the  assessment  and  comparison  of  all  options,  Option  2b 
(allow banking CSDs to offer services to other CSDs) in combination with Option 3 
(amend  thresholds)  are  preferred  (together  referred  to  as  Option  4).  They  allow  for 
enhanced cross-border transactions in foreign currencies and more competition, which is 
in line with CMU. Increased risks to financial stability are limited and could be managed.  

Settlement  discipline:  Based  on  the  assessment  and  comparison  of  all  options,  a 
combination of Option 2 (Clarifications to the rules governing settlement discipline) 
and Option 3 (two-step approach - deferred implementation of mandatory buy-ins) 
are  preferred  (represented  as  Option  5).  It  allows  to  introduce  the  necessary 
clarifications with regards to in-scope transactions or the use of buy-in agents. Option 2 
will  reduce  the  complexity  (pass-on  mechanism)  and  burden  of  the  regime  both  for 
market  participants  and  regulators.  Furthermore,  Option  3  will  provide  the  necessary 
incentives,  through the use of cash penalties,  for  necessary improvements in  settlement 
efficiency. At the same time Option 3, allows to avoid the most negative impacts of buy-
ins.  Indeed, considering  the negative impacts  on liquidity, pricing and market  Option  3 
allows  time  for  the  regulators  to  revise  and  improve  the  buy-in  regime  and  set  the 
appropriate terms  of entry  into  application of mandatory  buy-ins,  should  cash  penalties 
alone prove insufficient in addressing settlement fails rates in the EU.  

Third-country CSDs: Based on the assessment and comparison of all options, Option 5, 
i.e. the combination of Options  2 (end of the grandfathering  clause)  and 3 (notification 
for third-country CSDs), is preferred. It allows to better achieve the specific objectives 
of  ensuring  adequate  information  for  authorities  to  monitor  risks,  having  a  positive 
impact  CSDs,  investors  and  supervisory  authorities  at  national  and  EU  level.  As  very 
little information is currently available on third-country CSD’s activities in the EEA, any 

69 

 
other option would seem either inadequate or premature and disproportionate in terms of 
budget required compared to the risks currently identified.  

8.2. Combined impacts of the package 
8.2.1.  Overall impact of the package on relevant stakeholders242  

The overall package of options will have a positive effect, enabling a more proportionate 
regulation of CSDs and enhancing the competitiveness of the EU settlement market.  

CSDs would notably benefit from reduced costs when operating cross-border in the EU, 
due to a reduction in barriers to cross-border settlement from the setting up of mandatory 
colleges and the replacement of the passporting procedure at the host Member State level 
by  a  simple  notification.  The  introduction  of  mandatory  colleges  would  also  positively 
impact EU CSDs due to  the legal  certainty  arising from more  supervisory  convergence 
and a reduction in the number of interactions by CSDs with various national authorities 
in the EU. CSDs would benefit from a reinforced level playing field, both within the EU, 
with  the  introduction  of  mandatory  colleges  that  would  help  ensure  consistency  in 
supervisory  approaches  across  the  EU,  and  outside  the  EU,  with  the  introduction  of  an 
end-date of the grandfathering clause for third-country CSDs.  

The preferred options regarding the provision of banking services related to settlement in 
foreign currencies may also create additional opportunities for CSDs that do not hold a 
banking  license.  In  particular,  increasing  the  threshold  could  enable  some  CSDs  to 
develop  their  services  to  investors  both  domestically  and  cross-border,  and  thus  obtain 
appropriate economies of scale to  cover authorisation costs to provide banking services 
themselves  at  a  later  date.  The  proposed  changes  to  the  settlement  discipline  regime 
would  ensure  a  more  proportionate  approach  to  the  treatment  of  settlement  fails,  thus 
avoiding certain unnecessary implementation costs. Finally, competition  between CSDs 
could also drive more innovation by CSDs and hence compounding benefits in terms of 
settlement efficiency and international competitiveness. 

Under  the  preferred  options,  investors  and  issuers  would  benefit  from  an  increased 
competition  between  CSDs  due  to  the  replacement  of  the  passporting  procedure  at  the 
host Member State level  with a simple notification and the establishment of mandatory 
colleges. In the same vein, under the preferred options regarding the provision of banking 
services  related  to  settlement  in  foreign  currencies  by  non-banking  CSDs,  issuers  and 
investors would have more choice in terms of financing arrangements and would benefit 
from  the  increased  competition,  a  greater  choice  in  issuance,  risk  diversification  and 
currency  diversification  in  their  cross-border  investments.  The  enhanced  supervision  of 
EU CSDs through the establishment of colleges  and of third-country CSDs through the 
end-date  for  the  grandfathering  clause  and  the  notification  requirements  could  have  a 
positive  impact  on  the  protection  of  issuers  and  investors,  by  ensuring  that  ESMA  is 
aware of any potential risks.  

Finally,  the  proposed  changes  to  the  settlement  discipline  regime  would  ensure  a  more 
proportionate  approach  to  the  treatment  of  settlement  fails  for  investors,  thus  avoiding 
certain  unnecessary  implementation  costs,  while  ensuring  that  levels  of  settlement 
efficiency continue to improve in the EU. 

Under the preferred policy options, ESMA may incur limited additional costs but would 
benefit  from  a  strengthened  supervisory  environment  due  to  establishment  of  colleges 

242  See Annex 4 for more details on the specific impacts of the preferred package on the relevant stakeholders. 

70 

 
                                                           
and the increased information it will obtain for the activities of third-country CSDs.  In 
terms  of  costs,  ESMA  would  mainly  be  impacted  by  the  participation  to  mandatory 
colleges and the management of the process for the notification by third-country CSDs of 
their  EU  activities,  as  well  as  the  need  to  develop  and  revise  regulatory  technical 
standards.  The  latter  would  however  be  a  small  one-off  cost  that  could  potentially  be 
covered by a notification fee to be paid by each third-country CSD. The replacement of 
the passporting procedure by a notification would nevertheless alleviate ESMA’s costs as 
the passporting requirements would be simpler and clearer. Further, a clear determination 
of in-scope transactions would also lessen the administrative burden on ESMA related to 
replying to Q&As. ESMA would also benefit from some of the preferred policy options 
which  would  strengthen  the  supervisory  environment,  in  particular  the  notification 
process for third-country CSDs. 

Finally,  the  impact  of  the  preferred  policy  options  on  national  authorities  would  be 
limited but generally positive. In particular, they will alleviate the costs and time spent on 
passporting  if  the  possibility  for  the  host  Member  State  authority  to  refuse  the 
passporting request is removed.  

8.2.2.  Impact on small and medium sized enterprises 

The  proposed  options  in  the  Impact  Assessment  are  not  expected  to  have  any  direct 
material impact on SMEs. However, the postponement of the mandatory buy-in  regime 
should  alleviate  the  most  negative  impacts  of  mandatory  buy-ins  related  to  liquidity.243 
This  should  indirectly  positively  impact  SMEs,  whose  securities  are  less  liquid.  In 
addition, SMEs could benefit indirectly from improvements which could lead to a more 
efficient  and  sound  settlement  system,  notably  through  removing  inefficiencies  in  the 
system  and  promoting  competitiveness  (e.g.  through  measures  to  facilitate  the  cross-
border provision of services and reduce disproportionate costs). In addition, easier cross-
border settlement could lower issuance costs and cost of capital for European issuers, in 
particular  innovative  start-ups  and  SMEs.  Together  these  could  help  attract  SMEs  to 
capital markets and contribute to a deepening of CMU.  

8.2.3.  Social impact 

The  proposed  options  in  the  Impact  Assessment  are  not  expected  to  have  any  material 
social impact. 

8.2.4.  Environmental impact 

The initiative in question has no direct and/or identifiable impacts leading to significant 
harm  or  affecting  the  consistency  with  the  climate-neutrality  objectives  and  the 
obligations arising out of the European Climate Law. 

8.2.5.  Impact on financial stability  

The overall impact of the package of preferred options on financial stability is neutral or 
positive.  On  the  one  hand,  the  adjusted  requirements  for  the  provision  of  banking-type 
ancillary  services  to  facilitate  settlement  in  foreign  currencies  mean  that  financial 
stability risks could theoretically increase as credit, liquidity but also concentration risks 
rise.  However  this  could  be  mitigated  by:  limiting  the  increase  of  the  threshold; 

243  CSDR  aims  at  limiting  the  impact  of  the  buy-in  regime  on  SMEs,  by  introducing  a  specific  extension 
period of 15 business days before the triggering of the buy-in (instead of 4 to 7 business days – see Annex 
9 for more details on the buy-in process). Such longer extension period may however prove insufficient for 
SMEs with the least liquidity and, once the delay is reached, the buy-in procedure will apply like for other 
financial instruments.   

71 

 
                                                           
increasing supervisory monitoring by the relevant authorities; and setting accompanying 
risk  requirements,  such  as  minimum  risk  mitigation  standards  (e.g.  creditworthiness, 
concentration  limits).  On  the  other  hand,  other  preferred  options  could  strengthen 
financial  stability.  This  is  notably  the  case  of  the  establishment  of  mandatory  colleges 
(which would strengthen the supervision of CSDs across the EU), the proposed targeted 
amendments  to  the  settlement  discipline  regime,  including  the  two-step  approach  and 
targeted amendments (which, while encouraging improved settlement, could allow some 
of the potentially most negative impact of mandatory buy-ins related to liquidity, bid-ask 
spreads  or  market  stability  to  be  mitigated)  and  the  notification  procedure  for  third-
country  CSDs  (which  would  allow  national  authorities  and  ESMA  to  have  a  better 
understanding  of  the  activities  carried  out  by  third-country  CSDs  in  the  EU,  and 
consequently of the potential risk they may pose to financial stability in the EU).  

8.2.6.  Impact on the EU budget 

The  above  policy  options  should  not  in  principle  have  any  implications  for  the  EU 
budget.  Possible  additional  tasks  arising  for  ESMA,  such  as  the  development  of 
additional  technical  standards  and  the  participation  to  mandatory  colleges  should  be 
manageable  within  their  current  resources,  in  particular  given  the  reduced  number  of 
Q&As and/or need for clarifications that modifications, e.g. to the settlement discipline 
regime,  that  should  be  needed.  The  management  of  the  process  for  the  notification  by 
third-country CSDs of their activities within the EU, would be a one-off cost. However, 
in principle, it could potentially be covered by a notification fee to be paid by each third-
country CSD. 

8.3. REFIT (simplification and improved efficiency)  

The  need  to  eliminate  disproportionate  costs  and  burdens  to  small  companies,  and  to 
simplify  rules  without  putting  financial  stability  at  risk  is  the  reason  the  CSDR  review 
was included in the 2021 Commission's Regulatory Fitness and Performance programme 
(REFIT).  As  part  of  REFIT,  the  Commission  assessed  the  extent  to  which  policy 
requirements in CSDR have met their objectives in an efficient and effective way, while 
at the same time being coherent, relevant and providing EU added-value. 

The  evaluation  indicates  that,  even  though  the  impact  on  settlement  efficiency  and 
financial stability is not yet fully measurable, CSDR may impose in some targeted areas 
disproportionate  costs  and  burdens  and  that  certain  requirements  may  be  simplified  to 
achieve  the  objective  of  financial  stability  more  efficiently.  These  areas  include:  (1) 
cross-border  provision  of  services  in  the  EU;  (2)  provision  of  banking-type  ancillary 
services;  and  (3)  settlement  discipline.  This  impact  assessment  therefore  considers  the 
costs and benefits of areas where targeted action could ensure fulfilment of the CSDR’s 
objectives  in  a  more  proportionate,  efficient  and  effective  manner.  This  impact 
assessment  provides  evidence  that  a  reduction  of  costs  and  burdens  can  be  achieved 
hand-in-hand  with  a  simplification  of  CSDR,  without  compromising  financial  stability. 
Such evidence includes input received from market participants and various authorities. 

Table 
Description 

Replacing the 
passporting 
procedure at 
the host 
Member State 
level with a 

REFIT Cost Savings – Preferred Option(s) 

Amount 

Potential savings of ca. 
EUR 10 million in the first 
year; thereafter ca. 
EUR 4 million per year. 

Comments 

Estimate  is  based  on  Commission  calculations  on  the  basis  of 
confidential  data.  It  is  assumed  that  the  notification  process  would 
enable  10  other  CSDs  to  passport  in  26  Member  States.  This  could 
help to save ca. EUR 5 850 000 for CSDs (one-off benefit) as well as 
ca.  EUR 390 000  for  CSDs  per  year  (recurring  cost  saving).  It  could 
also help to save ca. EUR 590 000 for 27 national authorities (one-off 

72 

 
 
notification 

Establishment 
of mandatory 
supervisory 
colleges 

Amendment 
of rules for 
banking-type 
ancillary 
services 

Phased-in 
approach to 
settlement 
discipline and 
clarification of 
rules 

streamlined 
Benefits 
procedures, not quantifiable. 

of 

ESMA  will 
incur  some 
costs. These are likely to be 
offset  by 
from 
savings 
greater legal clarity. 

Overall,  net  benefits  are 
expected. 

Small to moderate net 
benefits. 

Up  to  375  million  annually 
of saved connection costs. 

introduction  of 
Deferred 
buy-in  will 
mandatory 
prevent 
trading 
some 
volumes  disappearing  or 
migrating  outside  the  EU 
(Estimated at up to 4% - 5% 
of  trade  volume,  equal  to 
EUR 7 trillion annually). 

0 

Notification of 
third-country 
CSDs and 
introducing an 
end-date to the 
grandfathering 
clause 

benefit).  

Colleges  will:  ensure  supervisory  convergence,  provide  greater  legal 
certainty  for  CSDs  and  will  help  reduce  the  level  of  interactions  of 
CSDs with various national authorities across the EU. While these cost 
savings cannot be quantified, they are expected to be significant.  

CSDs as well as issuers and investors benefit from better opportunities 
to  offer  foreign  currency  settlement.  This  is  a  recurrent  opportunity 
cost  saving  estimated  by  the  Commission  based  on  qualitative  input. 
Potential  benefits  of  up  to  EUR 80 billion  in  increased  settlement 
activity,  in  particular  in  CSDs  not  currently  providing  these  services. 
A  large  amount  may  also  however  be  offset  as  CSDs  currently 
providing banking services may lose business to new entrants. 

The proposed two-step approach would result in  deferred cost related 
to  the  setting  up  of  a  buy-in  agent  offering  by  one  entity.  However, 
this is offset by the fact that the average cost per market participant to 
set up a connection to a buy-in agent would be around EUR 1 million, 
amounting  to  EUR 1.5 billion  for  all  in-scope  market  participants  in 
the  EU  for  four  years  (375 million  annually).  Depending  on  the 
potential targeted changes to be made to the buy-in regime, such costs 
savings  could  either  be  temporary  (i.e.  until  the  buy-in  regime  enters 
into  force)  or  permanent  (e.g.  if  the  changes  allow  for  a  simplified 
approach regarding the requirements related to buy-in agents). 

Although  not  quantifiable,  cost  savings  are  also  expected  for  both 
market participants and  CSDs from the proposed clarifications of the 
buy-in and cash penalties rules. 

Based  on  Commission  estimates  following 
the  submission  of 
confidential data, assuming that 5 third-country CSDs would notified, 
the costs would be estimated around ca. EUR 13 000 for ESMA. This 
would  be  one-off  cost  that  could  potentially  be  covered  by  a 
notification fee to be paid by each third-country CSD.  

We currently do not know how many third-country CSDs are using the 
grandfathering  clause  and  would  apply  for  recognition  to  ESMA.  It 
has been assumed that ESMA can carry out its other permanent tasks, 
such as in relation to non-EU CSD recognition with its existing staff. 

9.  HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED?  

The  envisaged  options  aim  at  rendering  the  application  of  CSDR  more  effective  and 
efficient.  To  this  end,  a  number  of  targeted  adjustments  to  CSDR  are  considered.  The 
proposed  legislative  amendment  to  CSDR  should  include  a  provision  stating  that  an 
evaluation  of  CSDR  in  its  entirety  should  be  carried  out,  with  a  particular  focus  on  its 
effectiveness and efficiency in meeting its original objectives (i.e. improve the efficiency 
and safety of EU settlement markets). The evaluation should thus consider all aspects of 
CSDR, but in particular the elements shown in the table below to monitor and evaluate 
progress towards meeting the specific objectives. 

Specific 
objective to 

Monitoring indicators 

When will 
monitoring 

By 
whom 

Source of 
informati

73 

 
 
measure 

Ensure 
adequate 
powers and 
information 
to monitor 
risks 
Reduce 
administrati
ve burden 
and 
compliance 
costs 

Minimise 
barriers to 
cross-border 
settlement 

Number of 3rd country CSDs that have applied for 
recognition. 

Number of colleges established by EU CSDs. 

EU settlement efficiency rates. 
Average (no. of days) duration of settlement fails.  
Number of CSDs providing cross-border services. 
Number of countries in which CSDs provide cross-border 
services. 
Number of CSDs able to access banking services. 
Number of CSDs providing foreign currency settlement. 
Number  of  CSDs  able  to  use  the  exception  under  the 
threshold. 
Number of CSDs providing cross-border services. 
Number of countries in which CSDs provide cross-border 
services. 
Number of CSDs able to access banking services. 
Growth of foreign currency settlement.  
Number of CSDs providing foreign currency settlement. 
Number  of  CSDs  able  to  use  the  exception  under  the 
threshold. 

ESMA 

on 
ESMA 

ESMA 

ESMA, 
ESCB, 
CSDs 

ESMA 

ESMA, 
ESCB, 
CSDs 

start 
From date of 
application of 
the proposed 
amendments 
to CSDR. 

1 year after 
date of 
application of 
the proposed 
amendments 
to CSDR. 

1 year after 
date of 
application of 
the proposed 
amendments 
to CSDR. 

In  principle,  this  evaluation  should  take  place  at  least  5  years  after  the  application  of 
these  amendments.  The  evaluation  should  seek  to  collect  input  from  all  relevant 
stakeholders, but  in  particular  CSDs, banks  and custodians, investment  funds, investors 
and issuers. Input would also be required from ESMA as well as national authorities and 
central banks. Statistical data for the analysis should be sought primarily from ESMA. 

74 

 
 
ANNEX 1: PROCEDURAL INFORMATION 

Lead DG, Decide Planning/CWP references 

  Lead  Directorate-General:  Directorate-General  for  Financial  Stability,  Financial 

Services and Capital Markets Union. 

  Decide Planning Reference: PLAN/2020/8721  
  CWP  references:  The  initiative  is  included  in  the  Commission  Work  Programme 

2020244 as a REFIT item.245  

Organisation and timing 

  Organisation and timing of Inter Service Steering Group’s meetings: the Inter Service 
Steering Group included representatives of the Directorates General Climate Action 
(CLIMA), Competition (COMP), Economic and Financial Affairs (ECFIN), Internal 
Market,  Industry,  Entrepreneurship  and  SMEs  (GROW),  Justice  and  Consumers 
(JUST), Taxation and Customs Union (TAXUD), Trade (TRADE), the Legal Service 
(LS) and the Secretariat General (SG). 

o  1st Meeting on 19 February 2021; 
o  2nd meeting on 25 June 2021; 
o  3rd meeting on 9 September 2021; 
o  Written consultation (17- 23 September 2021). 

Consultation of the RSB 

  The draft Impact Assessment was submitted to the Regulatory Scrutiny Board on 29 
September 2021, for consideration at a meeting on 27 October 2021. The Regulatory 
Scrutiny Board issued a positive opinion on 29 October 2021 (ARES(2021) 6677103 
- 29/10/2021) 

Evidence, sources and quality 

Evidence used in the impact assessment came from a variety of sources, including: 

  Replies by stakeholders to a targeted consultation which ran from 8 December 2020 

and 2 February 2021 to obtain feedback on the implementation of CSDR246:  

  Reports from the European Securities and Markets Authority including:  

o  Report on internalised settlement247; 
o  Report on the cross-border provision of services by CSDs248; 
o  Report  on  the  provision  of  banking-type  ancillary  services  under 

CSDR249; 

o  Report on the use of FinTech by CSDs250.  

244  Communication from the Commission to the European Parliament, the Council, the European Economic 
and Social Committee and the Committee of the Regions, Commission Work Programme 2021 ‘A Union 
of vitality in a world of fragility’, Annex I,  COM(2020) 690 final. 

245  REFIT is the Commission's Regulatory Fitness and Performance programme.  
246  Summary Report of the Commission CSDR targeted consultation (see note 92). 
247  ESMA Report on internalised settlement (see note 86).  
248 ESMA Report on cross-border services (see note 50).  
249 ESMA Report ‘Provision of banking-type ancillary services under CSDR’ (see note 88). 
250  ESMA Report ‘Use of Fintech by CSDs’ (see note 89). 

75 

 
 
                                                           
  Report  from  the  Commission  to  the  European  Parliament  and  Council  under 
Article  75  of  Regulation  (EU)  No  909/2014  of  the  European  Parliament  and  of 
the Council of 23 July 2014 on improving securities settlement in the European 
Union  and  on  central  securities  depositories  and  amending  Directives  98/26/EC 
and 2014/65/EU and Regulation (EU) No 236/2012 (COM(2021) 348 final).251  
  Discussions  with  experts  from  Member  States'  authorities:  Meetings  held  on  22 

September 2020, 15 July 2021.252  

  Discussions with MEPs from the Economic and Monetary Affairs Committee: 6 

September 2021. 

  Statistics  and  reports  published  by  the  European  Central  Bank  and  the  Bank  of 
International  Settlements  (BIS).  In  the  case  of  the  European  Central  Bank  the 
Statistical Data Warehouse253 was used and in particular the data compiled in the 
“Securities  Trading,  Clearing  and  Settlement  Statistics”254.  For  international 
comparison  the  data  provided  by  the  Bank  for  International  Settlement, 
Committee on Payments and Market Infrastructures255 was used. The Committee 
periodically  publishes  reference  works  on  payment,  clearing  and  settlement 
systems in the member countries. 

ANNEX 2: STAKEHOLDER CONSULTATION  

This annex outlines the feedback received from stakeholders via the targeted consultation 
on the CSDR review (section 1), and in the context of building a Capital Markets Union 
(section 2). It provides information on the reports provided by ESMA (section 3) as well 
as  an  overview  of  an  exchange  of  views  on  the  CSDR  review  with  representatives  of 
Member States, of EU bodies and authorities, during the meeting of the Derivatives and 
Market Infrastructures Member States Working Group, which took place in Brussels on 
22 September 2020 and 15 July 2021 (section 4). 

1.  TARGETED CONSULTATION 
First,  a  targeted  public  consultation256  on  the  CSDR  review  was  conducted  between 
8 December 2020 and 2 February 2021. The Commission sought feedback in areas where 
targeted action may be necessary to ensure the fulfilment of the objectives of the CSDR 
in a more proportionate, efficient and effective manner, notably:  

  CSD authorisation & review and evaluation processes; 
  cross-border provision of services in the EU; 

251   CSDR Review report (see note 9). 
252  Summaries 

are 

available 

at: 

https://ec.europa.eu/transparency/expert-groups-
; 

register/screen/meetings/consult?lang=en&meetingId=22398&fromExpertGroups=false 
https://ec.europa.eu/transparency/expert-groups-
register/screen/meetings/consult?lang=en&meetingId=28987&fromExpertGroups=false. 
Statistical 

Warehouse, 

Central 

Bank 

Data 

253  European 

Payment 

Statistics: 

https://sdw.ecb.europa.eu/browse.do?node=9691104.  

254  See  the  latest  edition  “Securities  trading,  clearing  and  settlement  statistics  –  June  21”,  European  Central 

Bank, available at: https://sdw.ecb.europa.eu/reports.do?node=1000004055.  

255 For a compilation of data and publication on settlement see Bank for International Settlement, Committee 

on Payments and Market Infrastructures: https://www.bis.org/cpmi/paysysinfo.htm.   

256  The  targeted  consultation  questionnaire  is  available  at:  https://ec.europa.eu/info/consultations/finance-

2020-csdr-review_en  

76 

 
  
                                                           
internalised settlement; 

 
  CSDR and technological innovation; 
  authorisation to provide banking-type ancillary services; 
  scope of requirements applying to the settlement of financial instruments; 
  settlement discipline.  

The  Commission  received  91  responses  to  the  targeted  consultation.  The  feedback 
statement  summarising  the  responses  received  was  published  on  the  Commission 
website257. The majority of responses came from firms and industry associations, i.e. 43 
companies/business  organisations  and  33  business  associations.  In  addition,  responses 
were  received  from  10  public  authorities,  one  NGO  and  four  entities  categorised  as 
“Other”. Among the companies and business associations responding, most indicated the 
following as their main field of activity: banking (30 respondents), operation of financial 
market infrastructure (23 respondents) or investment management (13 respondents). No 
private individuals responded to this targeted consultation. Responses were received from 
18  Member  States,  with  the  largest  number  coming  from  Germany  (12),  Belgium  (8), 
France (8) and the Netherlands (7). In addition, a number of responses came from outside 
the EU, mainly the United Kingdom (17) and the United States (8). 

The key messages from the consultation were the following:  

  According  to  a  vast  majority  of  respondents,  the  rules  on  the  cross-border 
provision  of  services  in  the  EU  need  to  be  revised,  in  particular  to  clarify  and 
simplify  the  passporting  rules  as  well  as  to  enhance  the  cooperation  between 
national competent authorities (NCAs).  

  CSDs argued that the rules on the authorisation to provide banking-type ancillary 
services hinder settlement in foreign currencies and restrict access to liquidity for 
CSDs not authorised to provide banking-type ancillary services.  

  The  settlement  discipline  regime  was  the  topic  for  which  the  Commission 
received  the  most  contributions.  All  stakeholders  agreed  that  clarity  on  the  way 
forward is needed as soon as possible.  

  The framework for third-country CSDs raised questions amongst all categories of 
stakeholders, in particular on the need to have more information on third-country 
CSDs providing services in relation to financial instruments constituted under the 
law of a Member State.  

  Respondents  supported  the  simplification  of  certain  requirements  regarding 
CSDs’  authorisation,  annual  review  and  evaluation,  as  well  as  review  of  the 
grandfathering clauses.  

  A  majority  of  respondents  stated  that  immediate  action  is  not  required  on  two 
topics: (a) technological innovation, because any changes to CSDR to realise the 
full potential of fintech should be postponed until the Pilot Regime Regulation is 
agreed  upon  by  the  colegislators  and  implemented;  and  (b)  internalised 
settlement, as the obligation has only been in force for a limited period. 
In  addition  to  the  public  consultation,  DG  FISMA  also  received  confidential 
information from a number of firms.  

257  Summary Report of the Commission CSDR targeted consultation (see note 92). 

77 

 
                                                           
2.  CAPITAL MARKETS UNION 

Building  on  its  goal  to  finalise  the  creation  of  capital  markets  union  (CMU),  the 
Commission  launched  a call  for  expression  of  interest  to  join  a  High-Level  Forum 
(HLF) on capital markets union on 10 October 2019. 
On  10 June 2020  the HLF  published  its  final  report258  and  recommended,  amongst 
others, that the Commission conducts a targeted review of CSDR to strengthen the CSD 
passport and improve supervisory convergence among national competent authorities. It 
also invited national central banks to facilitate the servicing of domestic issuance in non-
domestic central bank money. A call for feedback on this final report has provided the 
Commission with views from a wider range of stakeholders. 
The 2020 CMU Action Plan259 announced the Commission’s intention to come forward 
with a legislative proposal to amend CSDR to improve its efficiency and effectiveness 
(CSDR  REFIT)  and  contribute  to  the  development  of  a  more  efficient  post-trading 
landscape in the EU. In particular, Action 13 (developing cross-border services) states 
that  “to  improve  the  cross-border  provision  of  settlement  services  in  the  EU  without 
negatively impacting financial stability, the Commission will review the rules covering a 
wide range of topics, including: (i) the cross-border provision of services by CSDs on the 
basis of a CSD passport and (ii) the procedures and conditions under which CSDs have 
been  authorised  to  designate  credit  institutions  or  themselves  to  provide  banking-type 
ancillary services”. 

3.  ESMA 

Under Article 74 of CSDR, ESMA is required to submit a number of reports to the 
Commission on the implementation of the Regulation annually. Four reports published 
in  2020  and  2021  were  submitted  to  the  Commission  in  the  context  of  the  CSDR 
review.  In  November  2020,  ESMA  submitted  two  reports  on  internalised  settlement260 
and the cross-border provision of services by CSDs and the handling of applications to 
provide  notary  and  central  maintenance  services  cross-border261.  In  July  and  August 
2021, ESMA submitted two additional reports on the provision of banking-type ancillary 
services under CSDR262 and the use of fintech by CSDs263.  
On 20 May 2021, ESMA also sent a letter to the Commission264 suggesting changes in 
three areas: in relation to T2S, the third-country recognition regime, and the frequency of 
ESMA  reports  to  the  European  Commission  on  CSDR  implementation.  ESMA  sent 

258  Final report of the High Level Forum on the Capital Markets Union (see note 70).(europa.eu).:  
259  Commission Communication ‘A Capital Markets Union for people and businesses – New Action Plan’ (see 

note 10), Action 13. 

260  https://www.esma.europa.eu/sites/default/files/library/esma70-156-3729_csdr_report_to_ec_-

_internalised_settlement.pdf 

261  https://www.esma.europa.eu/sites/default/files/library/esma70-156-3569_csdr_report_to_ec_-_csd_cross-

border_services.pdf 

262  esma70-156-4582_report_to_the_ec_-_csdr_banking_services.pdf (europa.eu) 
263  Report 

the  European  Commission:  use  of  Fintech  by  CSDs,  ESMA,  2  August  2021: 

to 

https://www.esma.europa.eu/sites/default/files/library/esma70-156-3569_csdr_report_to_ec_-_csd_cross-
border_services.pdf 

264  https://www.esma.europa.eu/sites/default/files/library/esma70-156-4519_letter_to_ec_-_csdr_review.pdf 

78 

 
                                                           
another letter on 23 September 2021, supporting a delay in the application of the buy-in 
regime.265 

4.  MEETING  OF  THE  DERIVATIVES  AND  MARKET  INFRASTRUCTURES  MEMBER 

STATES WORKING GROUP 

The  Commission  conducted  several  meetings  with  Member  States,  stakeholders, 
and  MEPs.  In  particular,  in  September  2020,  the  Commission  held  a  Member  States’ 
Expert  Group  meeting.  The  European  Parliament  Economic  and  Monetary  Affairs 
Committee secretariat, the ECB and ESMA were also invited. A subsequent meeting was 
held in July 2021 to consider a wide range of policy options and their potential impacts. 
A  summary  of  the  discussions  is  available  online  for  both  meetings266.  In  addition,  a 
meeting was held on 6 September 2021 with MEPs to present the CSDR report267 and the 
next steps. 

of 

the 

CSDR 

context 

review’, 

265  ESMA letter to the European Commission, ‘ESMA’s views on the way forward on settlement discipline in 
at: 

the 
https://www.esma.europa.eu/file/120971/download?token=IjhiamXS. 
266  Link to the minutes of the meetings to be added once they are published. 
267  Report from the Commission to the European Parliament and the Council under Article 75 of Regulation 
(EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities 
settlement in the European Union and on central securities depositories and amending Directives 98/26/EC 
and  2014/65/EU  and  Regulation  (EU)  No  236/2012,  COM(2021)  348  final,  1  July  2021: 
https://ec.europa.eu/finance/docs/policy/210701-csdr-report_en.pdf 

September 

Available 

2021. 

23 

79 

 
  
 
                                                           
ANNEX 3: WHO IS AFFECTED AND HOW? 

Practical implications of the initiative 

1.   IMPLICATIONS FOR CSDS 

Most  options  retained  have  a  positive  effect  ensuring  more  proportionate  regulation  of 
CSDs and enhancing the competitiveness of the EU settlement market.  

First, CSDs would benefit from reduced costs when operating in the EU, notably due to a 
reduction  of  barriers  to  cross-border  settlement  stemming  from  the  setting  up  of 
mandatory  colleges  and  the  replacement  of  the  current  passporting  procedure  at  the 
Member State level by a simple notification.  

In  particular,  the  passporting  requirements  related  to  national  laws  and  the  role  of 
national  authorities  are  the  ones  that  raised  most  issues.  Removing  such  requirements 
would  alleviate,  clarify  and  accelerate  the  passporting  process.  This  benefit  would  be 
ongoing.  Should  a  CSD  wish  to  passport  in  26  Member  States  to  be  able  to  provide 
services  throughout  the  EU,  it  is  estimated  that  it  would  cost  on  average  at  least 
EUR 780 000  (see  section  2.3.1).  Should  the  simplified  passporting  process  reduce  by 
75%  the  costs  of  passporting,  this  CSD  would  incur  a  one-off  saving,  on  average, 
EUR 585 000.  Currently  15  CSDs  are  providing  services  cross  border  in  at  least  one 
Member  State.  If  the  simplified  passporting  process  allows  at  least  10  other  CSDs  to 
passport  in  26  Member  States  this  would  help  to  save  on  average  EUR 5 850 000  for 
CSDs.  This  would  be  a  one-off  benefit  for  CSDs.268  Ongoing  costs  of  monitoring 
compliance  with  the  passport  would  also  be  significantly  reduced.  Should  a  CSD 
passport in 26 Member States to provide services throughout the EU, it is estimated that 
it  would  cost  on  average  at  least  EUR 52 000  per  year  (see  section  2.3.1).  Should  the 
simplified passporting process reduce by 75% the costs of passporting, this CSD would 
be saving, on average, EUR 39 000 per year. Currently 15 CSDs are providing services 
cross border in at least one Member State. If the simplified passporting process entails at 
least  10  other  CSDs  to  passport  in  26  Member  States  this  would  help  to  save  ca. 
EUR 390 000 for CSDs per year. This would be ongoing benefit for CSDs.  

The introduction of mandatory colleges would also benefit to EU CSDs due to the legal 
certainty  related  to  the  enhancement  of  supervisory  convergence  and  reduction  of  the 
level of interactions of CSDs with various national competent authorities across the EU. 

Second, CSDs would benefit from a reinforced level playing field, both  within the EU, 
with the introduction of mandatory colleges that would help ensuring consistency of the 
supervisory approaches across Member States, and outside the EU, with the end date of 
the  grandfathering  clause  for  third-country  CSDs.  The  implementation  of  a  notification 
requirement by third-country CSDs regarding the activities they carry out within the EU 
and/or with EU participants would also indirectly benefit to EU CSDs, as it would help 
identify  which  third-country  CSDs  provide  services  and  in  which  volumes,  thus 
increasing transparency in the market for EU CSDs.  

Third,  the  preferred  options  regarding  the  provision  of  banking  services  related  to 
settlement in foreign currencies may create additional opportunities for CSDs that do not 

268  Commission calculations based on confidential information provided to DG FISMA services. 

80 

 
 
                                                           
hold  a  banking  license  and  thus  increase  competition  in  this  domain.  The  option 
consisting in allowing CSDs already authorised to provide banking services (or “banking 
CSDs”) to offer such services to CSDs that do not have such authorisation (“non-banking 
CSDs”) could immediately start since it would not require any further authorisation and 
the risk management arrangement are already in place at the level of the banking CSDs. 
On the downside, it could favour groups that already include a banking CSDs and, from a 
risk perspective, concentrate the risks within such groups.  

Increasing the threshold could enable some CSDs to develop their services to investors 
both  domestically  and  cross-border  and  thus  obtain  appropriate  economies  of  scale  to 
cover  authorisation  costs  to  provide  banking  services  themselves.  The  combination  of 
these would further amplify the possible benefits. 
It is estimated that269 EUR 16 billion additional settlement in foreign currencies could be 
expected on an annual basis270. If extrapolated to the total number of EEA non-banking 
CSDs, this could mean an additional annual possible offering of at least EUR 80 billion 
of  settlement  in  foreign  currencies.  This  does  not  take  into  account  whether  if  this 
additional settlement would affect existing settlement in foreign currencies undertaken by 
CSDs already authorised to provide ancillary banking services. The additional offering of 
settlement in foreign currencies would tap in the identified demand, mostly in the area of 
bonds  where  a  lack  of  offering  holds  back  multi-currency  bond  issuance.  Increased 
competition  between  CSDs  could  also  drive  more  innovation  by  CSDs  and  hence 
settlement efficiencies. 

An  unlikely  negative  effect  could  be  the  possible  increased  probability  of  contagion 
effects  on  settlements  through  defaults  of  settlement  agents  in  foreign  currencies 
(proportionate to the increased thresholds).271 This could however be offset by increased 
supervision  regarding  the  relevant  credit  institutions  providing  the  services  to  CSDs. 
One-off costs (authorisations or setting up the operational capacity) could be covered by 
longer term providing of the service.  

Finally,  the  proposed  changes  to  the  settlement  discipline  regime  would  ensure  a  more 
proportionate  approach  to  the  treatment  of  settlement  fails.  The  target  amendments 
contemplated for cash penalties and mandatory buy-in would bring the needed clarity to 
CSDs  in  order  to  implement  these  requirements  in  the  most  efficient  manner.  CSDs 
would be affected directly by the suspension of the buy-in framework, and there would 
be sunk (or at least delayed) costs to a greater or lesser degree depending on the CSD in 
question.272 

2.  IMPLICATIONS FOR ISSUERS  

Under the preferred options, issuers would benefit from  increased competition between 
CSDs.  The  replacement  of  the  passporting  procedure  at  the  level  of  the  host  Member 
State  with  a  simple  notification  would  increase  cross-border  activities.  In  addition,  an 
improved framework for the cross-border provision of services through the establishment 

269  European  Commission  consultation,  ECB  consultation  (confidential)  and  ESMA  Report  ‘Provision  of 

banking-type ancillary services under CSDR’ (see note 88).    

270  Current total absolute value of settlement of the CSDs and applied the  growth percentages mentioned by 
the  CSDs  themselves.  This  gives  an  anticipated  total  of  settlement  in  foreign  currencies  (settlement  + 
corporate actions). We then subtracted from these figures the current absolute values in foreign currencies, 
which gives the anticipated total net gain from the proposed CSDR changes. 

271  Confidential information provided to DG FISMA services. 
272272 Supported by confidential information provided to DG FISMA services. 

81 

 
                                                           
of  mandatory  colleges  could  lead  to  an  increased  supervisory  convergence,  thus 
removing  some  barriers  to  the  competition  between  CSDs.  Together,  the  proposed 
changes to CSDR could lead to more competition between CSDs and a wider choice for 
issuers of listing venues and access to a deeper capital market.  

In the same vein, under the preferred options regarding the provision of banking services 
related  to  settlement  in  foreign  currencies  by  non-banking  CSDs,  issuers  would  have 
more  choice  in  terms  of  financing  arrangements  and  would  benefit  from  increased 
competition and a greater choice in issuance.  

The  enhanced  supervision  of  EU  CSDs  through  the  establishment  of  colleges  and  of 
third-country  CSDs  through  the  end-date  for  the  grandfathering  clause  and  the 
notification  requirements  could  have  a  positive  impact  on  the  protection  of  issuers  and 
investors. In particular, the end of the grandfathering clause for third-country CSDs could 
positively  affect  issuers  on  an  ongoing  basis  as  third-country  CSDs  would  have  to 
operate  under  a  regime  equivalent  to  CSDR,  and  therefore  according  to  the  same 
standards in terms of protection of issuers. The notification requirement for third-country 
CSDs would also have a positive impact on issuers as it would increase transparency in 
the  market,  which  would  help  identifying  any  potential  risks,  in  particular  on  financial 
stability.  

With  regard  to  the  end  of  the  grandfathering  clause  for  third-country  CSDs  it  should 
however be noted that, as very little information is available on how many third-country 
CSDs operate in the EU, this option, when it enters into place, may reduce the number of 
services offered by third-country CSDs in the EU. 

Lastly, issuers would benefit from specific clarifications with regards to transactions that 
are  in-scope  of  the  settlement  discipline  regime.  For  example,  according  to  some 
stakeholders,  exempting  ETP  (exchange-traded  products)  primary  market  transactions 
from mandatory buy-in could potentially help avoid a circular scenario whereby the ETP 
provider  creates  ETP  units  just  to  receive  these  same  units  back  through  the  buy-in 
process to subsequently cancelling them273. 

3.  IMPLICATIONS FOR INVESTORS 

The  main  benefits  of  the  chosen  options  for  investors  would  stem  from  increased 
competition  between  CSDs  as  well  as  the  introduction  of  a  two-step  approach  and 
clarifications  to  the  settlement  discipline  regime.  Competition  between  CSDs  would  be 
enhanced  by  the  replacement  of  the  passporting  procedure  at  the  level  of  the  host 
Member  State  with  a  simple  notification  or  through  greater  supervisory  convergence 
thanks  to  the  establishment  of  mandatory  colleges  which  would  lead  to  increased  CSD 
cross-border  activities.  Together,  such  changes  could  lead  to  more  integrated  capital 
markets,  more  efficient  settlement,  including  cross-border  settlement,  benefitting 
investors.  

Similarly greater access to settlement in foreign currencies by non-banking CSDs would 
give investors more choice in terms of instruments and hence greater risk and currency 
diversification in their cross-border investments.  

The  enhanced  supervision  of  EU  CSDs  through  the  establishment  of  colleges  and  of 
third-country  CSDs  through  the  end-date  for  the  grandfathering  clause  and  the 

273 See EFAMA public consultation reply, Q.31.2 & Q.34.1 

82 

 
                                                           
notification requirements could have a positive impact on the protection of investors, by 
giving  providing  the  market  with  greater  transparency,  predictability  and  regulatory 
stability.  

With  regard  to  the  end  of  the  grandfathering  clause  for  third-country  CSDs  it  should 
however be noted that, as very little information is available on how many third-country 
CSDs operate in the EU, this option, when it enters into place, may reduce the number of 
services offered by third-country CSDs in the EU. 

Finally,  the  proposed  changes  to  the  settlement  discipline  regime  would  ensure  a  more 
proportionate approach to the treatment of settlement fails, while ensuring that levels of 
settlement efficiency continue to improve in the EU, benefitting investors. 

The targeted amendments contemplated for cash penalties and mandatory buy-in would 
bring necessary clarifications to investors in order to implement these requirements in the 
most efficient manner. In particular, amendments to the pass-on mechanism would allow 
solving all settlement fails along the same chain by one buy-in in the original settlement 
fail which provoked the other fails. According to one estimate the introduction of a pass-
on mechanism would reduce costs by 37.5%274. This would be combined with measures 
to address the rigidness in timing of when a buy-in is initiated and the asymmetry in price 
differentials275.  These  technical  clarifications  would  reduce  the  complexity  and  the 
burden  of  managing  a  buy-in  process,  hence  costs  for  investors.  In  addition,  certain 
transactions would no longer be subject to the settlement discipline regime further to the 
proposed change of scope, which would permanently  reduce the compliance burden on 
market participants by removing certain transactions. 

Regarding  the  two-step  approach  for  mandatory  buy-in,  the  major  negative  impacts  in 
terms  of  liquidity  and  market  stability  caused  by  mandatory  buy-ins  would  be,  at  least 
temporarily, avoided. Such approach would also avoid a duplicative repapering work for 
participants that could arise due to changes to the regime under the targeted amendments 
previously proposed (which would have otherwise been implemented after the entry into 
force  of  the  buy-in  regime,  thus  triggering  the  need  for  participants  to  do  some 
repapering in order to take into account such changes).  

It should be noted that the proposed two-step approach would result in sunk cost related 
to  the  setting  up  of  a  buy-in  agent  offering  by  one  entity  (the  only  one  buy-in  agent 
service  provider  that  has  emerged  so  far).276  However,  this  is  offset  by  the  fact  that  to 
comply with  the buy-in  requirements,  with  IT,  HR and consulting costs, it  is  estimated 
that  the  average  cost  per  market  participant  to  set  up  a  connection  to  a  buy-in  agent 
would  be  around  EUR 1 million,  amounting  to  EUR 1.5 billion  for  all  in-scope  EU 
market  participants277.  Depending  on  the  potential  targeted  changes  to  be  made  to  the 
buy-in regime, such costs savings could either be temporary (i.e. until the buy-in regime 
enters  into  force)  or  permanent  (e.g.  if  the  changes  allow  for  a  simplified  approach 
regarding the requirements related to buy-in agents). 

4.  IMPLICATIONS FOR ESMA  

Under the preferred policy options, ESMA may incur limited additional costs but would 
benefit from a strengthened supervisory environment.  

274  For explanation and calculation of costs savings see J.P. Morgan public consultation reply, Q. 34.1 
275  ICMA, ISLA, AFME public consultation reply. 
276  This is supported by confidential information provided to DG FISMA services. 
277  This is supported by confidential information provided to DG FISMA services. 

83 

 
                                                           
In terms of costs, ESMA would mainly be impacted by the establishment of mandatory 
colleges.  Indeed,  it  is  estimated  that  such  additional  costs  may  range  from  about 
EUR 130 000 to EUR 260 000 per annum depending on the number of CSDs for which 
colleges  could  be  established  and  their  powers.278  However,  ESMA  would  be  able  to 
benefit from the experience it has already acquired in the field of colleges under EMIR, 
and therefore very limited, if any, one-off operational costs are envisaged.  

Other  costs  may  also  arise  from  the  management  by  ESMA  of  the  process  for  the 
notification  by  third-country  CSDs  of  their  activities  within  the  EU.  Based  on 
Commission estimates following the submission of confidential data279, ESMA estimated 
costs  for  one  third-country  CSD  notification  would  amount  to  ca.  EUR 2 600  per 
notification.  Assuming  that  5  third-country  CSDs  would  notified,  the  costs  would  be 
estimated  around  ca.  EUR 13 000  for  ESMA.  This  would  be  one-off  cost  that  could 
potentially be covered by a notification fee to be paid by each third-country CSD.  

In addition, as ESMA grants recognition for third-country CSDs, it might potentially also 
increase ESMA costs if third-country CSDs which are currently using the grandfathering 
clause  would  decide  to  apply  for  recognition  in  order  to  continue  their  activities  in  the 
EEA.  It  is  not  currently  known  how  many  third-country  CSDs  are  using  the 
grandfathering clause and would apply for recognition. However, it can be assumed that 
these costs have been anticipated since CSDR entered into application in 2014. 

Finally, ESMA may incur costs in the context of the development of new RTS and ITS in 
the  context  of  the  implementation  of  the  proposed  options  regarding  the  provisions  of 
ancillary banking services and the settlement discipline regime.  

On the other hand, the simplification of the passporting procedure  would alleviate their 
costs  as  the  passporting  requirements  would  be  simpler  and  clearer.  Further,  a  clear 
determination  of  in-scope  transactions  would  also  lessen  the  administrative  burden  on 
ESMA related to replying to Q&A’s. 

Beyond  the  potential  limited  costs,  ESMA  would  benefit  from  some  of  the  preferred 
policy  options  which  would  strengthen  the  supervisory  environment.  In  particular,  the 
notification process for third-country CSDs would directly positively affect ESMA as it 
would give the European authority more information and help it to identify and monitor 
risks. Further, amendments to the pass-on mechanism would be beneficial to ESMA as 
fewer buy-ins would contribute to market stability.  Finally, a clear determination of in-
scope  transactions  would  also  lessen  the  administrative  burden  on  ESMA  related  to 
replying to Q&A’s.  

5.  IMPLICATIONS FOR NCAS 

The  impact  of  the  preferred  policy  options  on  NCAs  would  be  limited  but  generally 
positive.  

Additional costs may be incurred by NCAs due to the need to monitor more closely the 
ancillary  banking  activities  carried  out  under  the  new  proposed  framework  (i.e.  higher 
thresholds and possibility for banking CSDs to provide banking services to non-banking 
CSDs), and their participations to mandatory colleges (or their organisation, as the case 
may be).  

278  Commission estimates based on confidential data provided to DG FISMA services. 
279  Based on confidential information provided to DG FISMA services. 

84 

 
                                                           
Nonetheless, at the same time, their ongoing costs will be reduced due to the streamlined 
cooperation  of  authorities  and  their  increased  access  to  information  and  powers  to 
monitor risks compared to today. 

Further,  NCAs  will  alleviate  the  costs  and  time  spent  on  passporting  if  the  passporting 
procedure is simplified. Should a CSD wish to passport in 26 Member States to be able 
to  provide  services  throughout  the  EU,  it  is  estimated  that  it  would  cost  to  national 
authorities  altogether  at  least  EUR 79 000  (see  section  2.3.5).  Should  the  simplified 
passporting  process  reduce  by 75% the costs of  passporting, the 26  national  authorities 
would  be  saving  all  together,  on  average,  ca.  EUR 59 000.  Currently,  15  CSDs  are 
providing  services  cross  border  in  at  least  one  Member  State.  If  the  simplified 
passporting process enables at least 10 other CSDs to passport in 26 Member States this 
would help to save on average EUR 590 000 for 27 national authorities.  

Finally,  the  notification  requirement  for  third-country  CSDs  would  indirectly  impact 
NCAs  as  they  would  get  information  on  third-country  CSDs  activities  through  ESMA, 
helping them to identify and monitor risks.  

6.  IMPACT ON THIRD COUNTRIES  

The  main  impact  on  third  countries  would  come  from  the  new  requirement  for  third-
country  CSDs  to  notify  the  activities  they  carry  out  in  the  EU  and  the  end  of  the 
grandfathering  clause  for  third-country  CSDs.  In  practice  however,  such  impact  should 
be limited, first because the triggering of the recognition requirement further to the end of 
the  grandfathering  clause  should  have  been  anticipated  by  the  relevant  third-country 
CSDs (the purpose of the grandfathering clause never was to allow third-country CSDs 
to keep providing services for an indefinite period of time without complying with CSDR 
provisions),  second  because  the  new  notification  requirement  would  be  a  one-off 
exercise. 

The proposed options do not create any new kind of interactions between EU or Member 
State authorities with third-country authorities.  

85 

 
 
 
Summary of costs and benefits 

I. Overview of Benefits (total for all provisions) – Preferred Option 

Description 

Amount 

Comments 

Direct benefits 

Simplified passporting 
process and easier provision 
of cross-border services by 
CSDs. 

One-off reduction of administrative costs for 
CSDs: estimated at ca. EUR 5 850 000 for CSDs. 

Ongoing reduction of compliance costs for 
CSDs: estimated at ca. EUR 390 000 per year for 
CSDs. 

One-off reduction of administrative costs for 
NCAs: estimated at ca. EUR 590 000 for all 
NCAs. 

Direct increase of cross-
border competition between 
CSDs, benefiting to 
investors and issuers. 

No estimate available. 

Clarified and simplified passporting process, 
lowering administrative costs for both CSDs 
and NCAs. 

It is estimated that this can bring about one-
off savings of, on average, EUR 585 000 per 
CSD. The total figure assumes that at least 
10 other CSDs passport in 26 Member 
States. 

Savings of, on average, EUR 39 000 per 
year per CSD. It is estimated that the 
simplified passporting process would reduce 
by 75% the costs of passporting. The total 
figure assumes that 10 CSDs would benefit 
from the new regime for passporting in 26 
Member States. 

Total saving of, on average, ca. EUR 59 000 
per NCA. Assumptions: the simplified 
passporting process would reduce by 75% 
the costs of passporting The total figure also 
assumes that 26 NCAs benefit from these 
savings for 10 CSDs passporting into their 
respective Member States. 

The replacement of the passporting 
procedure at the host Member State level 
with a notification reduces the costs of 
cross-border entry and thereby facilitates 
competition. In addition, an improved 
framework for the cross-border provision of 
services through the establishment of 
mandatory colleges could lead to increased 
supervisory convergence, thus removing 
additional barriers to cross-border 
competition. This will benefit both investors 
and issuers and will increase market 
efficiency. 

86 

 
 
 
 
 
 
 
 
 
Enhanced supervisory 
convergence. 

No estimate available. 

Reinforced level playing 
field for CSDs, both within 
the EU and outside the EU. 

No estimate available. 

Additional opportunities for 
CSDs that do not hold a 
banking license. 

It is estimated that additional EUR 16 billion 
settlement in foreign currencies could be 
expected annually280. If extrapolated to the total 
number of EEA non-banking CSDs, this could 
mean an additional annual possible offering of 
at least EUR 80 billion281 of settlement in 
foreign currencies.  

More proportionate 
approach to the treatment of 
settlement fails. 

Delayed implementation costs for investors 
and issuers with a postponement in the 
introduction of the mandatory buy-in: estimated 
at ca. EUR 1.5 billion.282 

Reduction of annual operational/ subscription 
fees for connecting to a buy-in agent to handle 
government bond fails in one CSD, estimated 
between EUR 598 900 294 and EUR 1 197 800 
588, according to one estimate.283 

The introduction of mandatory colleges 
would benefit EU CSDs operating cross-
border due to the legal certainty related to 
the enhancement of supervisory 
convergence and reduction of the level of 
interactions of CSDs with various national 
competent authorities across the EU. This 
would also enhance supervision of CSDs 
operating cross-border preventing spill-over 
effects and allow for better management of 
systemic risk. 

Within the EU: mandatory colleges would 
help ensuring consistency of supervision 
across Member States, thus ensuring level 
playing field and benefiting EU CSDs. 

Outside the EU: end date of the 
grandfathering clause for third-country 
CSDs would ensure level playing field with 
third-country CSDs, benefiting EU CSDs. 

Increasing the threshold could enable some 
CSDs to develop their services to investors 
both domestically and cross-border, 
benefitting investors and issuers through a 
more competitive offering. 

Average cost per market participant to set up 
a connection to a buy-in agent is estimated, 
on average to be EUR 1 million, based on 
stakeholder input. This results in a total 
figure of EUR 1.5 billion for all in-scope EU 
market participants286. Such costs savings 
could be temporary (i.e. until the buy-in 
regime enters into force) or permanent (e.g. 
if conditions for the entry into force of the 

280 Based on anonymised confidential information provided to DG FISMA services. This figure is based on the 
current total absolute value of settlement of CSDs and applied  to potential growth in settlement of CSDs. 
This gives an anticipated total of settlement in  foreign currencies.  The current absolute  values in foreign 
currencies are then subtracted, which gives the anticipated total net gain from the proposed CSDR changes. 
281 This estimate of benefits does not take into account whether it would affect existing settlement in foreign 

currencies undertaken by CSDs already authorised to provide ancillary banking services. 

282 This is supported by confidential information provided to DG FISMA services. 
283  Data 
CSDR 

provided 

response 

ICMA 

the 

by 

its 

in 

targeted 

consultation, 

https://www.icmagroup.org/assets/documents/Regulatory/Secondary-markets/CSDR-Settlement-
Regulation/ICMACSDR-Review-Targeted-ConsultationFeb-21Detailed-response-020221.pdf.. 

87 

 
                                                           
Introduction of a pass-on mechanism could 
reduce costs by 37.5%, according to one 
estimate284.  

Deferred introduction of mandatory buy-in will 
prevent some trading volumes disappearing or 
migrating outside the EU (Estimated at up to 4% 
- 5% of trade volume, equal to EUR 7 trillion 
annually285). 

buy-in regime are never met).  

The targeted amendments contemplated for 
cash penalties and mandatory buy-in would 
also bring necessary clarifications and 
reduce the complexity and the burden of 
managing a buy-in process, hence reducing 
costs for investors, market infrastructure 
providers and authorities alike. 

Improved supervisory 
capabilities for ESMA and 
NCAs. 

No estimate available. 

Increased protection of 
issuers and investors. 

No estimate available. 

Indirect benefits 

Increased transparency in 
the market. 

No estimate available. 

Increased competition 
between CSDs regarding the 
provision of settlement 
services is foreign 

No estimate available. 

ESMA and NCAs would have more 
information and would be able to better 
identify and monitor risks.  

Amendments to the pass-on mechanism 
would mean fewer buy-ins and would 
contribute to market stability. 

Enhanced supervision of EU CSDs through 
the establishment of colleges and of third-
country CSDs through the end-date for the 
grandfathering clause and the introduction 
of the notification requirements would lead 
to improved supervision of CSDs and thus a 
better protection of issuers and investors. 

The implementation of a notification 
requirement by third-country CSDs 
regarding the activities they carry out within 
the EU and/or with EU participants would 
also indirectly benefit market stability, as it 
would help identify which third-country 
CSDs provide services and in which 
volumes, thus increasing transparency in the 
market and help identify potential systemic 
risk. 

Issuers and investors would have more 
choice in terms of financing arrangements, 
issuance and risk diversification in their 

286  Confidential information provided to DG FISMA.  
284  For explanation and calculation of costs savings see J.P. Morgan public consultation reply, Q. 34.1. 
285  Based on confidential data provided to DG FISMA services indicated that 4%-5% of trade volume could 
cease to occur. Annual equity and equity-like instrument trading volumes and bond trading volumes were 
equal  to  EUR  128  trillion  end-2019  (See  chapter  “1.3.2  Size  of  the  market”  of  the  Impact  Assessment), 
giving a figure of up to EUR 7 trillion.  

88 

 
 
                                                                                                                                                                            
currencies, benefitting 
investors and issuers.  

Reduction of administrative 
burden related to the 
development of Q&As. 

No estimate available. 

Streamlined cooperation of 
authorities. 

No estimate available. 

II. Overview of costs – Preferred option 

cross-border investments. 

Clarifications regarding the settlement 
discipline regime (penalties and buy-in) 
would lessen the administrative burden on 
ESMA related to replying to Q&A’s. 

Ongoing costs will be reduced for NCAs 
due to the streamlined cooperation of 
authorities through the creation of colleges.  

Citizens/Consumers 
[Investors/ Issuers] 

Businesses [Market 
Infrastructure providers, 
CSDs]  

Administrations 

[NCAs, ESMA] 

One-off 

Recurrent 

One-off 

Recurrent 

One-off 

Recurrent 

No cost 
impact  

No cost 
impact  

No cost 
impact 

No cost 
impact 

Marginal 
costs to 
assess 
notificatio
ns. 

No cost 
impact apart 
from 
(neglible) 
costs 
changing 
current 
procedures.  

Direct costs 

Replacing of 
passporting 
at the host 
Member 
State level 
with a 
notification 

Indirect costs  No cost 
impact  

No cost 
impact 

Establish 
colleges 

No cost 
impact 

No cost 
impact 

Direct costs 

No cost 
impact 

No cost 
impact 

No cost 
impact 

No cost 
impact 

No cost 
impact 

No cost 
impact 

No cost 
impact 

Establish
ment of 
colleges 

EUR 
260000 

Indirect costs  No cost 
impact 

No cost 
impact 

No cost 
impact 

No cost 
impact 

No cost 
impact 

No cost 
impact 

Targeted 
amendment 

Direct costs  No cost 

No cost 

No cost 

No cost 

No cost 
impact as 

No cost 
impact as 

89 

 
 
 
impact 

impact 

impact 

impact 

to allow 
banking 
CSDs to 
offer 
services to 
other CSDs  

Indirect costs  No cost 
impact 

No cost 
impact 

No cost 
impact 

No cost 
impact 

No cost 
impact 

No cost 
impact 

No cost 
impact 

No cost 
impact 

Direct costs 

Amend 
threshold 
for banking 
services 

within 
current 
supervisory 
arrangement
s  

within 
current 
supervisor
y 
arrangem
ents 

No cost 
impact 

No cost 
impact 

No cost 
impact as 
within 
current 
supervisory 
arrangement
s  

No cost 
impact as 
within 
current 
supervisor
y 
arrangem
ents 

Indirect costs  No cost 
impact 

No cost 
impact 

No cost 
impact 

No cost 
impact 

No cost 
impact 

No cost 
impact 

No cost impact.  No cost 
impact.  

Marginal 
compliance 
costs to the 
clarified 
rules, i.e. 
removing 
out-of-
scope 
transactions 
and setting 
up a pass-
on 
mechanism.  

Direct costs 

Targeted 
amendment 
to 
settlement 
discipline 
regime 

No cost impact.  Marginal 

compliance 
costs to the 
clarified rules. 
In case of 
compliance 
costs to 
amended buy-
in rules, these 
can become 
sunk cost (if 
mandatory buy-
in will be 
abandoned).  

Reduction 
of costs 
related to 
settlement 
monitoring 
and 
compliance
, guidance 
provided to 
market 
participant
s.  

Indirect costs  No cost 
impact 

No cost impact  No cost impact   No cost impact  No cost impact  No cost 
impact 

No cost 
impact 

Direct costs 

Deferred 
introduction 
of 
mandatory 

No cost impact  Costs related to 

the setting up 
of a mandatory 
buy-in (i.e. 
setting up or 
connecting to a 

Some reporting 
costs as CSDs 
will need to 
provide more 
accurate and 
timely data as 

No cost impact  Some costs 

related to 
settlement 
fail 
monitoring, 
occassional

90 

 
buy-in  

buy-in agent) 
may prove to 
be sunk costs if 
mandatory buy-
in is 
abandoned.  

to the 
evolution of 
settlement 
efficiency to 
support 
decision on the 
implementatio
n of mandatory 
buy-in. 

ly going 
beyond 
current 
requireme
nts, and 
assessment 
of the 
evolution 
of fail rate 
to support 
decision on 
the 
implement
ation of 
mandatory 
buy-in. 

Indirect costs  Setting up 

cost for 
collecting 
cash 
penalties, 
but this is 
largely 
already 
prepared by 
the market 
participants. 

No cost 
impact 

Ending the 
grand-
fathering 
clause  

Direct costs 

Cost related to 
the 
implementatio
n of cash 
penalties. 
These costs are 
marginal and 
largely 
implemented. 

Higher cost of 
financial 
transactions 
that enter 
delayed 
settlement 
(Cash penalties 
added to a 
transaction 
cost)287. These 
cost are 
manageable for 
the market. 

No cost impact  Third-country 

CSDs would 
incur costs 
attributed to 
seeking 
authorisation 
from ESMA.  

No cost impact  No cost impact  Potential 

costs 
related to 
determinin
g the need 
and terms 
of 
introductio
n of 
mandatory 
buy-in. 

Marginal costs 
for ESMA 
related to 
setting up 
procedure for 
handling 
equivalence 
decisions from 
third-country 
CSDs. 

Marginally 
increased 
costs for 
ESMA for 
handling 
authorizati
on 
requests 
from third-
country 
CSDs.  

Third-country 
CSDs would 
incur recurrent 
additional costs 
related to 
compliance 
with relevant 
EU rules (in 
case third 
country rules 
are deemed not 
equivalent with 
EU rules) and 

287  The initiative supported by this Impact Assessment does not introduce cash penalties, so its costs cannot be 
directly attributed to it. However, the costs of cash penalties in terms of impact on market pricing have not 
been incurred as cash penalties have not yet entered into force.  

91 

 
 
                                                           
potentially 
operating two 
settlement 
regimes (a EU 
one and a third 
country one). 

Indirect costs  No cost 
impact 

No cost impact  No cost impact  No cost impact  No cost impact  No cost 
impact 

No cost 
impact 

No cost impact  Third-country 

CSDs would 
incur costs 
attributed to 
the notification 
process with 
ESMA.  

No cost impact  Marginal 
costs for 
ESMA related 
to setting up 
procedure 
for handling 
third-country 
CSD 
notifications. 

Direct costs 

Notification 
requirement 
for third-
country 
CSDs  

Marginally 
increased 
costs 
related to 
handling 
new 
notificatio
ns. ESMA 
estimated 
costs for 
one third-
country 
CSD 
notificatio
n would 
amount to 
ca. EUR 2 
600 per 
notificatio
n. 

Indirect costs  No cost 
impact 

No cost impact  No cost impact  No cost impact  No cost impact  No cost 
impact 

92 

 
 
 
 
  
 
ANNEX 4: ANALYTICAL METHODS 

The  analysis  carried  out  as  part  of  the  impact  assessment  is  based  on  three 
methodological approaches: 

1. 
2. 
3. 

desk research;  
qualitative analysis and;  
quantitative analysis. 

The data used to calculate the expected benefits and costs stem from a variety of different 
data  sources.  Sources  include  in  particular  the  targeted  consultation  that  ran  from 
December  2020  to  February  2021,  stakeholder  meetings  (such  as  with  the  European 
Central  Securities  Depositories  Association  (ECSDA)  and  other  direct  contributions 
(including  confidential  ones)  received.  Additional  data  was  collected  from  publicly 
available sources (e.g. websites and annual statements of CSDs) and from the European 
Securities Markets Authority (ESMA). 

The  analysis  is  strongly  based  on  cost  estimates  provided  by  both  supervisors,  market 
participants  and  CSDs.  In  some  cases,  the  data  analysed  cannot  be  publicly  distributed 
given an extremely limited number of datapoints on specific market actors. Making such 
information  public  may  allow  identification  of  the  contributor.  Publication  of  this  data 
could  provide  information  to  active  or  potential  competitors  which  may  allow  them  to 
gain insights as to cost functions and other sensitive corporate information, thus leading 
to unfair competitive advantages. This data has been considered by the Commission in its 
analysis and the results are reflected qualitatively in this impact assessment. To that end, 
respective  figures  have  been  presented  in  the  Impact  Assessment  to  the  Regulatory 
Scrutiny  Board  as  part  of  the  impact  assessment  scrutiny  process  as  coming  from 
confidential  contributions.  Some  data  has  been  removed  afterwards  as  the  publication 
would lead to identification of the contributor. 

The  presented  analysis  faces  several  methodological  limitations.  In  particular,  no 
meaningful  estimates  can  be  provided  as  to  the  increase  in  competition  between  CSDs 
and resulting lower costs that would occur under the preferred policy options. Estimates 
are provided only in terms of cost savings for cross-border entry of CSDs under a new 
passporting  regime. While the Commission  expects  a clear increase in  competition,  the 
market  impact  will  ultimately  depend  on  respective  corporate  decisions  of  CSDs  to 
engage in cross-border market entry. 

Likewise, in the area of banking services, the number of banking CSD is at present very 
limited (5), as, but to a lesser extent, the non-banking CSDs. This, in combination with a 
lack  of  data,  makes  the  meaningful  estimation  on  the  effects  of  the  presented  options 
difficult to provide and qualitative information was used and presented to make the case 
for the presented preferred options. While the Commission does expect these benefits to 
materialize, these will also  depend on future business  decisions taken by  the respective 
CSDs. 

Likewise, the possible impact of the mandatory buy-in regime, if and when implemented, 
cannot be clearly specified. The presented analysis is based on input received from both 
market  participants  and  supervisors.  Limitations  exists  in  particular  as  concerns  the 
possible  impact  on  market  liquidity  and  volatility.  Since  the  regime  is  not  presently  in 
application, all data collected in relation to these market impacts is based on modelling. 
This data nonetheless provides a good indication of the  expected effects. Other data on 

93 

 
costs (e.g. connection to buy-in agents) provides further support for the preferred policy 
option. 

94 

 
 
ANNEX 5: EVALUATION 

Section 1 Executive Summary 

The  Central  Securities  Depositories  Regulation  (CSDR  –  Regulation  909/2014)  is  an 
essential element of safe, stable and efficient EU capital markets. It offers a framework 
for  the  settlement  of  securities  transactions  ensuring  that  buyers  receive  securities  and 
sellers  receive  payment  after  a  securities  transaction  is  agreed  upon.  Other  services 
performed  post-trade  typically  include  clearing  (guaranteeing  performance  by  ensuring 
there  is  a  buyer  to  every  seller  and  a  seller  to  every  buyer)  and  post-trade  reporting 
(where individual transactions and/ or positions of participants are kept track of).  

Post-trade  services  are  an  integral  part  of  the  value  chain,  as  they  ensure  that  a 
transaction  is  completed,  i.e.  transfering  ownership  of  a  security  from  one  party  to 
another,  and  transfering  cash  as  payment.  Post-trade  services  are  provided  by  financial 
market 
repositories, 
sometimesby banks (including custodians) and Central Securities Depositories (CSDs). 

i.e.  Central  Counterparties 

infrastructures, 

(CCPs), 

trade 

CSDs, together with central counterparties (CCPs), help 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. Due to their key position 
in  the  settlement  process,  the  securities  settlement  systems  operated  by  CSDs  are  of 
systemic importance for the functioning of securities markets. Playing an important role 
in  the  securities  holding  systems  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,  hindering  the  undue  creation  or 
reduction of issued securities, and thus playing an important role in maintaining investor 
confidence.  Moreover,  securities  settlement  systems  operated  by  CSDs  are  closely 
involved  in  securing  collateral  for  monetary  policy  operations  as  well  as  in  securing 
collateral  between  credit  institutions  and  are,  therefore,  important  actors  in  the 
collateralisation process. 

CSDR was the EU’s response to the call of the Financial Stability Board, on 20 October 
2010, for the revision and enhancement of the existing standards to ensure more robust 
financial market infrastructures.288 It took into account the global standards for financial 
market  infrastructures  set  by  the  Committee  on  Payments  and  Settlement  Systems 
(CPSS) of the Bank of International Settlements (BIS) and the International Organisation 
of  Securities  Commissions  (IOSCO)  in  April  2012.289  CSDR  entered  into  force  on  17 
September 2014 with some parts, notably the part on settlement discipline, entering into 
force with a delayed application, on 1 February 2022. 

CSDR has been included in the 2021 Commission's Regulatory Fitness and Performance 
programme  (REFIT).  Inclusion  in  the  REFIT  programme  was  justified  by  the  need  to 
simplify targeted areas of CSDR and make them more proportionate, as evidenced by the 
contributions  to  the  public  consultation  on  CSDR290,  as  well  as  by  the  Commission's 
review  of  the  application  of  CSDR,  carried  out  in  accordance  with  Article  75  of 
CSDR.291 

288  https://www.fsb.org/wp-content/uploads/pr_101020.pdf  
289  https://www.bis.org/cpmi/publ/d101.htm  
290  https://ec.europa.eu/info/consultations/finance-2020-csdr-review_en  
291  https://ec.europa.eu/info/publications/210701-csdr-report_en  

 
 
                                                           
In this context, the purpose of this evaluation is to assess to what extent specific policy 
requirements  in  CSDR  have  met  their  objectives  and  in  particular  whether  these 
requirements  have  done  so  in  an  efficient  and  effective  way,  while  at  the  same  time 
ensuring that CSDR is coherent, relevant and providing EU added-value. 

Given that some of the core requirements of CSDR have only recently become applicable 
or are not applicable yet, this assessment does not constitute a full evaluation of CSDR, 
due to the lack of adequate evidence and as it is too early to draw a firm conclusion on 
long-term impacts. Instead, the evaluation assesses the core requirements of CSDR: 

  shorten  settlement  periods  and  set  cash  penalties  and  other  deterrents  for 

settlement fails; 

  ensure stability of CSDs by setting strict organisational, conduct of business and 

prudential requirements for CSDs; 

  allow authorised CSDs to provide their services across the EU; 
 

increase prudential and supervisory requirements for CSDs and other institutions 
providing banking services that support securities settlement. 

Given  that  the  evaluation  has  been  conducted  in  parallel  with  the  CSDR  review,  it  has 
fed into the problem definition of the impact assessment (IA) accompanying the CSDR 
REFIT initiative, and is presented as an Annex to the IA on the CSDR Review.  

This  evaluation  is  based  primarily  on  the  results  of  consultations  with  stakeholders, 
regular  exchanges  with  Members  of  the  European  Parliament  and  experts  from  the 
Member States, reports from and discussions with the European Securities and Markets 
Authority  (ESMA),  the  European  Systemic  Risk  Board  (ESRB),  and  the  European 
System  of  Central  Banks  (ESCB),  and  additional  desk  research  of  the  Commission 
services. More specific sources included:  

 
 
 
 

the CSDR review report of 1 July 2021292; 
the targeted public consultation of 8 December 2020293; 
the feedback statement related to the targeted consulation294; 
reports from ESMA on the implementation of CSDR295, as required by Article 74 
of CSDR and various input received from a wide array of stakeholders; 

On  the  basis  of  the  above-mentioned  evidence,  this  evaluation  has  considered  the 
following five criteria to assess the core requirements of CSDR, in accordance with the 
Better Regulation guidelines: 

  Efficiency; 
  Effectiveness; 

292  CSDR review report (see note 9).  
293  https://ec.europa.eu/info/consultations/finance-2020-csdr-review_en 
294  https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/2020-

csdr-review-summary-of-responses_en.pdf  

295  reports on the CSDR Review. See: On 5 November 2020, it published a report on internalised settlement: 

services 

https://www.esma.europa.eu/sites/default/files/library/esma70-156-3729_csdr_report_to_ec_-
_internalised_settlement.pdf.  Also  on  5  November  2020,  it  published  its  report  on  the  provision  of  CSD 
cross-border 
applications: 
https://www.esma.europa.eu/sites/default/files/library/esma70-156-3569_csdr_report_to_ec_-_csd_cross-
border_services.pdf.  On  8  July  2021  it  published  its  report  on  the  provision  of  banking-type  ancillary 
services: 
https://www.esma.europa.eu/sites/default/files/library/esma70-156-4582_report_to_the_ec_-
_csdr_banking_services.pdf and ; Report to the European Commission: use of Fintech by CSDs, ESMA, 2 
https://www.esma.europa.eu/sites/default/files/library/esma70-156-
August 
3569_csdr_report_to_ec_-_csd_cross-border_services.pdf.   

handling 

related 

2021: 

and 

of 

 
 
                                                           
 
  Relevance; 
  Coherence; 
  Added-value of EU action. 

This evaluation conludes the following: 

  On the effectiveness  and efficiency of the core requirements of CSDR,  it indicates 
that while the volume of settled trades increased since the entry into force of CSDR, 
cross-border  transactions  remained  stable  and  feedback  from  stakeholders  indicate 
that  in  several  areas,  e.g.  passporting,  licensing,  and  supervisory  assessments, 
significant  barriers exist and preliminary findings suggest  that  actions  (i)  to reduce 
disproportionate compliance burdens, (ii) to improve cross-border activity could 
be undertaken. Improvements could also be sought in the area of banking services, 
where the access to banking-type ancillary services is limited which in turn inhibits 
settlement  in  foreign currencies  and in  improvement of supervision,  both  impacting 
the possibilities or opportunities for firms to offer services cross-border. 

 

  The  objectives  of  CSDR  to  increase  the  safety  and  efficiency  of  EU  settlement 
market  and  ensuring  a  level  playing  field  for  CSD  services  remain  relevant,  and 
associated risks with EU settlement markets persist. 
In terms of coherence, CSDR is aligned with international efforts ensure stability and 
safety of post-trade infrastructures. In addition, CSDR is coherent with other pieces 
of EU legislation, such as the Commission’s Capital Market Union Action Plan, EU 
securities and banking regulations, as well as the Commission’s proposal to introduce 
a pilot regime for technological innovations of CSDs and DORA. 
In terms of the EU added value, CSDR covered a gap that existed in legislation by 
introducing a new framework aiming to address, in a uniform process at EU level, the 
lack  of  a  harmonised  approach  towards  the  EU’s  settlement  markets  and  in 
addressing the related systemic risks. 

 

Section 2 Introduction 

CSDR entered into force on 17 September 2014. It aims to maintain safe and trustworthy 
post-trade 
that  safeguard  financial  markets  and  provide  market 
participants confidence that securities transactions are executed properly and in a timely 
manner, including during periods of extreme stress. 

infrastructures 

CSDR lays down the core requirements for the  EU’s settlement markets. These include 
common requirements for CSDs across the EU and provide inter alia rules on: 

  shorter  settlement  periods  and  cash  penalties  and  other  deterrents  for  settlement 

fails (‘settlement discipline-rules’); 

  strict organisational, conduct of business and prudential requirements for CSDs; 
  a passport system allowing authorised CSDs to provide their services across the 

 

 

EU; 
increased prudential and supervisory requirements for CSDs and other institutions 
providing banking services that support securities settlement; 
increased  cooperation  requirements  for  authorities  across  Member  States  with 
respect  to  CSDs  providing  their  services  in  relation  to  financial  instruments 
constituted under the law of a Member State other than that of their authorisation 
and to CSDs establishing a branch in another Member State. 

 
 
 
 
In  accordance  with  Article  75  of  CSDR,  the  Commission  was  mandated  to  carry  out  a 
review of the application of CSDR and to present any appropriate legislative proposals. 
In  this  context,  the  Commission  has  carried  out  an  assessment  of  the  rules  currently  in 
place,  based  in  particular  on  a  targeted  public  consultation  and  input  from  various 
stakeholders, carried out by DG FISMA in the course of 2020 and the first half of 2021. 
On  1  July  2021,  the  Commission  adopted  a  report  on  the  review  of  CSDR  (the  CSDR 
review  report)296.  The  report  identified  areas  for  which  targeted  action  is  necessary  to 
ensure fulfilment of the CSDR objectives in a more proportionate, efficient and effective 
manner. 

Certain  of  core  requirements  of  CSDR  have  not  yet  been  implemented  or  the 
implementation  is  incomplete.  In  particular,  at  this  stage,  the  rules  around  settlement 
discipline are not yet applicable and are scheduled to enter into application on 1 February 
2022.  As  such,  due  to  the  lack  of  adequate  evidence,  the  evaluation  cannot  assess 
holistically and with historical data all elements of the impact of CSDR. 

Nevertheless,  the  CSDR  review  report  already  identifies  a  number  of  issues  relating  to 
the  implementation  of  those  requirements  that  already  apply  (namely,  (1)  passporting 
requirements,  (2)  cooperation  amongst  authorities  and  supervisory  convergence,  (3) 
banking services related to settlement, especially to foreign currencies, (4) aspects of the 
settlement discipline framework, in particular mandatory buy-ins, (5) the framework for 
third-country CSDs). 

In  addition,  under  Article  81(2c)  of  Regulation  (EU)  2010/10  establishing  a  European 
Supervisory Authority (European Securities and Markets Authority), the Commission is 
required,  after  consulting  all  relevant  authorities  and  stakeholders,  to  conduct  a 
comprehensive assessment of the potential supervision of third-country CSDs by ESMA 
exploring certain aspects, including recognition based on systemic importance, ongoing 
compliance, fines and periodic penalty payments. 

In  accordance  with  the  CSDR  review  report  and  further  analysis  conducted  in  this 
evaluation,  the  Commission  considers  proposing  a  targeted  legislative  initiative  on 
CSDR.  This  initiative  is  part  of  the  Commission's  Regulatory  Fitness  and  Performance 
programme (REFIT) and included in the Commission Work Programme297 and the 2020 
Capital Markets Union Action Plan.298 

In this context, the purpose of this evaluation is to assess to what extent specific policy 
requirements  in  CSDR  have  met  their  objectives  and  in  particular  whether  these 
requirements have done so in an efficient and effective way, while at the same time being 
coherent,  relevant  and  providing  EU  added-value.  The  evaluation  has  fed  into  the 
problem definition of the impact assessment (IA).  

Section 3 Background to the initiative 

296  Report from the Commission to the European Parliament and the Council under Article 75 of Regulation 
(EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities 
settlement in the European Union and on central securities depositories and amending Directives 98/26/EC 
and  2014/65/EU  and  Regulation  (EU)  No  236/2012,  COM(2021)  348  final,  1  July  2021: 
https://ec.europa.eu/finance/docs/policy/210701-csdr-report_en.pdf 

297  Commission Work Programme 2021 (see note 244). 
298  Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European  Economic 
and  Social  Committee  and  the  Committee  of  the  Regions  “A  Capital  Markets  Union  for  people  and 
businesses-new action plan”, COM (2020) 590 final. 

 
 
                                                           
Description of the initiative and its objectives 

legislation  specifying 

CSDR was published in the Official Journal of the European Union on 28 August 2014, 
and  entered  into  force  on  17  September  2014.  Some  of  the  requirements  did  not 
immediately  become  applicable,  as  CSDR  empowered  the  Commission  to  adopt 
secondary 
technical  modalities  and  a  phase-in  of  some 
requirements. As a result, requirements to adress settlement fails will only start to apply 
from  1  February  2022.299  Other  elements  of  CSDR  that  have  later  entry  dates  are  the 
requirement to  issue in book-entry  form,300  the shortening of the settlement period to 2 
days  after  the  conclusion  of  the  securities  transaction301  and  certain  reporting 
requirements that were made dependent on the entry into force of the technical secondary 
legislations. 

Recital (5) of CSDR provides a description of the objectives of the Regulation:  

"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, 
standards  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." 
CSDR seeks to increase the safety and improve settlement efficiency as well as provide a 
set  of  common  requirements  for  CSDs  across  the  EU  while  reducing  systemic  risk 
through the application of its core requirements, which include: 

1.  shorter  settlement  periods  and  cash  penalties  and  other  deterrents  for  settlement 

fails; 

2.  strict  authorisation,  organisational,  conduct  of  business  and  prudential 

requirements for CSDs; 

3.  a passport system allowing authorised CSDs to provide their services across the 

EU; 

4.  increased prudential and supervisory requirements for CSDs and other institutions 

providing banking services that support securities settlement; 

5.  increased  cooperation  requirements  for  authorities  across  Member  States  with 
respect  to  CSDs  providing  their  services  in  relation  to  financial  instruments 
constituted under the law of a Member State other than that of their authorisation 
and to CSDs establishing a branch in another Member State. 

299  Originally intended to apply from 1 February 2020, the entry into force was twice delayed upon proposal 

by ESMA:  esma70-156-3490_final_report_-_csdr_rts_on_settlement_discipline_-
_postponement_until_1_february_2022.pdf. 

300  Article 3(1) CSDR: from 1 January 2023 for transferable securities issued after that date and from 1 

January 2025 to all transferable securities.   

301  Article 5(2) CSDR: application from 1 January 2015. 

 
 
                                                           
Thus,  CSDR  plays  a  pivotal  role  in  the  post-trade  harmonisation  efforts  in  the  EU, 
enhancing the legal and operational conditions in particular for cross-border settlement in 
the Union, while promoting cross-border competition and financial stability. 

CSDR seeked to address the three main problems identified in the impact assessment that 
accompanied  the  CSDR  proposal  in  2014302  related  to  the  functioning  of  the  EU’s 
settlement  markets:  (i)  higher  risk  for  cross-border  (compared  to  domestic)  settlement; 
(ii)  higher  cost  for  cross-border  settlement;  and  (iii)  unlevel  playing  field  for  CSD 
services. These issues followed from ultimately three main drivers: (1) different market 
practices on the organisation of settlement; (2) different  rules  for CSDs across the EU; 
and (3) barriers of access to/from CSDs. 

The  strategic  objectives  of  CSDR  were  to  tackle  the  three  key  consequences  of  the 
problems identified in the previous section by: 

(1) 

(2) 

(3) 

Increasing safety of the EU settlement market;  

Increasing efficiency of the EU settlement market;  

Ensuring level playing field for CSD services. 

These strategic objectives translated into a number of specific objectives, as follows: 

  Reduce  the  complexity  of  cross-border  settlement  –  this  should  increase  both 

safety and efficiency of cross-border settlement; 

  Reduce  risk  of  arbitrage  to  the  "softest"  market  practice  (in  terms  of  settlement 

discipline) – this should increase the safety of settlement in general; 

  Ensure consistent definition of CSD services across the EU – this should improve 

level playing field between CSDs, as well as increase safety; 

  Reduce  the  fragmentation  of  post-trading  markets  –  this  should  increase  both 

safety and efficiency of cross-border settlement; 

  Reduce the scope for national monopolies – this should improve the level playing 
field  for  CSD  services  and  increase  competition  between  CSDs  and  between 
CSDs and intermediaries. 

These  specific  objectives  were  to  be  achieved  by  a  number  of  concrete  operational 
objectives, which were grouped in the following three categories: 

(1) 

(2) 

(3) 

Enhance  framework  for  settlement  in  the  EU  –  by  improving  cross-
border settlement discipline and harmonizing settlement periods; 
Introduce consistent rules for CSDs across the EU – such rules refered to 
both  the  prudential  and  organisational  rules  to  ensure  the  safety, 
efficiency  and  level  playing  field  of  CSDs,  as  well  as  the  licensing 
framework,  to  ensure  the  level  playing  field  and  competition  among 
CSDs; 
Remove  barriers  of  access  to/from  CSDs  –  this  refers  to  both  access 
between issuers and CSDs as well as between the CSDs themselves and 
between  CSDs  and  other  market  infrastructures  such  as  trading  venues 
and CCPs. 

An overview of the various objectives and their interconnectedness is depicted below in 
Figure  1.  It  also  provides  a  description  -  in  a  summarised  diagram  format  -  on  how 

302  https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=SWD%3A2012%3A0023%3AFIN  

 
 
                                                           
CSDR  was  expected  to  work  and  the  intervention  logic.  This  evaluation  uses  it  as  a 
structure carry out the evaluation and answer specific questions. 

Figure 1: Overview of objectives 

Nb: the arrows represent the key interrelationships. Most factors represented above are in fact interlinked. * 
refers to a competitive environment. 

Description of the situation before the adoption of CSDR 

Against the background of the ongoing financial crisis, around 2008 various international 
institutions  pleaded  to  strenghten  ensuring  safe  and  sound  post-trade  infrastructures 
inbuilding  a  safer,  more  stable  and  efficient  global  financial  system.  To  that  effect  the 
Council urged to step up the EU ambitions for post-trade infrastructures  with emphasis 
on safety and soundness, whereby it noted that "the reality of a single European securities 
market  is  not  compatible  with  a  fragmented  European  post-trading  sector.  Achieving 
competitive,  efficient  and  safe  pan-European  post  trading  arrangements  is  becoming 
more and more critical".303 

It  was  noted  that  CSDs  are  systemically  important  market  infrastructures.  Firstly,  they 
intervene  throughout  the  life  span  of  securities,  from  issuance  to  reimbursement. 
Secondly, they perform, sometimes after prior netting by Central Counterparties (CCPs), 
most  of  the  processes  that  lead  to  the  settlement  of  a  transaction,  i.e.  the  delivery  of 
securities  against  cash.  In  addition,  CSDs  play  a  crucial  role  in  the  transmission  of 
monetary  policies.  Concrete  cases  at  the  time  that  urged  action  were  the  Lehman  and 
Bear  Stearns  cases,  where  difficulties  were  encountered  in  terms  of  the  ownership  of 
securities  as  well  as  the  number  of  outstanding  securities  (more  securities  with 
counterparties than issued). 

Before the entry into force of the CSDR there was no central EU regulation where this 
subject  matter  was  regulated,  although  a  number  of  topics  were  addressed  in  different 
regulations, such as SFD, MIFID. 

303  https://data.consilium.europa.eu/doc/document/ST-16212-2008-INIT/en/pdf  

StrategicSpecificOperationalEnsure level playing field for CSD servicesIncrease efficiency of cross-border transactionsIntroduce consistent rules for CSDs across the EU:-Prudential and organisational rules-Licensing frameworkRemove barriers of access to/from CSDs:-Access issuers-CSDs-Access CSDs-CSDs or CSDs-other infrastructuresEnhance framework for settlement in the EU-Settlement discipline-Settlement periodsReduce scope for national monopoliesReduce complexity of cross-border settlementIncrease safety of cross-border transactionsReduce fragmentation of post trading marketReduce risk of arbitrage to the “softest”market practice*Ensure consistent definition of CSD services across the EUStrategicSpecificOperationalEnsure level playing field for CSD servicesIncrease efficiency of cross-border transactionsIntroduce consistent rules for CSDs across the EU:-Prudential and organisational rules-Licensing frameworkRemove barriers of access to/from CSDs:-Access issuers-CSDs-Access CSDs-CSDs or CSDs-other infrastructuresEnhance framework for settlement in the EU-Settlement discipline-Settlement periodsReduce scope for national monopoliesReduce complexity of cross-border settlementIncrease safety of cross-border transactionsReduce fragmentation of post trading marketReduce risk of arbitrage to the “softest”market practice*Ensure consistent definition of CSD services across the EU 
 
 
 
                                                           
At the time, securities transactions in Europe were already becoming increasingly cross-
border and was expected to increase once the Target2 Securities (T2S)304 pan-European 
common settlement platform would start. Despite this, cross-border securities settlement 
in Europe remained complex due to different – highly fragmented along national lines –
market practices regarding settlement as well as to persisting barriers of access. This had 
implications  for  the  safety  and  efficiency  of  cross-border  securities  transactions.  For 
instance,  costs  of  cross-border  settlement  were  about  4  times  more  costly  as  within 
national borders.305 

In the EU in 2010, over 330 million securities transactions were settled by CSDs, for a 
total value of approximately €920 trillion. EU CSDs held almost €39 trillion of securities 
at the end of 2010. 

The  IA  in  2010  identified  several  problems  relating  to  the  functioning  of  the  EU 
settlement  markets,  which  included:  (i)  higher  risk  for  cross-border  (compared  to 
domestic) settlement, (ii) higher cost for cross-border settlement and (iii) unlevel playing 
field for CSD services. 

CSDR was adopted to address these problems by setting out the measures as identified 
above. 

Section 4 Evaluation Questions 

This section summarises the review questions addressed in this evaluation. 

Question 1: How effective has the EU intervention been? 

-  To  what  extent  have  the  objectives  of  CSDR  to:  (1)  increase  safety  of  cross-border 
transactions;  (2)  increase  efficiency  of  cross-border  transactions  and  (3)  ensure  level 
playing  field  for  CSD  services  been  achieved  and  what  factors  influenced  the 
achievements observed? 

Question 2: How efficient has the EU intervention been? 

-  To  what  extent  have  CSDR’s  core  requirements  on  settlement  discipline, 
organisational, conduct of business and prudential requirements for CSDs, the passport 
system,  increased  prudential  and  supervisory  requirements  and  increased  cooperation 
requirements given the effects they have achieved in promoting an EU settlement market 
and in mitigating systemic risk? 

Question 3: How relevant is the EU intervention?  

-  To  what  extent  are  CSDR's  requirements  on  settlement  discipline,  organisational, 
conduct  of  business  and  prudential  requirements  for  CSDs,  the  passport  system, 
increased  prudential  and  supervisory  requirements  and 
increased  cooperation 
requirements  still  relevant  to  promote  an  EU settlement  market  and  the  stability  of  the 
financial markets and in light of current developments in this market? 

Question 4: How coherent is the EU intervention? 

304  See T2S website for more details http://www.ecb.int/paym/t2s/html/index.en.html  
305  Commission Staff Working Document, “Impact Assessment accompanying the proposal for a regulation on 
improving securities settlement in the European Union and on Central Securities Depositories (CSDs)”, 
SWD (2012) 22 final, p.58. 

 
 
                                                           
-  To  what  extent  are  CSDR's  requirements  on  settlement  discipline,  organisational, 
conduct  of  business  and  prudential  requirements  for  CSDs,  the  passport  system, 
increased  prudential  and  supervisory  requirements  and 
increased  cooperation 
requirements coherent with other pieces of EU financial legislation.  

Question 5: What is the EU-added value of the intervention?  

To  what  extent  have  CSDR's  requirements  on  settlement  discipline,  organisational, 
conduct  of  business  and  prudential  requirements  for  CSDs,  the  passport  system, 
increased  cooperation 
increased  prudential  and  supervisory  requirements  and 
requirements helped increasing safety of cross-border transactions, increasing efficiency 
of cross-border transactions; ensuring level playing field for CSD services and to what 
extent do the risks relating to the markets continue to require action at EU level? 

Section 5 Methodology 

This  evaluation  is  based  primarily  on  the  results  of  consultations  with  stakeholders, 
reports  from  the  European  Securities  and  Markets  Authority  (ESMA),  various  inputs 
from  different  stakeholders  and  additional  desk  research  of  the  Commission  services. 
More specific sources included:  

the CSDR review report306; 

 
  a targeted public consultation seeking feedback on a range of specific areas where 
targeted  action  may  be  necessary  to  ensure  the  fulfilment  of  the  objectives  of 
CSDR  in  a  more  proportionate,  efficient  and  effective  manner  as  mandated  by 
Article 75 CSDR.307 This consulation took place from 8 December 2020 until 2 
February  2021  and  received  91  responses  from  a  broad  range  of  stakeholders 
across  the  EU  as  well  as  from  third-countries.  A  detailed  summary  of  the 
responses  to  the  two  consultations  is  provided  in  the  feedback  statement  to  the 
consultation.308 

  Reports from ESMA309, as required by Article 75 of CSDR. 

In  addition  to  these  sources,  input  from  the  European  Parliament  as  well  as  from 
dedicated meetings with  Member States was also  considered.  In particular, a resolution 
by the European Parliament on stocktaking and challenges of the EU Financial Services 
Regulation:  impact  and  the  way  forward  towards  a  more  efficient  and  effective  EU 
framework  for  Financial  Regulation  and  a  Capital  Markets  Union,  adopted  in  January 
2016310.  The  Commission  services  also  engaged  in  exchanges  with  MEPs  from  the 
ECON Committee involved in the CSDR review. 

306  Report from the Commission to the European Parliament and the Council under Article 75 of Regulation 
(EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities 
settlement in the European Union and on central securities depositories and amending Directives 98/26/EC 
and  2014/65/EU  and  Regulation  (EU)  No  236/2012,  COM(2021)  348  final,  1  July  2021: 
https://ec.europa.eu/finance/docs/policy/210701-csdr-report_en.pdf 

307  Feedback 

targeted 
https://ec.europa.eu/info/consultations/finance-2020-csdr-review_en   

consultation 

the 

by 

to 

the 

European 

Commission:  

308  https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/2020-

csdr-review-summary-of-responses_en.pdf.  

309  See notes 50, 86, 88, 89.  
310  European Parliament Resolution 2015/2106 (INI) of 19 January 2016. 

 
 
 
 
                                                           
The  Commission  services  also  participated  in  various  meetings  and  working  groups  of 
the ESCB as well as ESMA where post-trade developments are discussed. 

Limitations – robustness of findings 

While  CSDR  entered  into  force  on  17  September  2014,  certain  core  requirements 
(including  those  on  settlement  discipline)  provided  for  in  the  Regulation  are  yet  to  be 
implemented or completed. This has a number of consequences. 

First,  it  means  that  a  full  evaluation  of  the  effectiveness  and  efficiency  of  CSDR  in 
meeting its objectives is not possible.  

Second, there is only a limited amount of quantitative evidence available to carry out the 
evaluation, as the experience drawn from the applicable requirements only spans a couple 
of  years.  In  the  specific  instance  of  settlement  discipline,  for  example,  there  is  no  data 
available, as the regime is only scheduled to apply from February 2022. 

Nevertheless,  the  evaluation  draws  from  the  data  collected  by  European  public 
authorities  and  bodies  (i.e.  ESMA,  ESCB)  on  the  basis  of  rules  which  are  already  in 
place  as  well  as  the  responses  to  the  public  consultation  and  contacts  and  sometimes 
concerns by external stakeholders. In addition, it is important to highlight that the market 
for  settlement  is  yet,  only  a  few  years  after  entering  into  force,  still  fragmented,  with 
many  local  specificities  in  legal,  taxation  and  other  administrative  areas  so  that 
comparisons  are  highly  difficult  to  make.  This  entails  that  in  some  areas  proxies  and 
assumptions have been made. 

Section 6 Implementation state of play (Results) 

Overview of requirements in place 

As  mentioned,  CSDR  has  been  directly  applicable  since  17  September  2014.  A 
Regulation  was  deemed  to  be  the  most  suitable  policy  instrument  to  ensure  the 
application  of  uniform  requirements  throughout  the  EU  with  exactly  the  same  scope, 
without  any  gold-plating  and  without  allowing  residual  powers  to  Member  States.  In 
addition, CSDR empowered the Commission to adopt delegated acts in accordance with 
Article 290 TFEU to specifying some requirements and implementing acts in accordance 
with Article 291 TFEU to ensure the uniform conditions of implementation. CSDR also 
required  ESMA  to  prepare  draft  regulatory  technical  standards  and  implementing 
technical standards, to be adopted by the Commission, and carry out appropriate impact 
assessments pursuant to Regulation (EU) No 1095/2010. 

This section focuses on the application of those rules that are relevant to achieve CSDR's 
objectives to increase safety of the EU settlement market, increase efficiency of the EU 
settlement market and ensure a level playing field for CSD services. 

The following key obligations have started to apply with respect to these three objectives: 

 

 

Increasing  efficiency  of  the  EU  settlement  market:  shortening  settlement  times 
from T+3 to T+2 and a passporting regime to enable CSDs their services across 
the EU. 

Increasing  safety  of  the  EU  settlement  market:  authorisation,  organisational, 
conduct  of  business  and  prudential  requirements  for  CSDs,  integrity  of  issue 
requirements,  part  of  the  settlement  discipline  measures  (where  CSDs  have  to 

 
 
have  internal  processes  and  procedures  in  place  as  well  as  external  contractual 
measures  in  place  to  facilitate  timely  settlement)  and  a  framework  for  the 
provision of banking services by CSDs. 

  Ensuring  level  playing  field  for  CSD  services:  a  passporting  framework,  a 
framework for supervisory cooperation and a framework for third-country CSDs. 

These  rules  are  in  place  across  EU  Member  States  as  well  as  the  European  Economic 
Area  (‘EEA’).  As  with  any  other  EU  Regulation,  its  provisions  are  directly  applicable 
(i.e. legally binding in all Member States without transposition into national law) as from 
the day of entry into force. 

Not  all  of  the  requirements  of  CSDR  already  apply.  Many  provisions  of  CSDR,  in 
particular  when  taken  together  with  the  implementation  dates  included  within  the 
different  technical  standards,  result  in  a  phased-in  application  of  the  legal  framework. 
This  is  notably  the  case  of  the  reporting,  penalties  and  buy-in  requirements  of  the 
settlement discipline regime, for which entry into force has been postponed twice. These 
requirements are currently scheduled to apply from 1 February 2022. 

These requirements should be considered within the relevant objectives of CSDR. 

What is the current situation? 

1.  Requirements aimed at increasing efficiency of the EU settlement market 

An  important  achievement  of  the  CSDR  is  that  settlement  periods  are  reduced  to  T+2. 
The settlement period was harmonised in the EU and set at a maximum of two days after 
the  trading  day  (T+2).  A  harmonised  settlement  period  aims  to  reduce  operational 
inefficiencies  and  risks  for  cross-border  transactions,  while  reducing  funding  costs  for 
investors (i.e. for those that have to deliver cash or securities at T+3 but can only receive 
them  at  T+2).  Shorter  settlement  periods  has  an  important  advantage  of  reducing 
counterparty risk, that is, the period of time during which an investor runs a risk that its 
counterparty  will  default  on  its  obligation  to  deliver  cash  or  securities  at  the  agreed 
settlement date. 

A core objective of CSDR was the creation of a single market for CSDs. CSDR creates a 
passporting regime whereby CSDs may provide their services in the EU without the need 
for further local authorisation. When a CSD provides its services in a Member State other 
than  where  it  is  established,  the  competent  authority  of  the  home  Member  State  is 
responsible  for  the  supervision  of  that  CSD.  However,  the  procedure  through  which  a 
CSD  authorised  in  an  EU  Member  State  can  provide  notary  and  central  maintenance 
services  in  relation  to  financial  instruments  constituted  under  the  law  of  another  EU 
Member State or to set up a branch in another Member State is based on the cooperation 
of  the  CSD's  home  Member  State  competent  authority  with  the  host  Member  State 
competent authority. In that case, the home Member State competent authority bears the 
primary responsibility to determine the adequacy of the administrative structure and the 
financial situation of the CSD wishing to provide its services in the host Member State. 
The  host  Member  State  competent  authority  shall  however  approve  a  part  of  the 
passporting  file  consisting  of  the  description  of  the  measures  that  the  requesting  CSD 
will implement in order to allow its participants to comply with the relevant provisions of 
the corporate or similar law of the home Member State.  

Despite the fact that most of the applying CSDs have been able to obtain a “passport” to 
offer  notary  and  central  maintenance  services  in  one  or  several  other  Member  States, 
anecdotal  information  from  stakeholders  has  indicated  that  this  process  has  been 
significantly  more  burdensome  than  previously  thought.  The  majority  of  CSDs 

 
 
considered  that  the  passporting  process  has  not  prevented  CSDs  from  offering  issuer 
CSD services for securities constituted under the laws of another Member State as such, 
but  has  slowed  down  their  ambitions.  Certain  CSDs  noted  that  they  had  to  withdraw 
some  passport  requests  due  to,  what  they  perceived  to  be  national  constraints,  e.g. 
compliance with the direct individual segregation model applicable under national law.311 

Finally, CSDR introduced rules on settlement discipline to prevent and address failures in 
the settlement of securities transactions and therefore ensure the efficiency of transaction 
settlement. The two main elements of the settlement discipline regime are cash penalties 
and  mandatory  buy-ins. All  CSDs  would  be  required  to  impose  cash  penalties  on  their 
participants  in  case  of  settlement  fails.  If  despite  the  cash  penalties,  a  CSD  participant 
(original  seller)  would  fail  to  deliver  the  securities  it  would  be  subject  to  a  mandatory 
buy-in.  A  buy-in  provides  the  buyer  of  securities  with  the  right  to  buy  the  securities 
elsewhere, cancel the original transaction and put the costs of the buy-in, as well as any 
price  difference,  with  the  original  seller. The  settlement  discipline  regime  also  imposes 
requirements on the reporting of settlement fails by the CSDs. 

Since  2017,  ESMA  has  frequently  updated  its  CSDR  Q&A’s  on  settlement  discipline 
regime, with currently 7 Q&A’s related to settlement discipline.312 More than 25 Q&As 
on settlement discipline are however being assessed at this point in time. 

The settlement discipline regime was due to  enter into force on 13 December 2020 but 
was  postponed  twice:  (1)  to  1  February  2020  (this  short  delay,  based  on  a  proposal  by 
ESMA, was considered necessary to take into account the additional time needed for the 
establishment of some essential features for the functioning of the new framework); (2) 
due to  the impact  of the Covid-19 pandemic, ESMA313 decided    to  propose  postponing 
the  date  of  entry  into  force  of  a  CSDR  Regulatory  Technical  Standards  (RTS)  on 
settlement discipline314 until 1 February 2022. 

Despite  the  absence  of  experience  in  applying  the  rules,  the  development  and 
specification of the framework in the relevant regulatory technical standard has allowed 
all  interested  parties  to  better  understand  the  regime  and  the  challenges  its  application 
could give rise to, especially at times of crisis, e.g. such as the COVID-19 crisis in spring 
2020. 

Despite the lack of  complete  data in  this respect due to  lack of mandatory  reporting, it 
seems that settlement fails rates have remained stable in the EU since 2018 (approx. 6% 
for  equities  and  3%  for  bonds315)  in  a  context  of  the  dramatic  increase  in  trading 
(settlement instructions increased by 30% between 2015 – 2019 in EU CSDs316), but still 
remain higher than other jurisdictions (in particular, higher than in the US where roughly 
2%  of  all  US  treasuries  and  mortgage  backed  securities  transactions  fail317).  The 

311  Feedback 

targeted 
https://ec.europa.eu/info/consultations/finance-2020-csdr-review_en   

consultation 

the 

by 

to 

the 

European 

Commission:  

312  CSDR Q&As (see note 164). 
313  ESMA 

proposes 

to 

further 

postpone 

CSDR 

settlement 

discipline 

(europa.eu): 

https://www.esma.europa.eu/press-news/esma-news/esma-proposes-further-postpone-csdr-settlement-
discipline. 

314 RTS on settlement discipline. 
315  “ESMA Report on trends, risks and vulnerabilities”, European Securities and Markets Authority, ESMA-

50-165-1287, No. 2, 2 September 2020. 

316  Data  generated  through  the  Securities  Trading,  Clearing  and  Settlement  Statistics  Database,  European 
at: 

Available 

Bank. 

2021. 

April 

29 

Central 
https://sdw.ecb.europa.eu/browse.do?node=9691131. 

Accessed 

on 

317  K. Burne, ‘How to succeed in fixing settlement fails’, Aerial View, Bank of New York Mellon, 2020. 

 
 
                                                           
forthcoming  entry  into  force  of  the  settlement  discipline  regime  is  expected  to  further 
improve  such  rates.  But  it  is  yet  to  be  determined  what  the  exact  impact  of  each 
requirement of this regime (i.e. reporting, penalties and buy-in requirements) will be. 

2.  Requirements aimed at increasing safety of the EU settlement market 

CSDs  are  subject  to  authorisation  by  the  competent  authorities  of  their  home  Member 
Sate which  examine how CSDs operate on  a daily basis,  carry out  regular reviews  and 
take appropriate action when necessary. Under Articles 16 and 54 of CSDR, CSDs should 
obtain  an  authorisation  to  provide  core  CSD  services  as  well  as  non-banking  and 
banking-type  ancillary  services.  Article  69(4)  however  allows  CSDs  authorised  under 
national law before the adoption of CSDR to continue operating under such national law 
until they have been authorised under the new CSDR rules (the “grandfathering clause”). 

Feedback  received  from  respondents  to  the  public  consultation  show  that  the 
authorisation  procedure has been widely regarded as lengthy (sometimes up to  2  years, 
although broadly about  6 months from  the date  that the application is  complete)318 and 
burdensome  by  CSDs.  As  of  31  July  2021,  out  of  28  EEA  CSDs  that  are  subject  to 
authorisation requirements under CSDR, two have not been authorised under CSDR, and 
still relying on the grandfathering clause.319 

Once  a CSD has  been  authorised, CSDR  requires NCAs to  review its compliance with 
CSDR and to evaluate the risks to which the CSD is or might be exposed, as well as the 
risks  it  might  create.  This  must  be  carried  out  at  least  annually,  with  the  NCA’s 
determining  the  specific  depth  and  frequency  of  the  review  and  evaluation  taking  into 
consideration the size, nature and systemic importance of the CSD under supervision. 

The experience in this respect shows that this exercise may be redundant from one year 
to  the  other,  depending  on  the  CSD  at  stake.  The  majority  of  key  stakeholders  (i.e. 
national competent authorities and CSDs) considered this exercise to be too burdensome 
to be carried out on an annual basis unless justified by the risk profile of the CSD. Thus, 
most respondents to the public consultation considered that the frequency of the annual 
review process should be amended in order to allow for more flexibility in this respect. 

CSDR  also  sets  organisational  rules  for  CSDs  including  notably:  governance,  record 
keeping and outsourcing rules; conduct of business rules in the relations between CSDs 
and their users, including transparency requirements and communication procedures with 
participants;  rules  regarding  the  provision  of  services  by  CSDs  in  order  to  ensure  the 
integrity  of  securities  issues,  protection  of  securities  of  participants  and  those  of  their 
clients, protection of the settlement finality and cash settlement and protection against a 
participant's default; and capital requirements and prudential requirements covering legal, 
general business, operational and investment risks. 

Today, all these organisational rules have entered into force and are implemented by the 
key stakeholders, in particular the CSDs. These requirements did not raise concerns from 
key stakeholders in the answers to the public consultation. As regards the integrity of the 
issue, it should only be noted that in May 2020 T2S faced an operational incident which 
led  to  1 835  securities  positions  and  22  cash  balances  ending  up  with  negative 
balances320.  This  incident  was  solved  within  two  days  but  raised  some  questions 
regarding the interpretation of some CSDR level 2 provisions regarding the suspension of 

318  https://ec.europa.eu/info/consultations/finance-2020-csdr-review_en. 
319  ESMA data provided to the Commission.  
320 TARGET2-Securities Annual Report 2020 (europa.eu). 

 
 
                                                           
a securities issue from settlement until the problem is solved. 

CSDR also  introduced a regime for the provision  of banking-type  ancillary services by 
CSDs. By preference, and 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,  CSDR  provides  two  other  possibilities,  both  subject  to 
conditions  and requirements: to  settle through  accounts opened with  a  credit institution 
and to provide banking services ancillary to settlement directly. 

CSDs offering settlement in commercial bank money as an ancillary service must comply 
with additional requirements to mitigate mainly credit and liquidity risks for the CSD and 
its  participants,321  e.g.  CSDs  have  to  be  authorised  as  a  credit  institution  under  the 
applicable banking legislation and comply with the regulatory capital requirements set in 
the Capital Requirements Regulation. Today, only 5 out of the 28 CSDs in the EEA have 
applied  to  provide  banking  services  under  CSDR  (of  which  5  have  been  already 
authorised),  and  all  of  them  provided  these  services  pre-CSDR  and  no  new  providers 
have entered the market.322 

CSDs  offering  settlement  through  a  credit  institution  and  above  certain  thresholds  (i.e. 
the total value of cash settlement must be less than 1% of the total value of all securities 
transactions  against  cash  settled  in  the  books  of  the  CSD  and  shall  not  exceed  a 
maximum  of  EUR 2.5 billion  per  year)  shall  ensure  that  such  credit  institution  is  a 
limited-licence  bank  that  provides  services  only  to  CSDs  and  that  complies  with 
additional  requirements  to  mitigate  the  risks.  However,  no  such  designated  credit 
institutions  exists  to  date.323 As  such,  CSDs  cannot  make  use  of  this  option  to  settle in 
commercial bank money. 

CSDs settling in  commercial bank money below  the abovementioned thresholds do not 
have to comply with all the credit and liquidity requirements (i.e. they can use a normal 
commercial bank or can perform the services themselves). 

From the public consultation and in contacts with stakeholders, it has become clear, that 
the  settlement  in  commercial  bank  money  in  foreign  currencies  is  limited  and  has  not 
grown  substantially  since  the  introduction  of  CSDR.  Although  the  safety  of  the 
settlement  markets  is  an  important  objective,  from  the  perspective  of  the  objective  to 
enhance  cross-border  transactions  and  the  improvement  of  efficiency  of  settlement 
markets this is sub-optimal and the constraints appear disproportionate. First, designated 
credit institutions do not exist (yet). The fact that it can only service CSDs, thus have a 
very limited business role, is assumed to have prevented market players from establishing 
such an institution. Second, the thresholds under which CSDs can use a commercial bank 
to settle in commercial bank money are deemed too low by many stakeholders to develop 
foreign  currency  settlement  services.  As  an  example,  for  smaller  CSDs  with  lower 
turnover  ratio324,  e.g.  11,  the  current  threshold  of  EUR 2.5 billion  settlement  per  year 

321  Credit  risk  is  the  risk  an  institution  faces  when  lending  to  borrowers  that  cannot  meet  their  obligations. 

Liquidity risk refers to the inability of an institution to meet its own financial obligations. 

322 ESMA CSD Register (see note 26) 
323 ESMA Report ‘Provision of banking-type ancillary services under CSDR’ (see note 88).  
324  The  asset  turnover  ratio  measures  the  value  of  a  company's  sales  or  revenues  relative  to  the  value  of  its 
assets. The asset turnover ratio can be used as an indicator of the efficiency with which a company is using 
its  assets  to  generate  revenue.  The  higher  the  asset  turnover  ratio,  the  more  efficient  a  company  is  at 
generating revenue from its assets. Conversely, if a company has a low asset turnover ratio, it indicates it is 
not efficiently using its assets to generate sales.. 

 
 
                                                           
would  be  reached  with  issuance  corresponding  to  EUR 229 million  – less  than  half  the 
size of a regular bond issue, leaving no possibility to offer issuance to others in the same 
or other currencies in commercial bank money. In a recent confidential survey, a majority 
of respondents indicated that an increase in the threshold in Article 54(5) would satisfy 
the CSDs’ needs for the intended business of settlement in foreign currencies325.  

3.  Requirements aimed at ensuring a level playing field for CSD services 

CSDR includes provisions that aim to ensure a level playing field for CSD services both 
at EU and international level. 

Within  the  EU,  CSDR  introduced  two  sets  of  rules  in  this  respect:  a  passporting 
framework,  already  presented  in  paragraph  1  above;  and  a  framework  for  supervisory 
cooperation. 

Under a framework for supervisory cooperation, national competent authorities, relevant 
authorities  and  ESMA  are  required  to  cooperate  closely  and,  on  request  and  without 
undue  delay,  provide  one  another  with  the  information  required  for  the  purposes  of 
carrying out their duties. 

With respect to the provision of services in other Member States, CSDR further provides 
that  where  a  CSD  has  become  of  substantial  importance  for  the  functioning  of  the 
securities  markets  and  the  protection  of  the  investors  in  more  than  one  host  Member 
State,  the  home  Member  State  may  decide  that  such  cooperation  arrangements  are  to 
include colleges of supervisors326. In practice however, only one college has been set up 
for an EU CSD327. 

It  emerges  from  answers  to  the  public  consultation  and  various  bilateral  inputs  from 
stakeholders that views are split on whether cooperation arrangements under CSDR work 
in an efficient manner. It should however be noted that the majority of respondents to the 
public  consultation,  including  public  authorities  and  banks,  considered  that  the 
cooperation  amongst  NCAs  would  be  improved  if  colleges  were  established  and  they 
were always involved in notably the passporting process328. 

Regarding  third-country  CSDs, Article  25(1)  of  CSDR  provides  that  they  may  provide 
their services in the EU, including through setting up branches on the territory of the EU. 
Article  25(2)  requires  a  third-country  CSD  to  apply  for  recognition  to  ESMA  in  two 
specific  cases:  (a)  where  it  intends  to  provide  certain  core  CSD  services  (issuance  and 
central  maintenance  services  related  to  financial  instruments  governed  by  the  law  of  a 
Member State); or (b) where it intends to provide its services in the EU through a branch 
set  up  in  a  Member  State.  Services  other  than  those  described  (including  settlement 
services)  do  not  require  recognition  by  ESMA  under  Article  25  CSDR.  ESMA  may 
recognise a third-country CSD that wishes to provide issuance and central maintenance 
services only where the conditions referred to in Article 25(4) of CSDR are met. One of 
those  conditions  is  that  the  Commission  has  adopted  an  implementing  act  determining 
that the regulatory framework applicable to  CSDs of that third  country is equivalent  in 

325  Based on confidential information provided to DG FISMA services. 
326  Article 24(4) of CSDR 
327  The  Latvian  supervisory  authority  established  and  led  the  Nasdaq  CSD  SE  supervisory  college  in 
cooperation  with  supervisory  authorities  and  central  banks  of  Lithuania,  Estonia  and  Latvia 
https://www.fktk.lv/en/news/press-releases/nasdaq-merges-its-baltic-csds-to-create-nasdaq-csd/. 

328  Summary report of the targeted consultation document on the review of regulation on improving securities 
settlement  in  the  European  Union  and  on  central  securities  depositories  8  December  2020  –  2  February 
2021, paragraph 3.3.3 

 
 
                                                           
accordance with CSDR. One CSD has applied to date for recognition to ESMA, i.e. the 
UK  CSD  in  the  context  of  Brexit. At  least  two  other  CSDs  have  contacted  ESMA  and 
have expressed their intention to apply for recognition as third-country CSDs.  

However,  according  to  the  current  provisions  of  Article  25  of  CSDR,  the  recognition 
process  is  only  triggered  once  there  is  an  equivalence  decision  issued  by  the  European 
Commission in respect of a particular third country. In the meantime, according to Article 
69(4) of CSDR, third-country CSDs can continue providing services in the EU under the 
national regimes (the so-called  “grandfathering clause”). As CSDR is now approaching 
its  full  entry  into  force  (notably  with  the  settlement  discipline  regime  that  should  enter 
into  force  on  1  February  2022),  concerns  start  to  arise  regarding  such  grandfathering 
clause.  Some  stakeholders,  including  national  competent  authorities  and  certain  EU 
CSDs, supported the introduction of an end-date to the grandfathering arguing, amongst 
others,  that  currently  third-country  CSDs  can  continue  to  service  EU  securities  even 
though  they  comply  with  rules  which  have  not  been  determined  as  equivalent  by  the 
Commission.  However,  other  stakeholders,  mainly  a  couple  of  national  competent 
authorities  and  third-country  CSDs  expressed  their  views  against  amending  the  current 
grandfathering framework, arguing that this would create legal and financial uncertainty 
for third-country CSDs if they are not recognised by the end of the grandfathering period, 
which would introduce unnecessary risk to the market. 

Notwithstanding the above, a common observation is the lack of clear information on the 
exact  services  that  third-country  CSDs  provide  within  the  EU  under  the  grandfathering 
clause329. 

Section 7 Answers to the evaluation questions 

Question 1: How effective has the EU intervention been? 

-  To  what  extent  have  the  objectives  of  CSDR  to:  (1)  increase  efficiency  of  the  EU 
settlement market; (2) increase safety of the EU settlement market and (3) ensure level 
playing  field  for  CSD  services  been  achieved  and  what  factors  influenced  the 
achievements observed? 

1.  Efficiency of the EU settlement market 

At the time of adoption of CSDR, settlement markets in the Union were fragmented. This 
was identified as a source of risk and additional costs for cross-border settlement. Given 
the systemic relevance of CSDs, the promotion of competition between CSDs was one of 
CSDR’s  objectives,  with  the  view  to  creating  a  single  market  for  securities  settlement, 
allowing any investor in the Union to invest in all Union securities with the same ease as 
in,  and  using  the  same  processes  as  for,  domestic  securities.  This  was  considered 
essential to the proper functioning of the internal market. 

In 2010, the European securities market was deemed very significant; according to ECB 
statistics330, 690 million trades were executed on securities exchanges in the EU in 2010, 
representing a total value of over €33 trillion. The EU capital market was the second in 

329  https://ec.europa.eu/info/consultations/finance-2020-csdr-review_en 
330  http://sdw.ecb.europa.eu/reports.do?node=1000001584.  

 
 
 
                                                           
size after the US capital market and represents around 30% of the global market (the US 
represented around 35% of the total331). 

In 2014, when CSDR was adopted, EUR 43.5 trillion worth of securities were held in EU 
securities settlement systems, which handled over 330 million delivery instructions for a 
total of turnover of over EUR 850 trillion. 

At the end of 2019, there were over EUR 53 trillion worth of securities in EU Securities 
Settlement Systems handling over 420 million delivery instructions in 2019 for a total of 
turnover  of  over  EUR 1 120 trillion332.  This  represents  a  growth  of  22%  in  value  of 
securities held, 27% in number of delivery instructions and 32% in turnover in the period 
between 2014 and 2019. 

This  also  confirms  the  important  role  of  CSDs  serving  the  growing  European  Capital 
Markets. 

Depite  this  overall  growth  of  the  EU  settlement  activity,  an  important  consideration  is 
that in the EU the three333 largest CSDs hold over 60% of all securities held in EU CSDs. 
In  the  same  period,  the  value  of  securities  held  by  the  UK  CSD334  rose  from 
EUR 6 215 billion in 2015 to EUR 6 406 billion in 2019 (an increase of 3%), while the 
value  of  delivery  instructions  rose  from  EUR 272 087 billion  to  EUR 357 184 billion 
respectively (an increase of 31%)335. In the US336, the value of securities held by the two 
CSDs337  rose  from  EUR 100 739 billion  in  2015  to  EUR 130 366  billion  in  2019  (an 
increase  of  29%),  the  number  of  delivery  instructions  processed  increased  from 
362 663 000  (2015)  to  672 887 000  (2019)  (an  increase  of  86%)  for  a  value  of 
EUR 355 trillion in 2015 to EUR 401 trillion in 2019 (an increase of 13%). 

Depite  this  overall  growth  of  the  EU  settlement  activity,  an  important  consideration  is 
that in the EU the three338 largest CSDs hold over 60% of all securities held in EU CSDs. 

It can be concluded that EU settlement activity is concentrated in a few CSDs, albeit that 
the  same  applies  to  settlement  activity  in  other  comparable  jurisdictions.  In  addition, 
there was generally increased settlement activity, explained by increased trading activity, 
that in turn can 

Other signs point in the direction of a slow but surely moving in the direction of a real 
EU settlement market as well. First, mergers between clearing houses, CSDs, and stock 
exchanges  have  created  EU  financial  market  infrastructure  conglomerates,  such  as  the 
formation of Clearstream through the merger of Cedel International and Deutsche Boerse 
in  2012.  With  the  acquisition  of  the  Norwegian  and  Danish  CSDs  in  2019  and  2020 

331  According  to  the  McKinsey  "Global  Capital  Markets:  Entering  a  New  Era"  September  2009 
http://www.mckinsey.com/mgi/reports/pdfs/gcm_sixth_annual_report/gcm_sixth_annual_report_full_repor
t.pdf 

332  Data  generated  through  the  Securities  Trading,  Clearing  and  Settlement  Statistics  Database,  European 
at: 

Available 

Bank. 

2021. 

April 

29 

on 

Central 
https://sdw.ecb.europa.eu/browse.do?node=9691131 

Accessed 

333  Euroclear Bank Belgium (28%), Clearstream Banking Frankfurt (18%), Clearstream Banking Luxembourg 

(15%). 

334  Euroclear UK and Ireland. 
335  “Securities trading, clearing and settlement statistics”, European Central Bank, September 2020 
336  Bank  for  International  Settlement,  Red  Book  Statistics,  Payment  and  financial  market  infrastructures. 

Available at: https://stats.bis.org/statx/toc/CPMI.html. Accessed on 01 June 2021.   

337  DTC and Fedwire Securities Service 
338  Euroclear Bank Belgium (28%), Clearstream Banking Frankfurt (18%), Clearstream Banking Luxembourg 

(15%). 

 
 
                                                           
respectively, Euronext has also strengthened its presence in the EU settlement markets as 
well  in  the  area  of  stock  exchanges  and  clearing  houses  with  the  acquisition  of  Borsa 
Italiana, MTS, where most of Italy’s sovereign debt is traded, as well as the major multi-
asset clearing house, CC&G in 2020.. 

Economies  of  scope  could  also  be  obtained  through  horizontal  synergies.  In  2009 
Euroclear brought the Belgian, Dutch and French domestic CSDs onto a single platform, 
under  a  harmonised  framework,  but  as  separate  legal  entities.  Nasdaq  has  also 
consolidated  the  three  Baltic  CSDs  (Estonia,  Lithuania  and  Latvia)  in  2017  and  the 
Icelandic  CSD  into  a  single  legal  entity  in  2020.  As  a  result  of  these  changes  the 
nominally fragmented post-trade market in Europe is dominated by large conglomarates 
offering  post-trade  services,  i.e.  Euroclear  (bringing  together  the  international  CSD 
Euroclear Bank and national CSDs in Belgium, Finland, France, Ireland, the Netherlands, 
Sweden  and  the  United  Kingdom),  Euronext  (bringing  together  national  CSDs  in 
Portugal,  Denmark,  Norway  and  Italy),  Nasdaq  CSD  (following  the  merger  of  the 
regional  CSDs  for  Lithuania,  Latvia,  Estonia  and  Iceland)  and  Deutsche  Boerse  Group 
(operating the ICSD Clearstream Luxembourg, the German CSD and LuxCSD). 

Responses  from  the  public  consultation  confirm  these  findings.  Although  most 
stakeholders,  did  not  express  an  opinion  as  to  whether  CSDR  has  actually  increased 
competition  amongst  CSDs,  a  group  of  stakeholders  representing  central  banks,  CSDs 
and their participants, as well as a CSD and a bank underlined that data on competition in 
the  CSD  market  and  the  level  of  cross-CSD  settlement  does  not  provide  evidence  of  a 
significant  increase  in  competition  or  cross-border  services  or  cross-CSD  settlement. 
According  to  those  stakeholders,  reasons  for  the  lack  of  evidence  for  increased 
competition between CSDs and the absence of significant cross-CSD settlement include: 
(a)  diverging  national  practices  in  corporate  actions  processing  and  diverging  national 
corporate laws or corporate governance rules; (b) diverging practices in withholding tax 
refund  and  relief  at-source  procedures;  (c)  diverging  market  practices  in  collateral 
management;  (d)  lack  of  harmonisation  in  issuance  procedures.  It  was  also  noted  that 
such national divergences also hinder mergers of CSDs. 

There were also positive views  on CSDR’s impact on competition.  In particular, it was 
noted  that  the  harmonisation  brought  about  by  CSDR  (which  according  to  a  bank 
enhanced,  amongst  other  things,  the  transparency  of  CSD  fees  and  introduced  high 
standards  for  CSDs’  operations)  contributed  to  competition  amongst  EU  CSDs.  Some 
stakeholders  noted  that  CSDR’s  impact  on  competition  should  not  be  analysed  in 
isolation as many other factors, such as the launch of T2S and the related harmonisation 
efforts, impacted the CSD market in recent years. 

Although various parrallel developments in the EU settlement market make the drawing 
of  conlusions  difficult,  especially  since  the  time  frame  for  trends  between  the  original 
CSDR entry into force  and present  is  short, developments  pointed out  above point  to  a 
slowly  but  steadily  forming  EU  settlement  market  but  still  largely  focused  around 
national markets, due to different, legal, corporate and tax rules that make the formation 
of single European wide CDS operators difficult to form. 

CSDR  also  aimed  at  improving  efficiency  of  the  EU  settlement  market  by  increasing 
competition  between  CSDs  through  the  introduction  of  the  passporting  regime.  This 
objective has  been at  least  partly  achieved since  most of the applying CSDs have been 
able  to  obtain  a  “passport”  to  offer  notary  and  central  maintenance  services  in  one  or 
several  other  Member  States.  However,  the  process  itself  has  been  significantly  more 
burdensome  than  previously  thought.  The  majority  of  CSDs  considered  that  the 

 
 
passporting  process  has  not  prevented  CSDs  from  offering  issuer  CSD  services  for 
securities  constituted  under  the  laws  of  another  Member  State  as  such,  but  has  slowed 
down  their  ambitions.  Certain  CSDs  noted  that  they  had  to  withdraw  some  passport 
requests  due  to  local  constraints  that  are  disputable,  e.g.  compliance  with  the  direct 
individual segregation model applicable under national law. 

Another  important  achievement  of  the  CSDR  is  that  settlement  periods  are  reduced  to 
T+2. The settlement period was harmonised in Europe and set at a maximum of two days 
after the trading day (T+2). A harmonised settlement period aims to reduce operational 
inefficiencies  and  risks  for  cross-border  transactions,  while  reducing  funding  costs  for 
investors  (for  instance,  for  those  that  have  to  deliver  cash  or  securities  at  T+3  but  can 
only  receive  them  at  T+2).  Shorter  settlement  periods  has  an  important  advantage  of 
reducing counterparty risk, that is, the period of time during which an investor runs a risk 
that  its  counterparty  will  default  on  its  obligation  to  deliver  cash  or  securities  at  the 
agreed settlement date. 

Finally, CSDR also aimed to achieve efficiency of the EU settlement market by imposing 
a  strict  settlement  discipline  regime  that  would  reduce  settlement  fails  rates  within  the 
EU. Given that this framework has not yet entered into force it is difficult to assess what 
the exact impact on settlement efficiency would have. However, a large majority of the 
respondents to the public consultation, including public authorities, CSDs, CCPs, banks, 
asset  management  companies,  market  makers,  and  their  respective  associations,  have 
raised already the fact that the settlement discipline framework should be reviewed. From 
those  respondents,  a  vast  majority  indicated  that  the  rules  related  to  buy-ins  should  be 
reviewed,  with  a  large  majority  (all  categories  of  stakeholder  included)  in  favour  of 
voluntary  buy-ins.  Such  respondents  notably  anticipate  that  the  mandatory  buy-in 
requirements as introduced in CSDR may reduce market liquidity, increase the costs for 
investors,  creat  unlevel  playing  field  for  EU  CSDs  and  negatively  impact  securities 
lending  and  repo  markets.339  The  reporting  and  penalty  requirements  of  the  settlement 
discipline regime have however raised much less comments from respondents. 

In light of the above, we can conclude that CSDR has largely paved the way of a more 
efficient  EU  settlement  market,  notably  by  creating  synergies  and  cross  border 
opportunities for CSDs, and by reducing settlement period to T+2. However, CSDR may 
still be improved with a view to better achieve this objective, in particular by simplifying 
the passeporting process and enhancing supervisory cooperation between authorities with 
a view to facilitate the developement of cross-border activities. Furthermore, despite the 
fact  that  it  has  not  yet  entered  into  force,  further  thoughts  should  be  put  into  the 
improvement of the settlement discipline regime, in particular the buy-in requirements. 

2.  Safety of the EU settlement market 

Before the  entry into  force of CSDR, CSDs were  subject to  different authorisation and 
supervision  regimes  across  the  EU.340  Differences  can  be  broadly  divided  into  three 
categories:  (1)  different  definitions  of  CSD  services,  (2)  different  authorisation  and 
supervision  regimes  and  organisational  rules,  and  (3)  lack  of  a  common  prudential 
framework. 

339  Summary report of the targeted consultation document on the review of regulation on improving securities 
settlement  in  the  European  Union  and  on  central  securities  depositories  8  December  2020  –  2  February 
2021, paragraph 3.7.2. 

340  2014 IA, p.14: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=SWD%3A2012%3A0022%3AFIN  

 
 
                                                           
It was determined that definitions of CSDs and of the CSDs' services vary considerably, 
for  instance  in  the  different  holding  systems,  with  the  three  core  functions  not 
distinguished between each other nor with the ancillary functions. In the indirect holding 
systems the central safekeeping function was either incorporated into the notary function 
(France) or into the settlement function (the UK). Ancillary services were not uniformly 
defined  or  recognised,  especially  the  banking  services  which  could  not  be  offered  by 
CSDs in most Member States, while they form an integral part of the CSD functions in 
other Member States (Germany, Belgium). 

These differences had consequences in terms of level playing field but also of safety: the 
lack of a common definition of core CSD services and of who can/cannot provide such 
services can lead to some of the core services, particularly settlement, being provided by 
institutions  not  authorised  as  CSDs  causing  an  unlevel  playing  field  as  some  parties 
could  for  example  settle  internally  protected  by  the  SFD,  and  others  could  not,  or  for 
instance  between  those  who  are  allowed  to  provide  banking-type  of  services  and  those 
who are not. 

Risk  to  the  soundness  of  CSDs,  arose  from  the  ability  of  some  CSDs  to  engage  in 
activities  with  higher  risk,  such  as  banking-type  of  activities,  raising  the  risk  profile  of 
CSDs that undertake these activities, albeit mitigated to some extent by the limitation in 
scope  of  these  activities  (essentially  to  deposit  taking  and  credit  granting  related  to  the 
CSD's  core  activities)  and  by  strict  CPSS-IOSCO  requirements,  including  full 
collateralisation of credit. 

In  some  Member  States  there  was  no  specific  authorisation  regime  for  CSDs  but  their 
functions were regulated by various national regulations. In most direct holding countries 
CSDs  are  designated  by  law  to  perform  some  core  and  ancillary  functions  such  as 
registrar  and  account  providing  (safekeeping)  functions  and  the  other  functions  are 
derived from these. In other countries CSDs are deemed to have a banking status. These 
differences  led  to  the  fragmentation  of  the  EU  post  trading  market  described.  This 
fragmentation  resulted  in  the  cross-border  settlement  of  transactions  relying  on  a 
"spaghetti"  model  of  links  between  CSDs  and/or  a  chain  of  intermediaries.  This  has 
obvious consequences for the safety and efficiency of cross-border transactions. 

Before CSDR, organisational and conduct of business requirements, rules regarding the 
integrity  of  the  issue  and  rules  regarding  the  provision  of  banking  services  ancillary  to 
settlement, diverged from one Member State to the other, with some CSDs being subject 
to  less stringent requirements than others. Harmonisation of such  requirement from  the 
above  in  CSDR  aimed  at  strengthning  CSDs  organisation  and  rebalancing  the 
relationship between CSDs and participants. 

Finally, European CSDs also lacked a common prudential framework. They were subject 
to  technical  standards  by  ECB  and  to  recommendations  by  CPSS-IOSCO  and  ESCB-
CESR. However, due to their soft law nature, these standards and recommendations are 
implemented in different ways. This raised several problems: possible failures due to non 
regulated  operational  or  financial  risks  would  have  tremendous  consequences  for  a 
national  market  as  it  would  essentially  block  the  securities  market,  with  severe 
implications for the ability of market participants to honour their obligations, the lack of 
a  common  prudential  framework  could  lead  to  regulatory  arbitrage  favouring  the  CSD 
with  the  "softest"  approach  and  as  the  markets  are  becoming  more  integrated,  link 
arrangements  between  CSDs  are  expected  to  increase,  especially  in  the  post-T2S 
environment  possibly  creating  additional  legal,  credit,  liquidity  and  operational  risks 
arising from differences between the laws of the linked CSDs concerning netting, finality 

 
 
of  transfers,  ownership  and  collateral  owing  to  inefficiencies  associated  with  the 
operation of the link, such as variations in the settlement cycles and settlement discipline 
of the linked systems and for example in the case one CSD permits provisional transfers 
of funds or securities that may be unwound. 

Prudential  requirements  are  also  about  ensuring  the  CSDs  have  reconciliation  rules  of 
their records in order to prevent the unauthorised creation or deletion of securities. There 
are  also  rules  that  prohibit  artificial  creation  of  securities,  provisional  transfers  of 
securities across CSD links and re-use of securities without client consent, or rules that 
require CSDs to segregate participants' securities from their own assets and to support the 
segregation of securities belonging to a participant's customers on the participant's books. 

In light of the above, we can conclude that CSDR has generally achieved the objective of 
improving  safety  of  the  EU  settlement  market,  at  the  risk  of  being  sometimes  too 
stringent.  Indeed,  although  the  majority  of  CSDs  that  responded  to  the  public 
consultation consider that the conditions set out in CSDR for the provision of banking-
type  ancillary  services  by  CSDs  are  proportionate,  some  CSDs  noted  that  such 
requirements  may  not  be  proportionate  to  the  risks  and  volumes  of  certain  banking 
services they intend to provide, especially in the case of smaller CSDs. It can be noted in 
this  respect  that  all  of  the  5  CSDs  that  have  applied  to  provide  banking  services  under 
CSDR already provided these services pre-CSDR and no new providers have entered the 
market.  Furthermore,  none  of  the  CSDs  providing  services  do  so  through  designated 
credit insitutitions  as  allowed by CSDR, for the  simple reason that no credit institution 
offer such services for the moment (respondent to the consultation mentionning notably 
that  the  limited  activity  and  the  limited  number  of  potential  transactions  due  to  CSDR 
restrictions mean that such kind of credit institutions would not be economically viable). 

3.  Level playing field for CSDs 

Before the entry into force of CSDR, cooperation between national competent authorities 
regarding the supervision of EU CSDs was ensured on a bilateral basis only, between the 
authorities,  without:  i)  any  strict  requirement  applying  in  this  respect;  ii)  a  minimum 
common  set  of  organisational  and  prudential  requirements  applicable  to  CSDs;  and  iii) 
the  involvment  of  ESMA.  Such  situation  created  the  risk  of  an  unlevel  playing  field 
between EU CSDs operating in a Member State, those established locally being subject 
to  local  requirements  whilst  those  operating  on  a  cross  border  basis  were  subject  to  a 
different set of requirements, not necessarily always completely aligned. 

By  creating  an  harmonized  set  of  requirements  applying  to  CSDs  and  introducing 
cooperation  requirements  between  national  competent  authorities,  CSDR  moved 
substantially  closer  to  its  objective  to  ensure  a  level  playing  field  for  CSDs  within  the 
EU. However, evidence from the targeted consultation and bilateral information provided 
by  stakeholders  shows  that  views  are  split  on  whether  cooperation  arrangements  under 
CSDR  work  in  the  most  efficient  manner.  For  example,  despite  the  fact  that  CSDR 
provides  the  possibility  for  national  competent  authorities  to  set  up  colleges,  no  such 
college has  yet  been put in  place for EU CSDs. It  should be noted that the majority of 
respondents  to  the  targeted  consultation,  including  public  authorities  and  banks, 
considered  that  the  cooperation  amongst  national  competent  authorities  would  be 

 
 
improved if colleges were established and, in particular, they were always involved in the 
passporting process notably.341 

On  an  international  level,  CSDR  aimed  at  ensuring  the  EU  alignment  with  the  global 
standards applying to the setllement environment, in particular the Principle for Financial 
Markets Infrastructures (PFMIs) adopted by the Bank of International Settlements (BIS) 
and the International Organisation of Securities Commissions (IOSCO) in April 2012.342 
This  aimed  at  ensuring  international  consistency  in  the  framework  under  which  CSDs 
operate. Nevertheless, in some aspects the requirements set out in CSDR go beyond the 
PFMIs,  e.g.  this  is  the  case  for  settlement  discipline  regime,  which  includes  the  buy-in 
regime that is not part of the PFMIs and rarely implemented in other jurisdictions343, e.g. 
the UK announced it is not implementing the CSDR Settlement Discipline Regime344. 

The  impact  of  the  discrepancies  between  the  rules  applicable  to  EU  CSDs  and  those 
applicable  to  non-EU  CSDs  could  be  attenuated  if  non-EU  CSDs  were  authorised  to 
provide  core  services  within  the  EU  only  further  to  an  equivalence  and  recognition 
process.  However, the  existence of a  grandfathering clause in  CSDR, allowing non-EU 
CSDs  to  continue  providing  services  in  the  EU  under  the  national  regimes  until  an 
equivalence  decision  is  issued  by  the  Commission  creates  a  de  facto  situation  where 
third-country CSDs may keep serving EU participants under a legal framework different 
(and potentially less stringent) to the one applicable to EU CSDs. Without any end-date 
to  the  grandfathering  clause  and  absent  the  possibility  for  the  Commission  to  issue 
negative equivalence decisions, such situation could continue - potentially indefinately. 

Question 2: How efficient has the EU intervention been? 

-  To  what  extent  have  CSDR’s  core  requirements  on  settlement  discipline, 
organisational, conduct of business and prudential requirements for CSDs, the passport 
system,  increased  prudential  and  supervisory  requirements  and  increased  cooperation 
requirements given the effects they have achieved in promoting an EU settlement market 
and in mitigating systemic risk? 

Since  not  all  of  the  requirements  of  CSDR  have  entered  into  application,  such  as  the 
requirements  of  settlement  fails  part  of  the  settlement  discipline  rules,  and  CSDR’s 
limited  history  of  application  overall  make  definitive  conclusions  on  settlement 
efficiency difficult, the following can be mentioned.  

In  broad  terms,  CSDR  is  achieving  its  original  objectives  to  enhance  the  efficiency  of 
settlement in the EU and the soundness of Central Securities Depositories (‘CSDs’). For 

341  Summary report of the targeted consultation document on the review of regulation on improving securities 
settlement  in  the  European  Union  and  on  central  securities  depositories  8  December  2020  –  2  February 
2021, paragraph 3.3.3. 

342  Principles  for  financial  market  infrastructures,  Issued  by  the  Committee  on  Payments  and  Market 
Infrastructure (CPMI) of the Bank of International Settlements (BIS) and the International Organization of 
Securities Commissions (IOSCO) in April 2012. 

343  During  the  CSDR  public  consultation  stakeholders  referred  to  a  few  arrangements  similar  to  the  CSDR 
settlement  discipline  regime.  For  instance,  in  the  USA,  the  SHO  Regulation  and  SEC  Rule  204,  relates 
only  to  short-selling  and  the  obligation  that  broker  and  dealer  must  close-out  unresolved  equities 
transactions.  Examples  of  buy-ins  were  given  for  Asian  markets,  e.g.  Singapore  Exchange  where  any 
unsettled  buy-in  trade  is  carried  forward  to  the  next  business  day  for  settlement.  If  the  buy-in  and 
procurement remains unsuccessful by ISD +6, cash settlement will be initiated against the seller to provide 
resolution of the sale trade. However the Singapore Exchange has a very low failure rate because of DvP 
and very few trades go to buy-in. 

344  Written  statement  by  Chancellor  of 

the  Exchequer  on  23  June  2020.  See:  https://questions-

statements.parliament.uk/written-statements/detail/2020-06-23/HCWS309. 

 
 
                                                           
most areas, significant changes to CSDR would be premature considering the relatively 
recent application of requirements. 

One of the main objectives of CSDR was to reduce the complexity of and facilitate cross-
border  settlement  in  order  to  limit  the  risk  and  cost  involved  in  such  operations.  The 
ongoing inefficiencies in the EU settlement market are due to a burdensome passporting 
process,  insufficient  cooperation  between  authorities  CSDR  has  not  proved  efficient  at 
faciliating cross-border settlement. Passporting requirements remain burdensome, there is 
insufficient  coordination  among  the  various  authorities  responsible,  while  requirements 
for the provision of banking services remain restrictive. CSDR requires the establishment 
of cooperative arrangements between home and host authorities when certain conditions 
are  met  and  even  allows  for  the  voluntary  establishment  of  colleges  of  supervisors,  in 
practice  such  arrangements  have  barely  been  used.  Compliance  costs  with  CSDR 
requirements  have  so  far  proved  disproprotionate,  both  for  market  participants  and 
regulators. Legal requirements remain unclear requiring regulators to provide guidance to 
CSDs  and  other  market  participants.  Compliance  costs  are  thus  considered  excessively 
burdensome or the costs outweigh the potential benefits of the regime.  

As a result the competition amongst providers of CSD services remains limited and the 
costs  incurred  by  investors  in  cross-border  transaction  remain  high.  CSDR  has  thus 
proved so far inefficient in creating an integrated EU market for settlement services.  

In certain areas of CSDR, requirements evaluated indicate that certain enhancements can 
be made. For instance: 

  Passporting. Responses from stakeholders in the public consultation indicate that 
costs  for  obtaining  passports  in  the  different  Member  States  was  costly  and 
burdensome  and  from  an  individual  confidential  response  the  Commission  has 
received an estimation on the costs of passporting to a few countries, and together 
with legal costs understand that these costs run into the millions of Euro. 

  Supervision. From supervisors, the Commission received input to the effect that 
supervision can be quite burdensome and as an example the annual assessments 
of  CSDs  are  quite  resource  costly  and  that  in  some  cases  these  costs  could  be 
attributed  to  the  industry.  In  addition,  authorisation  is  mentioned  as  costly, 
although  it  can  be  said  that  these  are  one-off  costs  and  that  most  authorisations 
have  been  finalized.  On  the  other  hand,  these  costs  could  hamper  new  entrants 
into the market. 

Question 3: How relevant is the EU intervention?  

-  To  what  extent  are  CSDR's  requirements  on  settlement  discipline,  organisational, 
conduct  of  business  and  prudential  requirements  for  CSDs,  the  passport  system, 
increased  prudential  and  supervisory  requirements  and 
increased  cooperation 
requirements  still  relevant  to  promote  an  EU settlement  market  and  the  stability  of  the 
financial markets and in light of current developments in this market? 

CSDR  originated  from  the  call  of  the  FSB  in  2010  for  more  robust  core  market 
infrastructures and asked for the revision of the and enhancement of existing standards. 
In April 2012, the Committee on Payments and Settlement Systems (CPSS) of the Bank 
of  International  Settlements  (BIS)  and  the  International  Organisation  of  Securities 
Commissions  (IOSCO)  adopted  global  standards  for  financial  market  infrastructures. 
Taking into account the global nature of financial markets and the systemic importance 
of  CSDs,  it  was  deemed  necessary  to  ensure  international  convergence  of  the 
requirements to which they are subject.  

 
 
Since  entry  into  force  of  CSDR  in  September  2014,  the  markets  in  settlement  have 
increased significantly, both in terms of numbers of instructions as well in terms of total 
volume. Although there have been few new entrants in the market, consolidation within 
the EU of settlement providers have been taken place, adding evidence that competition 
benefits  from  CSDR  although  not  for  the  smaller  players.  In  addition,  due  to  their 
essential  role  in  the  facitating  of  transparent,  legally  sound  and  efficient  securities 
trading, attention of regulatory authorities have also focused on this part of the essential 
infrastructure  of  the  financial  markets.  In  the  EU,  for  instance,  initiatives  are  being 
developed  to  make  CSD  more  operational  resilient  and  make  these  infrastructure 
morefuture proof in terms of innovative technologies, such as blockchain. In this context, 
7 years after the entry into force of CSDR, its objectives to contribute to safe settlement 
markets,  efficient  settlement  markets  and  increased  cross  border  transactions  remain 
valid. As discussed above, the initial results of evaluating the core requirements of CSDR 
show that CSDR is broadly achieving its objectives with in certain areas there could be 
enhancements in terms of optimizing the requirements to achieve the objectives in a more 
effective and efficient manner. 
This  is  also  confirmed  by  the  EU’s  Capital  Markets  Union  action  plan345  to  make  its 
financial  markets  deeper  and  more  liquid  with,  as  a  corner  stone  in  those  plans, 
developing  more  integrated  and  more  efficient  financial  infrastructures  in  the  area  of 
post-trade. In addition, as stated in the Commission’s Communication on open strategic 
autonomy346  for  the  financial  structure,  post-trade  has  a  role,  to  develop  these 
infrastructure into strong international competitive players and boost European strategic 
autonomy. 

Question 4: How coherent is the EU intervention? 

-To  what  extent  are  CSDR's  requirements  on  settlement  discipline,  organisational, 
conduct  of  business  and  prudential  requirements  for  CSDs,  the  passport  system, 
increased  prudential  and  supervisory  requirements  and 
increased  cooperation 
requirements coherent with other pieces of EU financial legislation.  

CSDR  brought  harmonized  requirements  for  central  securities  depositories.  These 
requirements  were  introduced  after  the  Financial  Stability  Board,  on  20  October 
2010,called  for  more  robust  core  market  infrastructures  and  asked  for  the  revision  and 
enhancement of the existing standards.  In  April 2012, the Committee on Payments and 
Settlement  Systems  (CPSS)  of  the  Bank  of  International  Settlements  (BIS)  and  the 
International Organisation of Securities Commissions (IOSCO) adopted global standards 
for  financial  market  infrastructures.  Taking  into  account  the  global  nature  of  financial 
markets  and  the  systemic  importance  of  CSDs,  it  was  deemed  necessary  to  ensure 
international convergence of the requirements to which they are subject.  

CSDR  is  also  broadly  in  line  with  the  EU’s  core  pillar  of  creating  and  boosting  the 
Internal Market and the freedom to provide services: the creation of an integrated market 
for securities settlement with no distinction between national and cross-border securities 
transactions is needed for the proper functioning of this internal market. For example, the 
freedom to provide services is apparent in the passporting but also third-country parts of 

345  https://eur-lex.europa.eu/resource.html?uri=cellar:61042990-fe46-11ea-b44f-

01aa75ed71a1.0001.02/DOC_1&format=PDF  

346  https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52021DC0032&from=EN  

 
 
                                                           
CSDR; CSDs should benefit from a clear and as less burdensome access as possible and 
deemed necessary.  

Other relevant existing EU regulations that have an interplay with the CSDR are: 

  The  banking  regulations,  Capital  Requirements  Regulation347  and  Directive348. 
Prudential  and  other  requirements  are  either  directly,  in  the  case  of  banking 
CSDs,  or  indirectly,  in  the  case  of  non-banking  CSDs,  applicable  to  CSDR 
actors. 

  Securities’  markets  legislations,  such  as  Settlement  Finality  Directive349, 

Financial Collateral Directive350 as well as MIFID351 and EMIR352. 

In  addition,  CSDR requirements are in  line with  initiatives currently undertaken by the 
EU.  First,  the  Commission’s  Capital  Market  Union  Action  Plan353,  striving  for  deeper 
and  more  liquid  financial  markets  in  the  EU  and  of  which  a  core  element  is  the 
development  of  post  –  trading  infrastructures,  amongst  which  CSDs  are  a  constituting 
part. Second, post trading infrastructures are strategic nodes in the financial system and 
could play a part in the strategy of the EU to strenghten its stategic autonomy. As CSDs 
serve as gateways to foreign financial markets and their openness benefits EU businesses 
and investors, their soundness and relevance will also help to boost the role of the EU on 
the  world  stage.  Strengthening  market  infrastructures’  operational  resilience  includes 
shielding  the  sector  from  increasingly  pervasive,  targeted  and  impactful  cybersecurity 
threats  and  vulnerabilities.  A  number  of  EU-based  financial  market  infrastructures 
provide  global  depository  and  messaging  services.  Their  international  operations  make 
them  vulnerable  to  disruptive  actions  by  third  countries.  It  is  important  for  the  EU  to 
preserve the global reach of these infrastructures, while safeguarding the open strategic 
autonomy of the EU. Third, CSDR is in line with current initiatives in the area of digital 
innovation:  the  Commission’s  proposal  to  introduce  a  pilot  regime  for  technological 

347  Regulation (EU) No 575/2013 (see note 157).  
348  Directive (EU) 2019/878 of the European Parliament and of the Council of 20 May 2019 amending 

Directive 2013/36/EU as regards exempted entities, financial holding companies, mixed financial holding 
companies, remuneration, supervisory measures and powers and capital conservation measures: https://eur-
lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32019L0878&from=EN  

349  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: https://eur-lex.europa.eu/eli/dir/1998/26/oj/eng  

350  Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral 

arrangements: https://eur-lex.europa.eu/eli/dir/2002/47/oj  

351  Directive  2014/65/EU  of  the  European  Parliament  and  of  the  Council  of  15  May  2014  on  markets  in 
financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (recast):  https://eur-
lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02014L0065-20160701  

352  Regulation  (EU)  No  648/2012  of  the  European  Parliament  and  of  the  Council  of  4  July  2012  on  OTC 
https://eur-lex.europa.eu/legal-

counterparties 

repositories: 

and 

derivatives, 
content/EN/TXT/?uri=CELEX%3A02012R0648-20210628  

central 

trade 

353  https://ec.europa.eu/info/business-economy-euro/growth-and-investment/capital-markets-union/capital-

markets-union-2020-action-
plan_en#:~:text=On%2024%20September%202020%20the%20Commission%20adopted%20a,and%20co
mpanies%2C%20regardless%20of%20where%20they%20are%20located. 

 
 
                                                           
innovations354  of  CSDs  and  the  initiative  to  enhance  operational  resilience  of  financial 
markets participants (DORA)355. 

Where CSDR is broadly coherent with the aformentioned legislations in terms of conduct 
of business rules, organisational and prudential rules, 2 areas were coherence is limited 
are the folowing: 

  Third-country  regime:  in  most  EU  legislation  in  the  financial  sector,  third-
country  regimes consist  of an equivalence framework including a notification 
requirement for recognition, also for existing third-country providers within the 
EU. CSDR has grandfathered existing providers without an end-date. 

  Passporting: in most EU legislation in the financial sector, passporting consists 
of  a  mere  notfication  to  the  host  Member  State,  in  CSDR  passporting 
effectively  means  an  authorization  process  by  the  host  Member  State  as  the 
passporting process is not standardized as such and Article 49(1) could lead to 
relevant  national  authorities  to  examine  if  a  CSD  complies  with  the  host 
commercial and civil laws before entering the market. 

Question 5: What is the EU-added value of the intervention?  

To  what  extent  have  CSDR's  requirements  on  settlement  discipline,  organisational, 
conduct  of  business  and  prudential  requirements  for  CSDs,  the  passport  system, 
increased  prudential  and  supervisory  requirements  and 
increased  cooperation 
requirements helped increasing safety of cross-border transactions, increasing efficiency 
of cross-border transactions; ensuring level playing field for CSD services and to what 
extent do the risks relating to the markets continue to require action at EU level? 

CSDR  is  the  first  EU-wide  regulation  on  Central  Securities  Depositories  which,  since 
2014,  introduced  a  uniform  approach  for  the  EU  settlement  markets.  It  introduced  a 
framework  aiming  for  efficient  settlement  markets,  increased  cross-border  transactions 
and a level playing field CSDs for relevant stakeholders on the EU capital markets.  

As  the  EU  markets  for  settlement  is,  by  its  very  nature,  an  interconnected  and 
international  market,  the  EU  level  requirements  by  a  directly  applicable  Regulation 
contributed  to  a  level  playing  field  for  competition  in  the  area  of  settlement,  increased 
cross-border transactions as well as increasing safety of these markets. Although not all 
requirements have entered into application, such as the majority of settlement discipline 
requirements,  the  following  can  be  mentioned  on  the  added  value  of  of  EU  action  on 
settlements. 

First,  after  the  entry  into  force  of  CSDR,  markets  have  become  less  fragmented  along 
national  lines.  CSDR  contributed  to  aligning  rules  across  the  whole  of  the  EU  and  the 
EEA.  Requirements  on  banking  services  brought  the  same  rules  across  the  EU  with 
respect to prudential rules but also similar treatment of credit and liquidity risks and on 
how  banking  services  should  be  authorised  and  supervised.  Passporting  requirements 

354  COM(2020) 594 final, 2020/0267 (COD), Proposal for a of the European Parliament and of the Council on 
technology:  https://eur-
infrastructures  based  on  distributed 

a  pilot  regime  for  market 
lex.europa.eu/legal-content/EN/TXT/PDF/?uri=COM:2020:594:FIN  

ledger 

355  Proposal for a Regulation of the European Parliament and of the Council on digital operational resilience 
for the financial sector (DORA) and amending Regulations (EC) No 1060/2009, (EU) No 648/2012, (EU) 
No 600/2014 and (EU) No 909/2014. 

 
 
 
                                                           
brought  increased  opportunities  to  offer  services  across  intra  EU-borders  and  third–
country requirements brought certainty for those CSDs offering their services within the 
EU. 

Second, this consistency has increased the safety of EU settlement markets as supervision 
has become more intertwined and benefitting from more coordination and actions aimed 
at supervisory convergence by the European Securities Markets Authority. This has led 
to  more  consistent  rules  but  also  more  coordination  of  the  application  of  the  rules  by 
bringing guidance to supervisors on how to apply certain rules. Enhanced data improved 
the position of supervisors and enabled to also compare across border. 

Although CSDR requirements have helped to mitigate risks on the European market, led 
to  more  cross-border  transactions  as  demonstrated  by  increased  cooperation  between 
market players as well as the overall increase in the market in terms of size and number 
of  settlement  instructions,  feedback  from  the  public  consultation  as  well  as  the  wider 
feedback  process,  seems  to  indicate  that  requirements  are  sub-optimal  and  could  be 
recalibrated in the areas mentioned above.  

This supports the added value of the EU action via CSDR. Current initiatives such as the 
Commission’s  Capital  Markets  Union  action  plan356  efforts  to  create  more  integrated 
post-trade infrastructures within the EU also support the future EU value–added. 

Section 8 Conclusions 

The  objectives  of  CSDR  to  increase  the  safety  and  efficiency  of  EU  settlement  market 
and  ensuring  a  level  playing  field  for  CSD  services  remain  relevant,  and  associated 
risks with EU settlement markets persist. 

While not  all of the key CSDR  requirements have entered into application, such as the 
measures  to  address  settlement  fails,  the  analysis  shows  that,  based  on  the  evidence 
available, the initial results of CSDR are delivering on the general objective to promote a 
more level playing field, increase safety and promote an efficient EU settlement market. 
The impact of the settlement fails measures have not been measurable as they have not 
been in place on the date of writing of this evaluation. 

On  the  effectiveness  and  efficiency  of  the  core  requirements  of  CSDR,  the  evaluation 
indicates  that  while  the  volume  of  settled  trades  increased  since  the  entry  into  force  of 
CSDR,  cross-border  transactions  remained  stable  and  feedback  from  stakeholders 
indicate that in several areas, such as passporting, licensing, and supervisory assessments, 
significant  barriers  exist  and  preliminary  findings  suggest  that  actions  (i)  to  reduce 
disproportionate compliance burdens, (ii) to improve cross-border activity could be 
undertaken.  Improvements  could  be sought in  the area  of banking services,  where the 
access  to  banking  type  ancillary  services  is  limited  which  in  turn  inhibits  settlement  in 
foreign currencies and in improvement of supervision, both impacting the possibilities or 
opportunities for firms to offer services cross-border. 

356 

  https://ec.europa.eu/info/business-economy-euro/growth-and-investment/capital-markets-union/capital-

markets-union-2020-action-
plan_en#:~:text=On%2024%20September%202020%20the%20Commission%20adopted%20a,and%20co
mpanies%2C%20regardless%20of%20where%20they%20are%20located. 

 
 
 
                                                           
The  objectives  of  CSDR  to  increase  the  safety  and  efficiency  of  EU  settlement  market 
and  ensuring  a  level  playing  field  for  CSD  services  remain  relevant,  and  associated 
risks with EU settlement markets persist. 

In terms of coherence, CSDR is aligned with international efforts to ensure stability and 
safety  of  post  trade  infrastructures.  In  addition,  CSDR  is  coherent  with  other  pieces  of 
EU  legislation,  such  as  the  Commission’s  Capital  Market  Union  Action  Plan,  the 
Commission’s  proposal  to  introduce  a  pilot  regime  for  technological  innovations  of 
CSDs and DORA. 

In  terms  of  the  EU  added  value,  CSDR  covered  a  gap  that  existed  in  legislation  by 
introducing  a  new  framework  aiming  to  address,  in  a  uniform  process  at  EU  level,  the 
lack  of  a  harmonised  approach  towards  the  EU’s  settlement  markets  and  in  addressing 
the related systemic risks. 

 
 
 
 
ANNEX 6: DETAILED DESCRIPTION OF IDENTIFIED PROBLEM AREAS 

1.  Barriers to cross-border settlement 

One of the main objectives of CSDR was to facilitate cross-border settlement in order to 
limit  the  risk  and  cost  involved  in  such  operations.  Nevertheless,  seven  years  after 
CSDR’s adoption, most stakeholders see limited progress in the provision of cross-border 
services  by  CSDs  (see  point  (c)  in  Section  1.3.3).357  The  evaluation,358  has  identified 
three  main  reasons  for  this:  burdensome  passporting  process;  insufficient  cooperation 
between  authorities;  and  restrictive  requirements  for  the  provision  of  banking  services 
related to settlement.  

First, the passporting process (i.e. the special procedure under which a CSD authorised 
in  a  Member  State  can  provide  services  in  relation  to  financial  instruments  constituted 
under the law of another Member State), is  burdensome as it requires, where relevant, 
the agreement of the host Member State authority, regarding the assessment by the CSD 
of the measure that it intends to take to allow its users to comply with the national law 
referred  to  in  Article  49(1).  All  CSDs  and  their  association  responding  to  the 
Commission targeted consultation as well as some public authorities, noted difficulties in 
the  process  of  obtaining  the  CSDR  passport  in  one  or  several  Member  States.359 
Although the initial intention was to ensure that the provision of cross-border services by 
a CSD would not  be used  as a way  for issuers, investors or third parties  to  circumvent 
applicable  national  laws,  it  made  the  passporting  process  burdensome.  The  additional 
burden  deters  CSDs  from  expanding  their  activities  across  borders  (see  sections  1.3.3, 
2.2.1  and  2.3.1).  This  is  in  contrast  to  other  areas  of  EU  financial  services  legislation 
where minimal additional input is required by host Member State authorities to provide 
services cross-border.  

15 CSDs have obtained or applied for a passport in at least one host Member State (see 
Annex  8,  Figure  I),360  with  nine  of  them  being  of  substantial  importance361  to  Member 
States (including EEA countries) other than that of their authorisation.362 

One  CSD  noted  that  it  stopped  providing  cross-border  services  to  avoid  the  procedure 
while  another  stated  that  it  is  easier  to  provide  services  for  securities  constituted  under 
third-country  law  than  the  law  of  a  Member  State.363  Furthermore,  some  third-country 
CSDs may provide their services in relation to financial instruments constituted under the 

357  ESMA Report on cross-border services (see note 50), p. 20. 
358  See “Annex 6 – Evaluation” and ESMA Report ‘Provision of banking-type ancillary services under CSDR’ 

(see note 88). 

359  Summary report of the targeted consultation document on the review of regulation on improving securities 
settlement  in  the  European  Union  and  on  central  securities  depositories  (‘Summary  report  of  the  CSDR 
targeted consultation’) , 
https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/2020-
csdr-review-summary-of-responses_en.pdf . 

360  ESMA CSD Register (see note 26).  
361  Commission Delegated Regulation (EU) 2017/389 (see note 58), specifies the criteria to be considered in 
order to determine whether a CSD is of substantial importance for the functioning of the securities markets 
and the protection of investors in the host Member States concerned. 

362  Two  CSDs  are  of  substantial  importance  to  one  host  Member  State;  three  CSDs  are  of  substantial 
importance to three host Member States; one CSD in six host Member States; one ICSD is of substantial 
importance in 19 host Member States and the other in 23 host Member States 
363  Summary Report of the Commission CSDR targeted consultation (see note 92). 

 
 
 
                                                           
 
law of a Member State without complying with the passporting requirements that apply 
to EU CSDs (see section 2.3.5). This means that, in some cases, it is easier for those 
CSDs to operate cross-border in the EU than for an EU CSD.  

Second,  the  evaluation  and  stakeholder  feedback  has  shown  that  cooperation  between 
authorities  in  home  and  host  Member  States  and  supervisory  convergence  is 
insufficient,  creating  further  obstacles  in  the  CSDs’  cross-border  operations,  hindering 
the creation of a true single market  for settlement  (see section 2.3.2),  a conclusion that 
High Level Forum on the CMU also reached.364 While CSDR requires the establishment 
of cooperative arrangements between home and host authorities when certain conditions 
are met and allows for the voluntary establishment of colleges of supervisors, in practice 
there is no evidence that such arrangements have been used. For example, while six 
CSDs  are  of  substantial  importance  to  more  than  one  host  Member  States,  only  one 
college  of  supervisors  has  been  set  up  under  Article  24(3)  of  CSDR365  and  no 
information  is  available  to  ESMA  on  whether  the  other  required  cooperative 
arrangements under CSDR have been set up. This means that communication between 
authorities in different Member States is not standardised; the same CSD is likely to be 
subject to different supervisory arrangements and requirements in the different Member 
States  in  which  it  may  operate.  This  is  further  exacerbated  by  the  fact  that  no  single 
authority participates in any arrangements that may have been set up to ensure that they 
all follow in practice the same supervisory approach (see also section 2.3.2).  

Third,  CSDR  contains  strict  conditions  for  CSDs  to  settle  a  transaction  in 
commercial  bank  money  (see  section  2.3.3).  A  securities  trade  typically  results  in  an 
obligation  for  the  seller  to  deliver  securities  (securities  leg)  and  a  corresponding 
obligation for the buyer to deliver cash (cash leg). To ensure delivery of the cash, a CSD 
may use accounts at a central bank366 or commercial bank money (i.e. CSDs may open 
accounts in their own books or in a commercial bank). Access to central banks depends 
on  the  respective  central  bank,  brings  cost  and  therefore  requires  certain  economies  of 
scale. Consequently, settlement in commercial bank money is sometimes the only option 
available for CSDs that want to settle in currencies other than that of the jurisdiction in 
which  they  are  authorised  (e.g.  because  the  CSD  does  not  have  an  account  with  the 
central  bank  of  the  transaction’s  currency).  However  the  restrictive  nature  of  the 
conditions (low threshold, no designated credit institutions, lack of economies of scale to 
recuperate  costs  for  banking  license)  under  which  this  is  possible  means  that  CSDs 
refrain  from  any  cross-border  activity.367  As  a  result,  the  percentage  of  EEA  CSDs’ 
settlement activity in foreign currencies remains small (Figure II), while the level of 
settlement in foreign currencies remains very limited; only five to seven CSDs between 
2016 and 2020 settling more than 10% of the transactions in foreign currencies.  

Furthermore,  as  seen  in  Figure  III,  only  four  CSDs  use  more  than  four  foreign 
currencies in their settlement activity (one uses 10 foreign currencies; three use between 

364  Final report of the High Level Forum on the Capital Markets Union (see note 70), p. 16. 
365  The  Latvian  supervisory  authority  established  and  led  the  Nasdaq  CSD  SE  supervisory  college  in 
cooperation  with  supervisory  authorities  and  central  banks  of  Lithuania,  Estonia  and  Latvia 
https://www.fktk.lv/en/news/press-releases/nasdaq-merges-its-baltic-csds-to-create-nasdaq-csd/.  

366  CSDR, in line with international standards, gives preference to settlement in central bank money as a credit 
balance at a central bank implies no credit risk since what defines a central bank is its absolute ability to 
issue  currency  to  meet  its  needs.  CSDs  in  the  EU  in  principle  have  access  to  the  central  bank  of  the 
currency in their jurisdiction and can therefore settle trades in that currency in central bank money. 

367  As central banks can set their own access criteria, such as an obligation to be established in the jurisdiction 
of the relevant currency, this is even more pertinent for EEA CSDs considering activities outside the EEA. 

 
 
                                                           
25 and 33 currencies).368 The other CSDs settling in foreign currencies use between one 
and  two  foreign  currencies.369  This  means  that  issuers  have  a  limited  choice  for 
multicurrency  issuance  which  prevents  genuine  cross-border  competition  on  all 
currencies (especially since issuers seek one-stop-shop solutions).370 

Figure II: Settlement in foreign currencies by EEA CSDs 

Figure III: Number of CSDs per range of yearly settlement in foreign currencies371 

2.  Disproportionate compliance costs  

CSDR introduced new requirements for CSDs to safeguard the essential role they play in 
financing the economy and channelling investments. Nevertheless, market participants 
and  authorities  have  identified  targeted  areas  where  the  compliance  costs  are 

368  ESMA Report ‘Provision of banking-type ancillary services under CSDR’ (see note 88). 
369  Ibid. 
370  Euronext 

Commission 

consultation 

response 

targeted 

the 

to 

on 

CSDR: 

https://www.euronext.com/it/regulation/government-affairs.    

371  Report to the European Commission: provision of banking-type ancillary services under CSDR, ESMA, 8 

July 2021: esma70-156-4582_report_to_the_ec_-_csdr_banking_services.pdf (europa.eu) 

 
 
 
 
 
 
 
 
                                                           
disproportionate,  because  (a)  legal  requirements  are  unclear,  and/or  (b)  they  are 
considered  excessively  burdensome,  and/or  (c)  the  costs  of  complying  with  the  rules 
appear to outweigh the potential benefits.  

Three  areas  have  been  identified  as  generating  disproportionate  compliance  costs: 
passporting rules; rules on the provision of banking services related to settlement; and the 
settlement discipline regime.  

First,  the  CSDR  passporting  rules  allow  CSDs  to  provide  services  for  financial 
instruments  constituted  under  the  law  of  any  Members  State  and  not  just  that  of  their 
authorisation.  In  this  way,  CSDs  can  benefit  from  access  to  a  larger  market  and 
issuers have more choice in where they issue and hold their securities. While the aim was 
to ensure the functioning of the EU single market, the legal requirements have turned 
out to be unclear in practice and burdensome (see section 2.3.1). For example, CSDs 
wishing to provide their services across the EU would need the agreement of 26 Member 
State authorities, in addition to their home authority, to do so. One CSD reported that 10-
15  pages  of  application  were  needed  for  each  EU  jurisdiction  that  a  passport  was 
requested;  this  needed  a  further  ca.  25-60  pages  of  external  legal  advice  annexed  per 
jurisdiction.372  

The following examples shed light on burdensome and unclear passporting requirements: 
First, the concept “securities constituted under the law of a Member State”373 gives 
rise to interpretation. Article 23(2) of CSDR refers to “the law of another Member State 
referred to in Article 49(1) [of CSDR]”, the latter provision mentioning the “corporate or 
similar law of the Member State under which the securities are constituted”. This could 
be  understood  as  referring  to  the  ‘governing  law’  (i.e.  the  law  governing  the  issuance) 
or/and  to  the  ‘issuer  law’  (i.e.  the  law  where  the  issuer  is  headquartered).  This  issue is 
often  encountered  for  debt  securities  as  for  shares  the  governing  and  issuer  laws  are 
usually the same. According to a Q&A on this issue the 'law under which the securities 
are  constituted'  in  the  meaning  of  Article  49(1)  of  CSDR  should  be  by  default  the 
‘standard’  law  of  the  issuance  for  each  type  of  financial  instrument  per  host  Member 
State (i.e. for shares, the national law of the issuer, and for bonds, the law that has been 
contractually  chosen  to  govern  the  issuance).  However,  several  specific  situations  exist 
which are detailed in the Q&As. For example, under the current provisions of CSDR, the 
case  may  arise  where  a  CSD  would  need  to  require  passports  in  two  separate  Member 
States for a single issuance. This situation is considered in Q&A 9 of ESMA.374 Article 
23 of CSDR provides that CSDs should assess the measures to be taken to allow its users 
to  comply  with  the  national  law  referred  to  in  Article  49(1).  However,  in  the  case  of 
bonds, this could actually refer to the laws of two different Member States: the law of the 
issuer Member State and the law contractually elected for the bond issuance.  

It should also be noted that – contrary to the Regulation– Q&As are not legally binding 
and  therefore  stakeholders  may  claim  that  they  are  entitled  not  follow  them  as,  in 
their view, they are complying with the Regulation itself even if they are not complying 
with the Q&A. Only a change to the EU legislation clarifying a legal requirement would 
be legally binding. 

372  Based on confidential information provided to DG FISMA services.  
373  Article 23(2) and Article 49(1) of CSDR. 
374  CSDR Q&As, ESMA70-156-4448, 31 March 2021, 

https://www.esma.europa.eu/sites/default/files/library/esma70-708036281-2_csdr_qas_2.pdf  

 
 
                                                           
In  their  answer  to  the  targeted  consultation,375  multiple  stakeholders  raised  the  issue  of 
the lack of clarity of Article 23(2) of CSDR. The time required for CSDs to identify the 
law to be considered as the “law under which securities are constituted” is burdensome. 
In  addition,  the  lack  of  legal  clarity  as  to  which  law  should  be  considered  creates 
uncertainty  as to  whether a passporting process  has to  be launched, and which national 
authorities should be involved in it.  

Second, a question was raised as to whether the CSDR passporting procedure applied 
to  all  types  of  securities.  A  Q&A376  clarified  that  Article  23  applies  to  all  financial 
instruments.377  However,  this  broad  scope  creates  more  barriers  for  CSDs  to  operate 
cross-border. For instance, according to a stakeholder the initial intention of the policy-
makers was for the passporting requirement to cover equities only; the broad scope has 
resulted  in  an  artificial  barrier  for  issuance  of  bonds  that  already  benefitted  from  the 
freedom of issuance prior to the CSDR.378 Another underlined that the determination of 
the  relevant  host  Member  State  is  easier  for  shares  than  for  bonds  as  for  the  latter 
different laws can apply such as the law of the issuer (for corporate aspects) or the law (s) 
contractually  chosen  to  govern  some  (economic)  rights.  In  addition,  it  noted  that  bond 
markets are very dynamic and the complexities of the passporting regime are particularly 
problematic  for  the  issuance  of  bonds  since  they  harm  CSDs’  ability  to  attract  bond 
issuance from abroad.379 

Third,  Article  23(3)(e)  of  CSDR  requires  CSDs  to  include  in  the  information  they 
communicate  to  their  competent  authority,  “where  relevant,  an  assessment  of  the 
measures the CSDs intends to take to allow its users to comply with the national law 
referred  to  in  Article  49(1)”.  The  use  of  “where  relevant”  does  not  allow  for  a 
harmonised  approach.380  ESMA  has  clarified  through  a  Q&A  that  “relevant”  means 
“whenever there are requirements under the national law that it has determined as being 
relevant for the users of each cross-border service it provides or intends to provide”.381 It 
is therefore left to the CSDs to make their due diligence in that respect,  increasing the 
burden imposed on them.  

Fourth, the passporting process is lengthy. The average time required between receipt 
of the application and its transmission to host Member State authorities is six months.382 
The length of the review by the host Member State authority for applications reported as 
“approved” was on average 4 months.383 It could be a lengthy and burdensome procedure 
before the CSD obtains the authorisation to provide its services in the host Member State. 
CSDs  wishing  to  provide  their  services  in  multiple  Member  States  have  to  repeat  the 
process for each Member State separately. The lengthy process means that the issuer will 
either  have  to  put  on  hold  its  projects  during  this  period384  or  seek  another  provider, 
where alternatives exist. Ten-months on average per passport process may be particularly 
long  for  short-term  instruments,  especially  in  situations  where  the  CSDs  would  like  to 

375  Summary Report of the Commission CSDR targeted consultation (see note 92). 
376  CSDR Q&As (see note 164) 
377  Financial instruments are defined in point (15) of Article 4(1) of Directive 2014/65/EU (see note 2). 
378  ESCDA response to the Commission CSDR targeted consultation, https://ecsda.eu/archives/13474. 
379  Euronext response to the Commission CSDR targeted consultation (see note 106). 
380  ESMA Report on cross-border services (see note 50), par. 102. 
381  CSDR Q&As (see note 164), question 9(f). 
382  ESMA Report on cross-border services (see note 50), para. 68. 
383  Ibid, par. 72. 
384  Based on confidential information provided to DG FISMA services.  

 
 
                                                           
passport  its  services  in  multiple  jurisdictions.  This  limits  the  incentive  to  request  a 
passport and engage in cross-border business, limiting competition. 

Fifth,  the  passporting  process  is  not  standardised,  as  confirmed  amongst  others  by 
ESMA.385 This has led to divergences in the way different national authorities handle 
passporting applications, e.g. the level of detail requested on the measures CSDs take to 
allow  their  users  to  comply  with  the  national  laws  of  the  host  Member  State.  For 
instance, it was  reported that the legal opinion (which can have a significant impact  on 
the passporting costs) and which is considered as mandatory by an ESMA Q&A, is only 
accepted  by  certain  national  authorities  (but  not  by  others)  if  issued  as  “external 
assessment”.386  Other  examples  include  the  need  for  additional  supervision  by  the  host 
authority  on  top  of  that  of  the  home  authority  and  the  need  for  the  foreign  CSD  to 
comply with certain domestic laws. 

Sixth, the role of the host national authority is unclear, e.g. on whether it can request 
additional information and/or what is its role in the assessment of the measures the CSD 
intends to take to allow its users to comply with national law.387  

The complexity of the passporting procedure and the difficulties in obtaining a passport, 
have  been  highlighted  both  by  CSDs  and  their  association  as  well  as  some  public 
authorities.388  One  CSD  stated  that  “[it]  is  our  assessment  that  despite  the  passporting 
regime  introduced  by  CSDR,  cross-border  activity,  namely  the  possibility  for  CSDs  to 
offer  services  as  Issuer  CSDs  for  instruments  issued  under  the  law  of  another  Member 
State  has  not  sufficiently  increased.  Overall,  the  passport  process  has  regrettably  been 
significantly more burdensome than what was intended by the legislator”.389  

In addition, the lack of clarity and complexity as regards how to comply with the legal 
requirements,  and  the  subsequent  threat  of  potential  legal  action,  generate  costs  that 
present  an  unnecessary  barrier  to  the  development  of  CSD  activities.  A  CSD  reported 
confidentially390  that  the  internal  legal  support  required  throughout  the  passporting 
process was significant, including: interpretation of Article 23 of CSDR, clarification of 
where  passports  were  needed  to  maintain  operating  licenses,  and  preparation  of  local 
legal  work.  After  this,  passport  notifications  were  prepared,  external  legal  advice  was 

385  “Some authorities noted important discrepancies in the level of detail provided in respect of the measures 
set up by CSDs to allow their users complying with national requirements, as this is not harmonised under 
CSDR. Moreover, some CSDs solely seem to rely on the issuer to perform a legal analysis of the capacity 
of the CSD to service their issuance. Some also claimed it is not clear whether a legal opinion is needed to 
support the assessment.  Another respondent highlighted that there are some important  differences in the 
degree of information in the provided documentation (e.g. from very detailed information to rather limited 
and high-level information) and mostly in the assessments  done by different CSDs. Some CSDs provided 
independent legal opinions, some provided internal assessment and others estimated that an assessment of 
each  national  requirement  under  Article  49  of  CSDR  was  not  necessary,  due  to  the  typology  of 
services/instruments the CSD provided.”,  ESMA Report on cross-border services (see note 50), para. 107. 

386  Based on confidential information provided to DG FISMA services.  
387  CSDR Q&A (see note 164), CSDR Question 9(g) clarifies the role of host NCAs. Q&As are not legally 

binding. 

388  To question 10 of the targeted consultation on whether they have encountered any particular difficulty in 
the process of obtaining the CSDR “passport” in one or several Member States different to the one of the 
place of establishment, 12 responded positively, 7 did not have an opinion while none of the respondents 
answered negatively.  

389  Euronext response to the Commission CSDR targeted consultation (see note 106), page 16. 
390  Based on confidential information provided to DG FISMA services.  

 
 
                                                           
sought,391  and  comments  from  host  national  authorities  had  to  be  addressed.  Another 
CSD stated confidentially392 that the CSD had to do most of the work rather than external 
lawyers;  consequently,  in  most  cases,  it  was  not  achievable  or  realistic  that  the  legal 
opinion cover the compliance of the CSD’s procedures with the local laws. Even if most 
CSDs  applying  for  a  passport  to  operate  cross-border  have  been  able  to  obtain  it, 
stakeholders  have  indicated  that  this  process  is  difficult,  lengthy  and  demanding  (see 
section 2.3.1).  

Second, the rules around the provision of banking services create disproportionate 
compliance  costs  for  CSDs.  This  negatively  impacts  the  provision  of  cross-border 
services.  In  addition,  the  lack  of  options  to  settle  in  either  commercial  bank  money  or 
central bank money could undermine the safety of the settlement market, as transactions 
could be settled free of payment instead of delivery versus payment, increasing risks for 
the market as a whole.393 More specifically:  

  CSDs offering settlement in commercial bank money as an ancillary service must 
comply  with  additional  requirements  to  mitigate  mainly  credit  and  liquidity 
risks for the CSD and its participants,394 e.g. CSDs have to be authorised as a 
credit  institution  under  the  applicable  banking  legislation  and  comply  with  the 
regulatory  capital  requirements  set  in  Regulation  (EU)  No  575/2013  (Capital 
Requirements  Regulation).  This  has  led  to  a  doubling  of  regulatory  capital  and 
significant  investments  in  operational  compliance relative to  the situation where 
only CSDR would be applicable.395 At end 2020, the level of regulatory capital of 
a  CSD  with  a  banking  licence  estimated  to  be  more  than  twice  the  amount 
compared  to  the  situation  where  it  had  to  comply  only  with  CSDR  and  without 
taking into account the number of staff responsible for assessing, controlling and 
mitigating  the  banking  risks  taken  by  the  bank.396  In  addition,  CSDR  does  not 
allow  banking  CSDs  to  offer  their  services  to  other  (non-banking)  CSDs 
irrespective of whether the latter is within or outside their group.397 As a result of 
the  increased  costs,  only  5  out  of  28  CSDs  in  the  EEA  have  applied  and  been 
authorised to  provide banking services;398 all provided these services pre-CSDR 
and  no  new  providers  have  entered  the  market.  Moreover,  one  CSD  stopped 
providing issuance and settlement services in currencies other than the Euro.399 

  CSDs offering settlement above a certain threshold may also use a specialised 
bank  (known  as  a  designated  credit  institution,  which  is  a  limited-licence  bank 
introduced  by  CSDR  that  provides  services  only  to  CSDs)  that  has  to  comply 
with  additional requirements  to  mitigate the risks. Nevertheless,  considering the 
costs  required  to  be  authorised  as  a  designated  credit  institution  and  the 
limited  range  of  services  that  such  entities  can  offer,  no  designated  credit 
institutions exist to date as a business case is difficult to make, as confirmed by 

391  In addition to the internal legal support, it is in practice impossible to provide a formalised assessment per 

market and per type of securities in all EEA countries without external legal advice.  

392  Information provided to DG FISMA services confidentially.  
393  European Post-Trade Forum Report (see note 11), p. 117. 
394  Credit  risk  is  the  risk  an  institution  faces  when  lending  to  borrowers  that  cannot  meet  their  obligations. 

Liquidity risk refers to the inability of an institution to meet its own financial obligations. 

395  Based on confidential information provided to DG FISMA services. 
396  Based on confidential information provided to DG FISMA services. 
397  Article 54 of CSDR.   
398  ESMA CSD Register (see note 26). 
399  Based on confidential information provided to DG FISMA services. 

 
 
                                                           
ESMA.400 Therefore, while this was  an option  in  CSDR, CSDs cannot  use it to 
settle in commercial bank money. Consequently, CSDR does not achieve its 
objective. The decision  of BNY Mellon to  stop its CSD project  in  2015 can be 
attributed to the restrictions imposed on designated credit institutions.401 

  CSDs  settling  in  commercial  bank  money  below  a  certain  threshold,  do  not 
have  to  comply  with  all  credit  and  liquidity  requirements  (i.e.  they  can  use  a 
commercial  bank).402  However,  this  means  that  they  have  to  limit  the  offer  of 
their services in other currencies in order not to exceed the threshold of 1% 
of  total  settlement  and  EUR 2.5 billion,  thus  incurring  opportunity  costs  from 
the  loss  of  business.  For  example,  in  northern  Europe,  CSDs  without  access  to 
central  bank  money,  such  as  Finland,  Sweden  and  Denmark  are  confronted 
directly with this limit, limiting possibilities for cross-border transactions between 
these  countries.403  Estimates  are  that,  for  CSDs  without  a  banking  license, 
settlement activities in foreign currencies could potentially increase over a 5-year 
horizon  by  ca.  5%  of  the  total  value  of  all  securities  transactions  against  cash 
settled in the books of such CSDs.404 The majority of stakeholders responding to 
the  Commission  targeted  consultation,  including  CSDs  and  their  association 
suggested a reassessment of the threshold set out in Article 54(5) of CSD.405 New 
entrant  CSDs  wishing  to  offer  settlement  services  throughout  the  EU  (and  thus 
likely  to  require  commercial  bank  money  settlement  facilities)  may  also  be 
discouraged from entering the EU market due to the conditions for settlement in 
commercial bank money, which were introduced to ensure financial stability.  
  Contributing  to  the  reluctance  of  market  participants  could  be  the  intensive 
process to obtain a banking authorisation. For CSDs already authorised to provide 
these services, the average time to receive the authorisation after the application 
was  deemed complete  was approximately 6 months, as  prescribed by CSDR.  In 
practice  however,  it  can  take  up  to  two  to  three  years  for  the  application  to  be 
deemed complete by the national authorities.406  

Third,  the  rules  on  settlement  discipline,407  although  not  yet  applicable,  would 
potentially  create  disproportionate  compliance  costs  for  CSDs  and  market  participants 
according to evidence provided by the majority of stakeholders.  

To  ensure  the  safety  of  settlement,  any  participant  in  a  securities  settlement  system 
should  settle  its  obligation  on  the  intended  settlement  date  (“ISD”);  a  settlement  fail 
occurs when a transaction does not settle on that date.408 The settlement discipline regime 
aims to  encourage market  participants to  avoid  settlement  fails;  its  two main elements 
are  the  measures  to  prevent  settlement  fails  (Article  6  of  CSDR)  and  the  measures  to 

400  ESMA Report ‘Provision of banking-type ancillary services under CSDR’ (see note 88), p. 4. 
401 European Post-Trade Forum Report (see note 11), p.117.  
402  Based on confidential information provided to DG FISMA services. 
403  European Post-Trade Forum Report (see note 11), p. 117. 
404 Based on the anonymised and consolidated outcome of a survey conducted among CSDs provided by the 

ESCB. 

405 Summary Report of the Commission CSDR targeted consultation (see note 92). 
406  ESMA Report ‘Provision of banking-type ancillary services under CSDR’ (see note 88) p 10. 
407  Articles 6 and 7 of CSDR. 
408  CSDR  defines  settlement  fails  as  the  non-occurrence  of  settlement,  or  partial  settlement  of  a  securities 
transaction  on  the  intended  settlement  date,  due  to  the  lack  of  securities  or  cash  and  regardless  of  the 
underlying cause (Article 2(15) of CSDR).  

 
 
 
                                                           
address settlement fails (Article 7 of CSDR). The latter comprise two main pillars; cash 
penalties and mandatory buy-ins. CSDs would be required to impose cash penalties on 
their  participants  in  case  of  settlement  fails.  If  despite  the  cash  penalties,  a  CSD 
participant  (original  seller)  fails  to  deliver  the  securities,  it  will  be  subject  to  a 
mandatory buy-in. A buy-in provides the buyer of securities with the right to buy the 
securities  elsewhere,  cancel  the  original  transaction  and  put  the  costs  of  the  buy-in,  as 
well as any price difference, with the original seller.409  

The  original  objective  of  the  settlement  discipline  regime  as  contained  in  the 
Commission  proposal410  was  to  address  high  settlement  fail  rates,  but  mainly  to 
harmonize the diverse market discipline measures across EU capital markets. Hence the 
proposed settlement discipline measures were general, with detailed technical standards 
to  be  set  in  secondary  legislation411.  The  final  set-up  of  the  settlement  discipline 
measures  became  evident  to  the  market  participants  only  when  the  2018  regulatory 
technical  standard412  (RTS)  was  published.  Furthermore,  only  the  period  of  market 
volatility of spring 2020 triggered reflections about the potential impact of the regime on 
trading conditions or their ability to fulfil certain market functions. 

Entry into force of the settlement discipline regime could provide a strong incentive for 
all  market  participants  to  improve  back-office  capacity  and  operations  to  handle  post-
trading functions. The higher EU fail rates seem to stem from operational and structural 
factors;  a  lack  of  cash  does  not  seem  to  be  typically  the  issue.413  These  deficiencies 
include  understaffing,  fragmented  IT  infrastructure  and  systems  or  highly  manual 
procedures  and  lack  of  straight-through-processing.  Insufficient  operational  post-trade 
capacities may lead to incorrect settlement instructions (miscommunication, human error 
etc.) that cannot be matched by CSDs.414 

The settlement discipline regime would however create both high one-off (i.e. connecting 
to buy-in agents, repapering existing contracts to take account of mandatory buy-in rules) 
and  ongoing  costs  (i.e.  in  terms  of  pricing  and  reduced  liquidity  of  instruments 
potentially at risk of being bought-in or trades being abandoned or migrating to non-EU 
trading venues (see section 2.3.4)).  

Evidence provided seems to show that these costs are disproportionate  and would stem 
both  from  the  lack  of  clarity  around  the  rules  governing  the  process  (i.e.  what 
transactions  are  in-scope  or  how  to  use  buy-in  agents),  and  from  the  framework’s 
impact  on  market  conditions  (deterioration  of  liquidity  for  some  instruments,  higher 
bid-ask  spreads)  and  market  participants’  trading  behaviour  (migration  of  trading 
from  peripheral  instruments  to  liquid  instruments,  doubts  around  the  viability  of  the 
market maker role for less liquid instruments). The costs of applying  in particular the 
rules on mandatory buy-in could outweigh their benefits for three main reasons:  

First, even though the settlement discipline regime did not yet apply in the early days of 
the  Covid-19  pandemic  (i.e.  March/April  2020),  the  crisis  gave  stakeholders  the 
opportunity to reflect on how it would have impacted the market if it were in place.415 In 

409  More details regarding the buy-in process is included in Annex 9. 
410  COM (2012) 73 final  
411  See the Impact Assessment supporting the 2012 CSDR proposal.  See SWD92012) 22 final, Option 1.1.2: 

Introduce common EU principles for settlement discipline 

412  Commission Delegated Regulation (EU) 2018/1229 
413  ‘ESMA Report on trends, risks and vulnerabilities’, No.2, 2021, ESMA50-165-1842. 
414  Based on confidential information provided to DG FISMA services.  
415  Summary Report of the Commission CSDR targeted consultation (see note 92).  

 
 
                                                           
essence,  mandatory buy-ins  could have exacerbated the negative impacts linked to 
the crisis; in particular they could have increased liquidity pressure and increased 
the costs of securities at risk of being bought-in.416  

For instruments where there are few available buyers and sellers, market makers play a 
key role by taking risk onto their balance sheet to provide immediate execution to clients. 
For these securities, market makers417 are an important source of liquidity and thus often 
offer securities they do not hold,418 based on the reasonable assumption of sourcing these 
securities when necessary. For securities not held on their balance sheet, or which cannot 
be  readily  sourced,  the  introduction  of  a  mandatory  buy-in  regime  under  CSDR  would 
fundamentally  impact  the  ability  of  market  makers  to  make  markets.  To  adjust  for  the 
expected  cost  of  being  bought-in,  market  makers  will  have  to  add  a  premium  to  their 
prices – which will widen the bid-offer spread (which will in turn increase costs to end-
investors) – or they may simply not make an offer price on an enquiry thereby negatively 
affecting market liquidity.  

Although these liquidity effects are most pronounced in choices made by market makers, 
all investors, even in liquid securities, could face similar trade-offs between entering into 
a  trade  (providing  liquidity),  the  availability  of  the  instrument  and  the  cost  of  being 
bought-in.  The  impacts  are  likely  to  be  reflected  in  behavioural  change,  rather  than  a 
price  adjustment.  For  instance,  according  to  feedback  from  the  targeted  consultation, 
lenders  of  bonds  might  become  less  inclined  to  lend,  to  reduce  the  risk  that  they  get 
bought  in  if  they  sell  securities  on  loan  which  cannot  be  recalled  on  time.419  During 
periods of market stress, in particular as investors hoard cash and withdraw the less risky 
instruments,  some  securities,  especially  those  with  limited  availability,  will  experience 
further deterioration of liquidity resulting in increased settlement fails.  

If during this period of market stress mandatory buy-ins had been in place, participants 
would  have  had  to  buy  back  the  securities  that  already  had  limited  availability  and 
therefore  would  have  added  liquidity  pressure  on  them.420  Investors  would  have 
chased a small number of available securities, driving up prices and potentially, further 
driving  volatility  in  a  stressed  market.  The  costs  of  mandatory  buy-ins  for  market 
participants (that have to buy exactly these securities) would thus have increased, making 
it  even  more  difficult  for  market  participants  to  manage.  One  estimate  is  that  the 
volume  of  buy-ins  in  corporate  bonds  would  have  more  than  doubled  during  the 
Covid-19 market turmoil, compared to normal market conditions.421 This would have led 
to a noticeable increase in the cost of these instruments, illustrated by bid-offer spreads. 
According to  one bank,  the application of mandatory buy-ins  to  EU  government  bonds 

416  More  than  half  of  respondents  to  the  targeted  consultation,  all  categories  included,  considered  that  the 
CSDR settlement discipline regime  would have  had a  significant negative  impact on the market if it  had 
been  in  place  during  the  market  turmoil  provoked  by  Covid-19.  Summary  Report  of  the  Commission 
CSDR targeted consultation (see note 92). 

417  By  providing  a  buy  and  sell  price  for  securities  (bid-ask  spread)  market  makers  establish  liquidity  and 
pricing,  and  help  end-investors  to  redeem  funds  or  transact  in  a  timely  fashion  in  instruments  for  which 
there may not be a counterparty with an immediate opposite intention.  

418  Market makers aim to run low levels of inventory since high levels of inventories have high risk, capital 

and funding costs. 

419 Especially during a credit crunch, this effect could be amplified as lenders would want to have the ability to 
sell  holdings  at  short  notice  to  raise  cash  liquidity  and  the  amount  they  will  be  willing  to  lend  will  be 
further reduced 

420 Based on responses to the Commission CSDR targeted consultation from AFME,  Association of German 

Banks, EFAMA, et al. 

421  Based on confidential information provided to DG FISMA services.  

 
 
                                                           
could  have  led  to  a  50%-100%  increase  in  bid-offer  spreads  depending  on  the  size 
and the status of the markets.422 

Second,  the  settlement  discipline  regime  could  also  give  rise  to  unintended 
consequences  for  the  competitiveness  of  the  EU  capital  markets.  Capital  markets 
outside the EU do not have a settlement discipline regime as strict as that of the EU;423 
e.g. the UK announced it is not implementing the CSDR settlement discipline regime.424 
Investors  may  therefore  be  tempted,  in  light  of  the  increased  costs  of  trading  EU 
securities due to  the higher price  for their settlement, to  focus on other markets for the 
settlement of their transactions. In particular mandatory buy-ins may create an additional 
cost and risk for EU-settled securities that could disadvantage EU companies compared 
to their global peers. Wider spreads and less liquidity will reduce the investment returns 
of  pension  funds,  asset  managers  and,  ultimately,  end  investors,  which,  according  to 
some stakeholders, could risk driving issuance, trading and investment activity outside of 
the EU.425 One firm stated that they would limit their activity and stop providing liquidity 
to EU investors for emerging markets and US high grade and high yield bonds, where the 
majority of liquidity comes from outside of Europe, because of the potential cost of these 
rules.426 This would limit access to global liquidity for EU investors, as foreign investors 
will be unlikely to assume the costs and risks involved. This would be detrimental to EU 
businesses that would face a lower demand for their securities, but also for EU financial 
infrastructures and CMU. It is worth noting that non-EU/EEA investors hold around 
22%  of  European-issued  securities.  The  impact  of  the  entry  into  force  of  mandatory 
buy-ins could therefore lead to a potentially major loss of counterparties and liquidity for 
the  EU  capital  market.427  A  significant  part  of  the  EU  capital  market  may  hence  be 
affected, depending on where transactions are settled, with liquidity and pricing heavily 
favouring  non-EEA  settlement  and  trading.  The  potential  negative  impact  on  the 
attractiveness  of  the  EU  market  would  be  at  odds  with  the  objectives  pursued  by  the 
settlement discipline regime and CSDR as a whole to make the EU capital market more 
attractive by increasing the safety of settlement. 

Finally, against the above arguments, it should be noted that  despite the dramatic 
increase in trading (settlement instructions increased by 30% between 2015  – 2019 in 

422  Based on confidential information provided to DG FISMA services.  
423  During the CSDR consultation process stakeholders referred to SHO Regulation and SEC Rule 204, which 
however relates only to short-selling and the obligation that broker and dealer must close-out unresolved 
equities  transactions.  This  was  introduced  to  discourage  the  market  from  naked  short-selling.  Also 
examples of buy-in were given for Asian markets, in particular Singapore Exchange where any unsettled 
buy-in  trade  is  carried  forward  to  the  next  business  day  for  settlement.  If  the  buy-in  and  procurement 
remains unsuccessful by ISD +6, cash settlement will be initiated against the seller to provide resolution of 
the sale trade. However the Singapore Exchange has a very low failure rate because of DvP and very few 
trades go to buy-in. 

424  Written 

statement  by  Chancellor  of 

June  2020,  https://questions-
statements.parliament.uk/written-statements/detail/2020-06-23/HCWS309.  In  the  meantime  the  UK  will 
(p.37): 
discipline 
continue 
https://www.crh.com/media/3376/crest-rules-january-2021.pdf It provides for fines on either failed bought 
or sold transactions.  
See  AFME 

the  Commission  CSDR 

the  Exchequer  on  23 

apply  CREST 

consultation, 

transactions 

settlement 

response 

targeted 

failed 

rules 

36, 

on 

to 

to 

p. 

425 

https://www.afme.eu/Portals/0/DispatchFeaturedImages/AFME_CSDR_CP_Response_Final.pdf. 

426  Based on confidential information provided to DG FISMA services. 
427  ‘Who Owns the European Economy? Evolution of the Ownership of EU-Listed Companies between 1970 
INSEAD  OEE  Data  Services,  2013, 
Institute  & 

and  2012’,  The  European  Savings 
https://ec.europa.eu/info/sites/default/files/file_import/1308-report-who-owns-european-
economy_en_0.pdf. 

 
 
                                                           
EU CSDs428) the settlement fail rate has remained relatively stable in the EU, both 
as a share of value and number of total transactions (See Annex 8, Figure II ). More 
specifically, for debt instruments there is a clear decrease in settlement fails (as a % of 
total number of transactions) compared to 2015, both for corporate (from 5% to 3.5% in 
January  2021)  and  government  bonds  (from  3%  to  2%  in  January  2021).  In  terms  of 
failed settlement instructions as percentage of value of settlement instructions, corporate 
bonds remain at a low and stable rate (ca. 2% since 2015), while the ratio for government 
bonds has increased (from 2% in January 2018 to 3% in January 2021),429 implying fails 
among  bonds  with  a  higher  face  value.  For  equity  products  the  picture  is  less  clear. 
Settlement  fails,  calculated  as  percentage  of  total  number  of  transactions,  fell  to  3% 
before the Covid-19 market turmoil, but have since increased again to 4.5%. In terms of 
settlement  fails  as  percentage  of  value,  the  ratio  has  increased  to  9%  in  January  2021 
from 6% before March 2020.430 Only recently has ESMA recorded a slow improvement 
in  the  settlement  rate  for  equities,  while  the  failure  rate  for  debt  instruments  recovered 
quicker.431  It  should be noted however that between January 2018  and March 2020 the 
settlement fails rate for equities was low and stable, both as a share of total value (6%) 
and total number (3%) of equity transactions.432 This indicates that that in normal market 
circumstances  settlement  in  the  EU  can  be  relatively  efficient.  Finally,  in  the  case  of 
fixed  income  instruments,  data  seems  to  show  that  the  majority  of  fails  are  resolved 
before  the  end  of  the  notional  extension  period.  For  instance,  approximately  1.5%  of 
corporate  bonds  were  still  not  settled  at  ISD  +  7,  compared  to  0.2%  of  sovereign 
bonds.433 In absolute terms, this approximately equates to an estimated 1250 buy-ins per 
business day, for one CSD and one instrument type. In relative terms, the buy-in regime 
targets  a  small  proportion  of  the  total  volume  of  transactions  but  will  necessitate  an 
impact on the pricing and liquidity on a much larger percentage of overall transactions.434 

However,  even  if  settlement  efficiency  in  the  EU  seems  to  be  stable  or  improving 
slightly, fail rates in the EU still remain higher than in, e.g. the US where about 2% of all 
US  treasuries  and  mortgage  backed  securities  transactions  fail.435  Different  levels  of 
settlement  efficiency  between  national  capital  markets  can  partly  explain  the  lower 
overall  EU  settlement  efficiency.436  The  top  five  EU  Member  States  had  a  settlement 
efficiency437  between  0.20%  -  0.44%  in  2020.  Comparable  figures  for  the  least 
performing five Member States ranged from 4.76% - 13.80%. This illustrates that there 

428  Data  generated  through  the  Securities  Trading,  Clearing  and  Settlement  Statistics  Database,  European 

Central Bank, https://sdw.ecb.europa.eu/browse.do?node=9691131.  

429  See Figure II, Annex 8. Based on confidential data provided to DG FISMA services.  
430  See Figure II, Annex 8. Based on confidential data provided to DG FISMA services.  
431  ‘ESMA Report on trends, risks and vulnerabilities”, ESMA50-165-1524, No. 1, March 2021. 
432  A  higher  settlement  fail  rate  for  equities  compared  to  debt  products  can  be  explained  by  the  fact  that 
equities are more likely to form part of a chain of settlement fails.  A staff paper by the Bank of England 
found that only a small proportion of fails (17%) in the highly liquid FTSE100 securities was not part of a 
cascade  of  fails.  By  contrast,  for  gilts  more  than  40%  that  failed  was  not  involved  in  a  cascade  of  fails. 
Source: “Securities settlement fails network and buy-in strategies”, Gurrola-Perez, P., He J. & Harper, G., 
Staff Working Paper No. 821, Bank of England, September 2019. 

433  See  AFME response to the Commission CSDR targeted consultation, Q. 34.1 based on data  provided by 

Euroclear Bank for the fixed income market in 2020 (see note 127). 

434  Ibid. 
435  K. Burne, ‘How to succeed in fixing settlement fails’, Aerial View, Bank of New York Mellon, 2020. 
436  Based on confidential information provided to DG FISMA services. 
437  Calculated as percentage of total value of all transactions, equity and debt combined. Looking at settlement 
efficiency as percentage of total number of transactions, the best and worst performing Member States are 
broadly similar. 

 
 
                                                           
seems to be still some room for improvement in the EU’s settlement efficiency, in some 
instruments  more  than  others.  Nevertheless,  these  small  improvements,  need  to  be 
balanced  against  the  potential  disproportionate  costs  of  investing  in  the  settlement 
discipline regime and applying it over time. 

3.  Insufficient insight into the activities of third-country CSDs 

Under  CSDR,  third-country  CSDs  providing  services  in  the  EU  provide  insufficient 
insight into their activities in relation to financial instruments constituted under the 
law  of  a  Member  State,  in  particular  when  they  provide  services  under  the 
grandfathering  clause  (see  section  2.3.5).  This  leads  to  potential  risks  for  the  whole 
settlement  ecosystem,  and in  particular could  have negative impacts  on three  groups of 
stakeholders: EU authorities, EU CSDs and issuers. 

First,  EU  authorities  are  not  aware  of  the  activities  of  third-country  CSDs  in  the 
EEA,  a  fact  underlined  both  by  ESMA  and  several  respondents  to  the  targeted 
consultation; ESMA itself recognised that “… there is no information available either at 
EEA  level  (ESMA,  European  Commission)  or  at  the  level  of  NCAs  as  to  the  activity  of 
TC-CSDs [third-country CSDs] in the EEA, unless provided by the TC-CSDs on a pure 
voluntary basis”438. Some third-country CSDs operating in the EU are not subject to any 
notification requirement for their activities with respect to securities constituted under the 
law of a Member State (see section 2.3.5). EU authorities therefore have no information 
on  which  services  they  provide,  their  volume  or  the  Member  States  affected  by  them. 
This means that, if needed, neither issuers nor public authorities at national and EU level 
can assess the impact of these CSDs on the financial stability of the EU which may in 
itself create a risk to financial stability. 

Second, there is an uneven playing field between EU CSDs and third-country CSDs 
as these latter are not required to comply with rules at least equivalent to CSDR for their 
activities in relation to financial instruments constituted under the law of a Member State. 

Third,  the  lack  of  information  on  third-country  CSDs’  activities  may  create  a  risk 
for  investors.  The  Commission  has  not  assessed  the  rules  to  which  CSDs  operating 
under the grandfathering clause are subject, despite the fact that they provide services in 
relation  to  the same financial instruments  EU CSDs do (see section 2.3.5). The lack of 
information  on  those  CSDs’  activities  may  create  a  risk  for  investors  where  the 
legislation governing them does not offer the same level of protection as EU legislation. 

438  ESMA  letter  to  the  European  Commission,  ‘ESMA’s  Proposals  regarding  the  Review  of  the  CSD 
Regulation  (CSDR),  20  May  2021,  https://www.esma.europa.eu/sites/default/files/library/esma70-156-
4519_letter_to_ec_-_csdr_review.pdf . 

 
 
 
 
 
                                                           
ANNEX 7: ANALYSIS OF ALL THE OPTIONS 

This section describes the costs and benefits of each policy option on the drivers.  

1.  IMPACT OF THE POLICY OPTIONS REGARDING PASSPORTING REQUIREMENTS 

1.1. Option 2 - Reduce the scope of the passporting requirements 

Cost-benefit analysis  

  CSDs:  Any  EU  CSD  would  be  able  to  provide  services  for  non-equity  instruments 
within  the  EU  without  being  subject  to  a  passporting  process,  increasing  their 
potential to expand cross-border, and thus benefit from potential economies of scale 
and  scope.  This  benefit  would  be  ongoing.  However,  the  unclear  and  burdensome 
passporting  requirements,  for  equities  would  remain,  creating  cross-border  barriers 
for CSDs, reducing competitiveness. This cost would be ongoing.  

 

Issuers:  Issuers  would  be  positively  impacted  as  it  would  increase  cross-border 
activities for non-equity securities, e.g. bonds. It would therefore mean more choice 
and  competition  between  CSDs  and  more  offers  for  issuers.  This  benefit  would  be 
ongoing.  However,  as  the  benefits  would  be  limited  to  non-equities,  the  problems 
identified  would  remain  for  equity  securities,  limiting  the  potential  benefits  for 
issuers.  

 

Investors:  Investors  would  be  positively  impacted  as  it  would  increase  cross-border 
activities for non-equity securities, e.g. bonds. It would therefore mean more choice 
and competition between CSDs. This benefit would be ongoing.  

  ESMA: No impact identified. 

  NCAs: NCAs of host Member states would not have a clear overview on the services 
provided  for  non-equity  instruments  by  CSDs  established  outside  their  jurisdiction 
and the risks that they may or may not entail. This cost would be ongoing. 

1.2. Option  3  -  Clarify  the  role  and  powers  of  competent  authorities  and 

requirements related to national laws  

Cost-benefit analysis  

CSDs:  CSDs  could  have  a  clearer  view  on  the  passporting  requirements,  hence 
accelerating  the  passporting  process  and  spending  less  time  and  costs  on 
understanding 
the  different  requirements.  This  benefit  would  be  ongoing. 
Clarifications  could  therefore  lead  to  some  improvements  in  cross-border  activities. 
However, the burden of requesting an approval from the host Member State regarding 
the  analysis  of  the  measures  to  be  taken  by  the  CSD  to  allow  its  participants  to 
comply  with  the  requirements  related  to  national  laws  would  still  remain  even  if 
clarified. Should a CSD wish to passport in 26 Member States to be able to provide 
services  throughout  the  EU,  it  is  estimated  that  it  would  cost  on  average  at  least 
EUR 780 000  for  the  CSD  (see  section  2.3.1).  Should  the  simplified  passporting 
process  reduce  by  15%  the  costs  of  passporting,  this  CSD  would  be  saving,  on 
average, EUR 117 000. Currently 15 CSDs are providing services cross border in at 
least one Member State. If the notification process enables at least 10 other CSDs to 
passport in 26 Member States this would help to save on average EUR 1 170 000 for 

 
 
CSDs.  This  would  be  a  one-off  benefit  for  CSDs.439  Ongoing  costs  of  monitoring 
compliance  with  the  passport  would  also  be  slightly  reduced.  Should  a  CSD  had 
passported in 26 Member States to be able to provide services throughout the EU, it 
is  estimated  that  it  would  cost  on  average  at  least  EUR 52 000  (see  section  2.3.1). 
Should  the  simplified  process  reduce  by  15%  the  costs  of  passporting,  this  CSD 
would be saving, on average, EUR 7 800. Currently 15 CSDs are providing services 
cross border in at least one Member State. If the simplified process enable at least 10 
other  CSDs  to  passport  in  26  Member  States  this  would  help  to  save  on  average 
EUR 78 000 for CSDs per year. This would be ongoing benefit for CSDs. 

 

 

Issuers:  If  the  simplification  of  the  passporting  requirements  leads  to  some 
improvements  in  cross-border activities, issuers can benefit  from  a more diversified 
offer from CSDs. This benefit would be ongoing.  

Investors:  If  the  simplification  of  the  passporting  requirements  leads  to  some 
improvements in cross-border activities, investors can benefit from more competition 
between CSDs. This benefit would be ongoing. 

  ESMA:  ESMA  would  have  a  clearer  view  on  the  passporting  requirements,  and 
therefore would spend less time to clarify them. This benefit would be ongoing.  

  NCAs:  NCAs  would  have  a  clearer  view  on  the  passporting  requirements,  hence 
spending  less  time  on  understanding  them.  In  addition,  it  would  remove  the 
uncertainty  as  regards  the  role  of  the  host  NCA.  This  benefit  would  be  ongoing. 
However, the burden of requesting an approval from the host Member State regarding 
the  analysis  of  the  measures  to  be  taken  by  the  CSD  to  allow  its  participants  to 
comply  with  the  requirements  related  to  national  laws  would  still  remain  even  if 
clarified. 

Should  a CSD wish  to passport  in  26 Member States to  be able to  provide services 
throughout the EU, it is estimated that it would cost to national authorities altogether 
at least EUR 79 000 (see section 2.3.5). Should the simplified process reduce by 15% 
the costs of passporting, the 26 national authorities would be saving all together, on 
average, ca. EUR 11 800. Currently, 15 CSDs are providing services cross border in 
at least one Member State. If the simplified process enables at least 10 other CSDs to 
passport  in  26  Member  States  this  would  help  to  save  ca.  EUR 118 000  for  27 
national authorities. This would be a one-off benefit for NCAs.  

1.3. Option 4 - Replace the passporting procedure  at the level of the host Member 

State with a simple notification 

Cost-benefit analysis  

  CSDs:  The  passporting  requirements  related  to  national  laws  and  the  role  of  NCAs 
are  the  ones  that  raised  most  issues.  Removing  the  possibility  for  the  host  Member 
State  competent  authorities  to  refuse  a  passporting  request  would  alleviate,  clarify 
and speed up the passporting process. This benefit would be ongoing. 

Should  a CSD  wish  to  passport  in  26 Member States to  be able to  provide services 
throughout the EU, it is estimated that it would cost on average at least EUR 780 000 
per CSD (see section 2.3.1). Should the simplified process reduce by 75% the costs of 
passporting,  this  CSD  would  be  saving,  on  average,  EUR 585 000.  Currently  15 

439  Commission estimates based on confidential information provided to DG FISMA services. 

 
 
                                                           
CSDs  are  providing  services  cross  border  in  at  least  one  Member  State.  If  the 
simolified  process  enables  at  least  10  other  CSDs  to  passport  in  26  Member  States 
this would help to save ca. EUR 5 850 000 for CSDs. This would be a one-off benefit 
for CSDs.440  

Ongoing  costs  of  monitoring  compliance  with  the  passport  would  also  be 
significantly.  Should  a  CSD  had  passported  in  26  Member  States  to  be  able  to 
provide services  throughout the EU,  it is  estimated that  it would cost  on average at 
least  EUR 52 000  (see  section  2.3.1).  Should  the  simplified  process  reduce  by  75% 
the  costs  of  passporting,  this  CSD  would  be  saving,  on  average,  EUR 39 000. 
Currently 15 CSDs are providing services cross border in at least one Member State. 
If  the  simplified  process  enables  at  least  10  other  CSDs  to  passport  in  26  Member 
States  this  would  help  to  save  ca.  EUR 390 000  for  CSDs  per  year.  This  would  be 
ongoing benefit for CSDs. 

 

 

Issuers:  Issuers  could  be  positively  impacted  as  it  would  increase  cross-border 
activities. It would therefore mean more choice and competition between CSDs and 
more offers for issuers. This benefit would be ongoing.  

Investors:  If  the  simplification  of  the  passporting  requirements  leads  to  some 
improvements in cross-border activities, investors can benefit from more competition 
between CSDs. This benefit would be ongoing. 

  ESMA:  The  simplified  process  would  alleviate  their  costs  as  the  passporting 

requirements would be streamlined and clearer.  

  NCAs: By replacing the passporting procedure at the level of the host Member State 
by  a  notification,  NCAs  will  alleviate  the  costs  and  time  spent  on  passporting; 
however, at the same time, NCAs would have less oversight on the  measures taken 
by the CSDs to allow their users to comply with the national law referred to in Article 
49(1) and also no power to oppose the passporting. At the same time, the simple fact 
that  NCAs  would  have  less  oversight  does  not  mean  that  CSDs  would  not  have  to 
continue  applying  national  laws.  In  addition,  as  a  notification  procedure  would  still 
remain  in  place,  it  would  ensure  adequate  information  to  monitor  risks  for  the 
authorities. 

Should  a CSD  wish  to passport  in  26 Member States to  be able to  provide services 
throughout the EU, it is estimated that it would cost to national authorities altogether 
at least EUR 79 000 (see section 2.3.5). Should the simplified process reduce by 75% 
the costs of passporting, the 26 national authorities would be saving all together, on 
average, ca. EUR 59 000. Currently, 15 CSDs are providing services cross border in 
at least one Member State. If the simplified process enables at least 10 other CSDs to 
passport in 26 Member States this would help to save on average EUR 590 000 for 27 
national authorities. This would be a one-off benefit for NCAs.  

1.4. Combination of Option 3 and Option 4 

Cost-benefit analysis  

CSDs:  CSDs  could  have  a  clearer  view  on  the  passporting  requirements,  hence 
accelerating  the  passporting  process  and  spending  less  time  and  costs  on 
the  different  requirements.  This  benefit  would  be  ongoing. 
understanding 

440  Commission estimates based on confidential information provided to DG FISMA services. 

 
 
                                                           
Clarifications  could  therefore  lead  to  some  improvements  in  cross-border  activities. 
Further, the burden of requesting an approval from the host Member State would be 
removed.  This  would  be  a  one-off  benefit  for  CSDs,  although  ongoing  costs  of 
monitoring compliance with the passport would also be slightly reduced.  

More details on the quantified costs and benefits are included in Section 1.2 and 1.3 
of this Annex, regarding options 3 and 4.  

Issuers:  If  the  simplification  of  the  passporting  requirements  leads  to  some 
improvements  in  cross-border activities, issuers can benefit from  a more diversified 
offer from CSDs. This benefit would be ongoing.  

Investors:  If  the  simplification  of  the  passporting  requirements  leads  to  some 
improvements in cross-border activities, investors can benefit from more competition 
between CSDs. This benefit would be ongoing. 

 

 

  ESMA:  ESMA  would  have  a  clearer  view  on  the  passporting  requirements,  and 
therefore  would  spend  less  time  to  clarify  them.  The  simplified  process  would  also 
alleviate their costs as the passporting requirements would be streamlined and clearer. 
This benefit would be ongoing.  

  NCAs:  NCAs  would  have  a  clearer  view  on  the  passporting  requirements,  hence 
spending  less  time  on  understanding  them.  In  addition,  it  would  remove  the 
uncertainty  as  regards  the  role  of  the  host  NCA.  This  benefit  would  be  ongoing. 
Further, the burden of requesting an approval from the host Member State would be 
removed, which will alleviate the costs and time spent on passporting. This would be 
a one-off benefit for NCAs.  

However, NCAs would have less decision making powers on the measures taken by 
the CSDs to allow their users to comply with the national law referred to in Article 
49(1) and also no power to oppose the passporting. At the same time, the simple fact 
that  NCAs  would  have  less  oversight  does  not  mean  that  CSDs  would  not  have  to 
continue  applying  national  laws.  In  addition,  as  a  notification  procedure  would  still 
remain  in  place,  it  would  ensure  adequate  information  to  monitor  risks  for  the 
authorities. Finally, NCAs could benefit for a compensatory increase of oversight on 
passported  CSDs  through  the  establishment  of  mandatory  colleges,  which  would 
allow them to have an ongoing oversight rather than a one off possibility to refuse a 
passport.  

2.  IMPACT  OF  THE  POLICY  OPTIONS  REGARDING  COOPERATION  BETWEEN 

AUTHORITIES  

2.1. Option 2: Enhance the existing CSDR rules for cooperation arrangements 

Cost-benefit analysis  

  CSDs:  CSDs  benefit  from  a  reduction  of  costs  as  a  result  of  addressing  partly  the 
barriers  to  cross-border  settlement  and  the  lack  of  supervisory  convergence.  This 
benefit would be ongoing. 

 

 

Issuers:  Issuers  would  benefit  from  the  partly  improved  cross-border  provision  of 
services  and  supervisory  convergence  as  well  as  from  increased  financial  stability. 
This benefit would be ongoing. 

Investors: Investors would benefit from the partly improved cross-border provision of 
services  and  supervisory  convergence  as  well  as  from  increased  financial  stability. 
This benefit would be ongoing. 

 
 
  NCAs: NCAs may incur limited additional costs arising from their participation to the 
cooperation  arrangements.  Nonetheless,  they  will  benefit  from  slightly  increased 
access  to  information  and  powers  to  monitor  risks  compared  to  today.  This  benefit 
would be ongoing. 

  ESMA: No impacts for  ESMA or, in case the framework is  amended  to  provide for 
ESMA  participation  to  the  cooperation  arrangements,  limited  additional  [ongoing] 
costs. 

  Banks: no impact identified. 

2.2. Option 3: Introduce mandatory supervisory colleges 

Cost-benefit analysis  

  CSDs:  By  addressing,  even  partly,  the  barriers  to  cross-border  settlement  and  the 
absence of supervisory  convergence, CSDs  would benefit (to  a  greater  extent when 
compared  to  option  1)  from  a  reduction  of  costs  when  operating  in  the  EU.  This 
benefit would be ongoing. 

 

 

Issuers:  would  benefit  (to  a  greater  extent  when  compared  to  option  1)  from  the 
partly improved framework for the cross-border provision of services, the increased 
supervisory convergence and financial stability. This benefit would be ongoing. 

Investors:  would  benefit  (to  a  greater  extent  when  compared  to  option  1)  from  the 
partly improved framework for the cross-border provision of services, the increased 
supervisory convergence and financial stability. This benefit would be ongoing. 

  NCAs:  NCAs  may  incur  limited  additional  ongoing  costs  arising  from  their 
participation  to  colleges.  Nonetheless,  at  the  same  time,  their  ongoing  costs  will  be 
reduced due to the streamlined cooperation of authorities and their increased access 
to information and powers to monitor risks compared to today. 

  ESMA:  ESMA  may  incur  additional  costs  from  its  participation  to  colleges.  It  is 
estimated  that  such  additional  costs  may  range  from  about  EUR 130 000  to 
EUR 260 000 per annum depending on the number of CSDs for which colleges could 
be  established  and  their  powers.441  However,  ESMA  would  be  able  to  benefit  from 
the  experience  it  has  already  acquired  in  the  field  of  colleges  under  EMIR,  and 
therefore very limited, if any, one-off operational costs are envisaged. 

  Banks: no impact identified.  

2.3. Option 4: More supervision of CSDs at EU level 

Cost-benefit analysis  

  CSDs:  By  removing  the  barriers  to  cross-border  settlement  and  the  absence  of 
supervisory  convergence,  CSDs  would  benefit  from  a  significant  reduction  of  costs 
when operating in the EU. This benefit would be ongoing. Nevertheless, if the costs 
of EU supervision were passed to CSDs, they would face higher costs. 

 

Issuers:  Issuers  would  benefit  from  the  free  provision  of  cross-border  services,  the 
increased  supervisory  convergence  and  financial  stability.  This  benefit  would  be 
ongoing. 

441  Commission estimates based on confidential data provided to DG FISMA services. 

 
 
                                                           
 

Investors:  Investors  would  benefit  from  the  free  provision  of  cross-border  services, 
the increased supervisory convergence and financial stability. This benefit would be 
ongoing. 

  NCAs: NCAs ongoing costs would be significantly reduced (depending on the model 
of single supervision to be chosen), as authorisation and supervisory powers would be 
moved at EU level. 

  ESMA:  This  would  require  a  significant  extension  of  supervisory  capacity  inside 
ESMA  (should  ESMA  be  retained  as  the  single  supervisor)  or  the  creation  from 
therefore  have  major  budgetary 
scratch  of  a  single  supervisor  and  would 
consequences  for  the  EU.  According  to  some  estimates,  depending  on  the  exact 
nature  of  ESMA’s  powers  and  the  CSDs  over  which  ESMA  would  exercise  such 
powers,  the  budgetary  implications  of  this  option  could  potentially  range  from 
EUR 0.5 million  to  EUR 4 million  per  annum  depending  on  the  design.442  These 
costs would be ongoing. One option would be to cover the costs via fees to EU CSDs 
subject to ESMA’s supervision. 

  Banks: no impact identified. 

3.  IMPACT  OF  THE  POLICY  OPTIONS  REGARDING  PROVISION  OF  BANKING  SERVICES 

RELATED TO SETTLEMENT IN FOREIGN CURRENCIES 

3.1. Option 2: Introduce targeted amendments for designated credit institutions 

Cost-benefit analysis  

In terms of specific stakeholders, the effects are estimated to be the following: 

  CSDs:  Benefit  from  increased  opportunities  for  cross-border  transactions  as 
settlement  in  foreign  currencies  would  become  easier.  Financial  stability  risks, 
however,  in  terms  of  credit  and  liquidity  risks  and  concentration  risks  will  increase 
depending on the relative increase in foreign currency settlement. It also could reduce 
the incentives to use central bank money, one of the principles of CSDR. Option 2a: 
broad  access  to  foreign  currencies  for  CSDs  as  all  banks  can  step  in.  Option  2b: 
existing  banking  CSDs  can  immediately  start,  no  establishment  needed,  risk 
management  arrangements  in  place,  greater  concentration  risks  within  these  groups 
and  risks  to  competitiveness  for  smaller  non-banking  CSDs  vis-a-vis  the  usually 
larger banking CSDs. 

 

 

Investors: Investors will benefit from the increased competition and greater choice in 
issuance  and  also  in  terms  of  risk  diversification.  This  contributes  to  enhanced  EU 
capital markets through increased cross border provision of services. 

Issuers:  Issuers  will  benefit  from  the  increased  competition,  mainly  in  the  area  of 
foreign currency settlement, and also in terms of risk diversification. This contributes 
to enhanced EU capital markets through increased cross border provision of services. 

  NCAs/supervisory  authorities:  Increase  of  potential  financial  stability  risks  for  both 
options, requiring more intensive and costly monitoring by supervisory authorities.  

  Banks/competition  vs  other  CSDs:  potential  for  unlevel  playing  field  against  banks 

since ancillary services will move into CSDs where the settlement takes place.  

442  Commission estimates based on confidential data provided to DG FISMA services. 

 
 
                                                           
3.2. Option 3: Amend the thresholds under which CSDs can use a commercial bank 

for banking-type ancillary services. 

Cost-benefit analysis  

Option 3 leaves the structure of CSDR intact (and for example CSDs risk management 
policies can for a large  part remain in  place  and as such, the risks to  financial stability 
should be minimal; credit and liquidity risks will remain limited and possibly mitigated 
by  accommodating  risk  mitigating  conditions.  Although,  there  would  be  a  potential 
increase  in  exposures  to  credit  institutions,  that  could  be  mitigated  by  limiting  the 
increase  of  the  threshold.  The  calibration  of  the  level  of  the  thresholds  could  prove 
challenging  however  as  only  limited  qualitative  information  is  available.  Broadly 
speaking  an  increase  of  the  threshold  to  5%  would  be  sufficient  to  cater  for  expected 
foreign  currency  settlement  over  a  time  horizon  of  the  next  years,  although  one  CSD 
would  see  a  raise  to  10%  desirable.443  In  addition  to  amending  the  threshold, 
accompanying risk requirements may be set, such as minimum risk mitigation standards 
(e.g. creditworthiness, concentration limits) or ongoing monitoring by supervisors. These 
could be set via level 1 or level 2 legislation, which would provide different degrees of 
flexibility; level 2 could make the threshold more sustainable, flexible and  adaptable as 
new increased thresholds could be quickly reached.  

In terms of specific stakeholders, the effects are estimated to be the following: 

  CSDs:  Increasing  the  threshold  could  enable  at  least  some  CSDs  to  develop  their 
services to investors both domestically and cross-border and thus obtain appropriate 
economies  of  scale  to  cover  authorisation  costs  to  provide  banking  services 
themselves.  

From  available  confidential  information  from  stakeholders,  5  non-banking  CSDs 
indicate that, if thresholds are amended, in total, EUR 16 billion additional settlement 
in  foreign  currencies  is  expected  on  an  annual  basis444  and  if  we  extrapolate  that 
number  to  the  total  number  of  EEA  non-banking  CSDs  (ca.  25)  we  arrive  at  an 
additional annual possible offering of at least EUR 80 billion of settlement in foreign 
currencies,  without  taking  into  account  if  this  additional  settlement  would  affect 
existing  settlement  in  foreign  currencies  undertaken  by  CSDs  already  authorised  to 
provide  ancillary  banking  services.  The  additional  offering  of  settlement  in  foreign 
currencies would tap in the identified demand, mostly in  the area of bonds where a 
lack  of  offering  is  holding  back  multi-currency  bond  issuance.445  Increased 
competition  between  CSDs  would  benefit  investors  in  terms  of  pricing,  possibly 
contributing to further enhancing demand. 

An  unlikely  negative  effect  could  be  the  possible  contagion  effects  on  settlements 
through  defaults  of  settlement  agents  in  foreign  currencies.446  One-off  costs 

443  ESCB  input  based  on  the  anonymised  and  consolidated  outcome  of  a  survey  conducted  among  CSDs 

provided by the ESCB. 

444  Current total absolute value of settlement of the CSDs and applied the  growth percentages mentioned by 
the  CSDs  themselves.  This  gives  an  anticipated  total  of  settlement  in  foreign  currencies  (settlement  + 
corporate  actions). The current absolute values in foreign currencies are then subtracted, which gives the 
anticipated total net gain from the proposed CSDR changes. 

445  European  Post-Trade  Forum  Report,  15 May 2017,  p. 117;  https://ec.europa.eu/info/publications/170515-

eptf-report_en 

446  Based on confidential information provided to DG FISMA services. 

 
 
                                                           
(authorisations  or  setting  up  the  operational  capacity)  could  be  covered  by  longer 
term providing of the service. 

 

 

Investors:  Investors will  benefit  from the increased competition,  a  greater choice in 
issuance and currency diversification in their cross-border investments.  

Issuers: Issuers will have more choice in terms of financing arrangements and will be 
able  to  offer  a  broader  range  of  products,  mainly  in  the  area  of  foreign  currency 
settlement. 

  NCAs/supervisory  authorities:  Depending  on  the  increase  of  the  threshold  and 
consequent  financial  stability risks, limited additional supervisory activity  would be 
needed  to  monitor  ongoing  risks,  such  as  credit  and  liquidity  risks.  As  supervisory 
arrangements will remain the same, this will likely be more in terms of intensity and 
not scope of the supervision or costs.  

  ESMA:  No  substantial  impact.  Depending  on  how  the  requirements  were  to  be 
introduced, ESMA may have to develop new regulatory technical standards, possibly 
in cooperation with EBA and /or ECB or take further action. 

3.3. Option  4:  Combine  amending  the  thresholds  (option  2(b))  with  allowing 

banking CSDs to offer banking-type ancillary services. 

Cost-benefit analysis  

When  combining  the  options  2(b)  and  3  into  option  4  the  costs  and  benefits  of  the 
respective  options  remain  in  place.  However,  one  additional  benefit  would  emerge. 
While  raising  the  threshold  for  banking  services  to  increase  the  notional  amounts 
available  for banking  services (including foreign  currency settlement) in  EU settlement 
markets,  the  inclusion  of  banking  CSDs  into  the  potential  providers  of  these  services 
would increase potential notional amounts available for foreign currency settlement even 
further through broadening of the range of providers. 

This  would  further  enhance  the  impact  on  the  CMU  as  this  could  positively  impact 
capital markets and financing across borders and with other currency areas. 

In terms of specific stakeholders, the effects are estimated to be the following, relative to 
the options 2 and 3: 

  CSDs: Increased availability of banking services, including foreign currency services 
due to combined increase of availability of for example foreign currency settlement 
and broadening of the provider base.  

 

 

Investors:  Investors  will  benefit  from  the  further  increased  competition,  a  greater 
choice in issuance and currency diversification in their cross-border investments.  

Issuers: Issuers will have more choice in terms of financing arrangements and will be 
able  to  offer  a  broader  range  of  products,  mainly  in  the  area  of  foreign  currency 
settlement. 

  NCAs/supervisory authorities: -  

  ESMA: No impact.  

 
 
 
4.  IMPACT OF THE POLICY OPTIONS REGARDING SETTLEMENT DISCIPLINE 

The  objective  of  this  option  is  to  minimise  the  burden  and  compliance  costs  of  the 
settlement  discipline  regime,  avoid  negative  impacts  on  EU  capital  markets,  while 
ensuring a high degree of settlement efficiency. 

4.1. Option  2  –  Introduce  targeted  amendments  for  cash  penalties  and  mandatory 

buy-ins  

Cost-benefit analysis  

  CSDs/CCPs:  CSDs  would  benefit  from  the  introduction  of  a  single  process  for  the 
treatment of penalties as well as clarifications with regards to in-scope transactions. A 
duplicative operational process could create new cross-border risks.  

 

Investors: Benefits from amendments to the pass-on mechanism would be permanent, 
as  they  would  reduce  the  number  of  buy-ins  required  to  remedy  settlement  fails.  It 
would also create greater flexibility and increases the possibility that the buy-in can 
be  actioned.  According  to  one  estimate  the  introduction  of  a  pass-on  mechanism 
would reduce costs by 37.5%447. Furthermore, market participants will benefit from a 
clear identification of in-scope transactions reducing the number of transactions that 
cannot  be  resolved  (i.e.  transactions  outside  the  participants  or  primary  market 
transactions for Exchange Traded Funds).  

Sunk  cost  related  to  the  setting  up  of  a  buy-in  agent  offering,  although  only  one 
service  provided  has  emerged  so  far.  The  total  costs  include  setting  up  the 
infrastructure and personnel costs. 

To  comply  with  the  buy-in  requirements,  with  IT,  HR  and  consulting  costs,  it  is 
estimated that the average cost per market participant to set up a connection to a buy-
in agent would be around EUR 1 million over 4 years, amounting to EUR 1.5 billion 
for all in-scope market participants in the EU448. Although Option 2 will offer savings 
to market participants as it will allow for alternative solutions, it is likely that some 
market  participants  will still choose to  have access  to  a buy-in  agent  and will incur 
the additional costs. This would be a one-off cost.  

 

Issuers:  Issuers  will  in  particular  benefit  from  the  removal  of  certain  corporate 
actions on stock (e.g. initial creation transactions and redemptions) or primary market 
operations449  from  the  scope  of  the  settlement  discipline  regime.  These  changes 
would  permanently  reduce  the  compliance  burden  on  market  participants  by 
removing transactions that do not form part of market turnover. 

  NCAs/ ESMA: Amendments to the pass-on mechanism would be beneficial as fewer 
buy-ins  would  contribute  to  market  stability.  A  clear  determination  of  in-scope 
transactions would also lessen the administrative burden on ESMA related to replying 
to Q&A’s. Nevertheless, such modifications are also likely to require a revision of the 
corresponding level 2 standards relating to settlement discipline by ESMA. 

4.2. Option 3 – Introduce a two-step approach 

Cost-benefit analysis  

447  For explanation and calculation of costs savings see J.P. Morgan public consultation reply, Q. 34.1 
448  Based on confidential information provided to DG FISMA services.  
449  Meaning the process of initial creation of securities, whereby the securities are created, but they are not yet 
been subscribed for, so no capital has been raised. See AFME reply to CSDR public consultation, p.32 

 
 
                                                           
  CSDs: CSDs affected directly by the suspension of the buy-in  framework, although 
there  may  be  some  sunk  costs.  Costs  associated  with  the  implementation  of  the 
penalty regime, although it is broadly prepared throughout the infrastructure. Likely 
higher  reporting  requirements  as  CSDs  will  need  to  provide  accurate  data  as  to  the 
evolution  of  settlement  efficiency  to  inform  ESMA/  EC  decision  about  the  need  to 
implement  a  mandatory  buy-in.  The  costs  associated  with  increased  reporting 
requirements  should not  be significant  as CSDs already report settlement  efficiency 
rates regularly to ESMA. 

 

Investors:  One-off  costs  to  prepare  the  introduction  of  cash  penalties,  related  to 
capacity improvements in terms of IT systems and staffing in the affected enterprises. 
However,  the  implementation  of  the  penalty  regime  is  already  broadly  prepared 
throughout the infrastructure and concerns about the effects are modest compared to 
the  disadvantages  of  combining  the  penalty  regime  with  mandatory  buy-in450.  Cash 
penalties  will  cover  all  unresolved  trades  irrespective  of  size.  Hence  the  capacity 
improvements  they  will  trigger  will  benefit  both  professional  and  retail  investors. 
These incentives will be reinforced by the fact that mandatory buy-ins are suspended, 
not  cancelled,  so  post-trade  processing  of  smaller  transactions  carried  out  by  retail 
investors  will  also  improve.  Deferred,  one-off,  repapering  costs  for  market 
participants upon the potential introduction of mandatory buy-ins. Costs of potential 
duplicative repapering (i.e. repapering related to entry into force of the buy-in regime 
as  from  February  2022  and  potential  additional  repapering  due  to  potential 
clarifications introduced under Option 2) would be avoided.  

The  major  negative  impacts  in  terms  of  liquidity  and  market  stability  caused  by 
mandatory buy-ins would be, at least temporarily, avoided. Cost of settlement fail in 
the form of penalties on the failing party, which is currently avoided as the settlement 
discipline regime is not yet implemented.  

The proposed two-step approach would result in deferred cost related to the setting up 
of a buy-in agent service451. In addition the average cost per market participant to set 
up a connection to  a buy-in  agent  would be  around  EUR  1 million,  as  described in 
Option  2.  Depending  on  the  potential  targeted  changes  to  be  made  to  the  buy-in 
regime,  such  costs  savings  could  either  be  temporary  (i.e.  until  the  buy-in  regime 
enters  into  force)  or  permanent  (e.g.  if  the  changes  allow  for  a  simplified  approach 
regarding the requirements related to buy-in agents). 

 

Issuers:  The  benefits  will  be  limited  to  certain  primary  market  transactions  and 
accrue only as long as mandatory buy-ins are deferred.  

  NCAs and ESMA: Ongoing monitoring cost for settlement efficiency rates in national 
markets  (NCAs)  and  EU  (ESMA)  as  well  as  ongoing  costs  related  to  defining  the 
appropriate terms or scope in terms of type of instrument or transaction size for the 
potential introduction of a mandatory buy-in.  

4.3. Option 4 – Introduce voluntary buy-ins 

Cost-benefit analysis  

  CSDs:  CSDs likely not  affected, although ongoing reporting costs may increase 
as companies report buy-in  irregularly. Sunk  costs  related to  the setting  up of  a 

450  EBF public consultation reply, Q. 34.1 
451 Supported by confidential information provided to DG FISMA services. 

 
 
                                                           
buy-in  service in  the affected CSDs, although with the voluntary nature  of buy-
ins demand for their service will materialize.  

 

Investors: Negative impacts across asset classes similar to option 1, although the 
extent of the negative effect will depend on practical use of voluntary buy-ins by 
the purchasing party. Cost saving will also be limited as companies will need to 
maintain buy-in processes in case a counterparty demands their application.  

Market  makers  will  find  price-setting  even  more  complicated  in  less  liquid/ 
peripheral instruments as it is unclear whether the trade will be subject to buy-in. 

Voluntary buy-ins would allow investors greater flexibility in making investment 
choices  that  suit  their  own  investment  strategy  and  risk  appetite,  although 
evidence  suggests  that  investors  tend  not  to  choose  currently  available 
instruments to resolve unsettled transactions.  

 

Issuers:  Negative  impacts  related  to  the  inconsistent  application  of  mandatory 
buy-ins, leading potentially to a decrease in primary market issuance activity. 

  NCAs  and  ESMA:  Potentially  higher  monitoring  costs  related  to  market 
supervision and prevention of abusive market behaviour with respect to voluntary 
buy-ins.  To incentivise the use of voluntary buy-ins  as  an  investor’s right could 
be  enshrined  in  to  law  together  with  guiding  principles.  This  would  likely 
increase  compliance  costs  for  ESMA  as  market  participants  will  regardless 
demand clarifications regarding the guiding principles. 

4.4. Option  5  –  Combining  targeted  amendments  to  settlement  discipline  regime 

with a two-step approach 

Cost-benefit analysis  

  CSDs: Similar benefits and costs to the ones described under Option 2 and Option 3. 
In general CSDs will benefit from the suspension of the buy-in framework, although 
there  may  be  potentially  some  sunk  costs.  The  penalty  regime,  is  broadly  prepared 
throughout the infrastructure. Likely higher reporting requirements as CSDs will need 
to provide accurate data as to the evolution of settlement efficiency to inform ESMA/ 
EC  decision about  the need to  implement  a mandatory  buy-in. CSDs would  benefit 
from  the  introduction  of  a  single  process  for  the  treatment  of  penalties  as  well  as 
clarifications with regards to in-scope transactions. 

 

Investors: The benefits and costs will be similar to the ones described under Option 3, 
although  their  magnitude  will  be  increased  (benefits)  or  decreased  (costs)  thanks  to 
the  clarifications  contained  in  Option  2.  In  particular  costs  will  be  comparatively 
lower thanks to the clarifications regarding in-scope transactions, pass-on mechanism 
or the use of buy-in agents contained in Option 2. 

The  major  negative  impacts  in  terms  of  liquidity  and  market  stability  caused  by 
mandatory buy-ins would be, at least temporarily, avoided.  

 

Issuers:  The  benefits  will  be  limited  to  certain  primary  market  transactions  and 
accrue only as long as mandatory buy-ins are deferred.  

  NCAs and ESMA: Ongoing monitoring cost for settlement efficiency rates in national 
markets  (NCAs)  and  EU  (ESMA)  as  well  as  ongoing  costs  related  to  defining  the 
appropriate terms or scope in terms of type of instrument or transaction size for the 
potential introduction of a mandatory buy-in.  

 
 
5.  IMPACT OF THE POLICY OPTIONS REGARDING THIRD-COUNTRY CSDS  

5.1. Option 2 - Introduce an end-date to the grandfathering clause 

Cost-benefit analysis  

  EU CSDs452: this would indirectly positively impact EU CSDs on an ongoing basis as 
it would contribute to the level playing field between EU authorised CSDs and third-
country CSDs which would have to comply with equivalent CSDR rules. In addition, 
CSDs of one Member State and one EEA country are still operating under the grand-
fathering clause and are still not authorised under CSDR. These CSDs have already 
started  the  authorisation  process  and  therefore  no  additional  costs  need  to  be 
considered.453 

 

 

Issuers: it could positively affect issuers on an ongoing basis in those cases where the 
legislation governing third-country CSDs does not offer the same level of protection 
than  EU  legislation  would.  However,  as  very  little  information  is  available  on  how 
many  third-country  CSDs  operate  in  the  EU,  this  option,  when  it  enters  into  place, 
may reduce the number of services offered by third-country CSDs in the EU. 

Investors:  it  could  positively  affect  investors  on  an  ongoing  basis  in  those  cases 
where the legislation governing third-country CSDs does not offer the same level of 
protection than EU legislation would. However, as very little information is available 
on how many third-country CSDs operate in the EU, this option, when it enters into 
place, may reduce the number of services offered by third-country CSDs in the EU. 

  ESMA:  It  is  currently  unknown  how  many  third-country  CSDs  are  using  the 
grandfathering clause and would apply for recognition to ESMA. In the 2014 impact 
assessment,  it  was  assumed  that  ESMA  could  carry  out  its  permanent  tasks,  in 
relation  to  non-EU  CSD  recognition  with  its  existing  staff.454  Given  that  the  task 
itself is unchanged, it is assume that there is no impact to the introduction of an end-
date for the grandfathering clause. 

  NCAs:  no  major  impact  identified.  In  case  third-country  CSDs  benefiting  from  the 
grandfathering  clause  seek  recognition,  ESMA  would  consult  NCAs  which  can 
slightly increase their costs. 

5.2. Option 3 - Introduce a notification requirement for third-country CSDs 

Cost-benefit analysis  

  CSDs455:  As  there  is  very  limited  information,  if  any,  available  on  third-country 
CSDs’ activities operating in the EEA, this option would help to identify which third-
country CSDs provide services and for which volumes, thus increasing transparency 
in the market for EU CSDs. This benefit would be ongoing. 

 

Issuers:  Option  3  would  have  a  positive  impact  on  issuers  as  it  would  increase 
transparency  in  the  market.  This  information  would  help  to  identify  any  potential 

452  The cost benefit analysis mainly focuses on the costs and benefits for EEA entities and therefore the impact 

on third-country CSDs themselves is not included. 

453  Based on confidential information provided to DG FISMA services.  
454  .The 

Assessment 

available 

Impact 

is 

here: 

https://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:52012SC0022&from=EN. 

455  The cost benefit analysis mainly focuses on the costs and benefits for EEA entities and therefore the impact 

on third-country CSDs themselves is not included. 

 
 
                                                           
risks,  in  particular  on  financial  stability  and,  in  turn,  for.  This  benefit  would  be 
ongoing, sustainable. 

 

Investors:  Option  3  would  also  have  a  positive  impact  on  investors  as  it  would 
increase  transparency  in  the  market.  This  information  would  help  to  identify  any 
potential  risks,  in  particular  on  financial  stability  and,  in  turn,  for  investors.  This 
benefit would be ongoing, sustainable. 

  ESMA:  Option  3  would  directly  positively  impact  ESMA  as  it  would  give  the 
European authority more information and help it to identify and monitor risks. ESMA 
being  at  the  centre  of  the  notification  process,  it  could  also  slightly  increased 
operational. costs 
Based  on  Commission  estimates  following  the  submission  of  confidential  data456, 
ESMA  estimated  costs  for  one  third-country  CSD  notification  would  amount  to  ca. 
EUR 2 600 per notification. Assuming that 5 third-country CSDs would notified, the 
costs would be estimated around ca. EUR 13 000 for ESMA. This would be one-off 
cost that could potentially be covered by  a notification fee to be paid by each third-
country CSD.  

  NCAs:  It  would  indirectly  impact  NCAs  as  they  would  get  information  on  third-
country CSDs activities through ESMA, helping them to identify and monitor risks. 
This benefit would be ongoing. 

5.3. Option  4  –  Enhance  the  regime  for  third-country  CSDs  providing  services  in 

the EEA 

Cost-benefit analysis  

  EU CSDs457: This option would have no direct impact on EU CSDs as it would only 
require third-country CSDs to be subject to a new enhanced third-country regime. As 
there is very limited information, if any, available on third-country CSDs’ activities 
operating  in  the  EEA,  this  option  would  help  to  identify  which  third-country  CSDs 
provide  services  and  for  which  volumes,  thereby  increasing  transparency  in  the 
market for EU CSDs. This benefit would be ongoing. 

 

 

Issuers: It would benefit issuers in those cases where the legislation governing third-
country CSDs does not offer the same level of protection than EU legislation would. 
It would also have a positive impact on issuers as it would increase transparency in 
the  market.  This  benefit  would  be  ongoing.  However,  it  could  also  have  a  negative 
impact for issuers that use services of third-country CSDs. In case of enhancement of 
the regime, such issuers could lose access to the services of third-country CSDs.  

Investors:  Similarly  to  the  case  for  issuers,  this  option  would  benefit  investors  in 
those  cases  where  the  legislation  governing  third-country  CSDs  does  not  offer  the 
same  level  of  protection  than  EU  legislation  would,  as  well  as  by  increasing 
transparency  in  the  market.  This  benefit  would  be  ongoing.  However,  it  could  also 
have  a  negative  impact  for  investors  that  use  settlement  services  of  third-country 
CSDs which are not subject to recognition requirements for the moment. In case of 
enhancement of the regime, such investors could lose access to the services of third-
country CSDs. 

456  Based on confidential information provided to DG FISMA services.  
457  The cost benefit analysis mainly focuses on the costs and benefits for EEA entities and therefore the impact 

of on third-country CSDs themselves is not included. 

 
 
                                                           
  ESMA:  the  new  powers  given  to  ESMA  would  ensure  that  an  EU  authority  has  the 
overview  of  the  activities  of  third-country  CSDs,  therefore  increasing  information 
helping  to  identify  and  monitor  risks.  However,  an  enhanced  third-country  regime, 
depending  on  its  exact  features,  could  generate  significant  costs  for  ESMA 
potentially in the three main following  areas: (1) initial recognition of third-country 
CSDs, (2) ongoing monitoring and (3) exercise of ESMA supervisory powers.  
Based on Commission estimates following the submission of confidential data458: (1) 
ESMA  estimated  costs  for  the  initial  recognition  of  third-country  CSDs  based  on  a 
broad scope (i.e. notary service, maintenance services and settlement services) is ca. 
52 000 per  third-country  CSD  (one  off  cost);  (2)  ESMA  estimated  costs  for  the 
ongoing  monitoring  of  a  third  CSD  based  on  a  broad  scope  is  ca.  EUR 31 000  per 
third-country  per  year  (ongoing  costs);  (3)  ESMA  estimated  costs  to  exercise 
supervisory  powers  based  on  a  broad  scope  would  amount  to  ca.  EUR 78 000  per 
third-country CSD per year (ongoing costs). 

Based on the assumption that 5 third-country CSDs would seek recognition, it would 
potentially  generate  costs  for  ESMA,  i.e.:  (1)  ESMA  estimated  costs  for  the  initial 
recognition of third-country CSDs would amount to ca. EUR 260 000 (one off cost); 
(2) ESMA estimated costs for the ongoing monitoring on such CSD would amount to 
ca.  EUR 155 000  per  year  (ongoing  costs);  (3)  ESMA  estimated  costs  to  exercise 
supervisory powers would amount to ca. EUR 390 000 per year (ongoing costs). 

These costs would therefore be significant and it should be seen how and whether it 
could potentially be covered by a fee to be paid by each third-country CSD. 

Taking  into  account  that  the  number  of  third-country  CSDs  potentially  affected  by 
such  an  option  is  not  currently  identified  and  that  there  is  no  indication  that  the 
activities of third-country CSDs may pose a risk for the financial stability of the EU 
or its Member States, this Option could be seen as premature and disproportionate.  

  NCAs:  No major impact  identified.  It  would indirectly impact  NCAs as they would 
get more information on third-country CSDs activities through ESMA, helping them 
to  identify  and  monitor  risks.  This  benefit  would  be  ongoing.  In  addition,  ESMA 
would consult NCAs for third-country CSDs recognition which can slightly increase 
their costs. 

5.4. Option 5: Combination of Options 2 and 3 

  EU  CSDs459:  the  introduction  of  an  end-date  to  the  grandfathering  clause  would 
indirectly positively impact EU CSDs on an ongoing basis as  it would contribute to 
the level playing field between EU authorised CSDs and third-country CSDs which 
would have to  comply  with  equivalent  CSDR rules.  In  addition,  the introduction of 
an end-date to the grandfathering clause for EEA CSDs would not lead to additional 
costs  as  any  EEA  CSDs  not  yet  authorised  have  already  started  the  authorisation 
process.460  The  introduction  of  the  notification  requirement  for  third-country  CSDs 
would also increase transparency in the market, benefitting also EU CSDs. 

458  Based on confidential information provided to DG FISMA services.  
459  The cost benefit analysis mainly focuses on the costs and benefits for EEA entities and therefore the impact 

on third-country CSDs themselves is not included. 

460  Based on confidential information provided to DG FISMA services.  

 
 
 
                                                           
 

 

Issuers: the combination of Options 2 and 3 would positively affect issuers on an 
ongoing basis in those cases where the legislation governing third-country CSDs 
does  not  offer  the  same  level  of  protection  than  EU  legislation  would  while 
increasing  transparency  in  the  market.  However,  as  very  little  information  is 
available on how many third-country CSDs operate in the EU, the introduction of 
an end-date to the grandfathering clause, when it applies, may reduce the number 
of third-country CSDs offering services in the EU. 

Investors:  the  combination  of  Options  2  and  3  would  positively  affect  investors 
on an ongoing basis in those cases where the legislation governing third-country 
CSDs does not offer the same level of protection than EU legislation would while 
increasing  transparency  in  the  market.  However,  as  very  little  information  is 
available on how many third-country CSDs operate in the EU, the introduction of 
an end-date to the grandfathering clause, when it applies, may reduce the number 
of by third-country CSDs offering services in the EU. 

  ESMA:  The  introduction  of  a  notification  requirement  for  third-country  CSDs 
would directly positively impact ESMA as it would give the European authority 
more  information  and  help  it  to  identify  and  monitor  risks.  ESMA  being  at  the 
centre  of  the  notification  process,  could  also  face  slightly  increased  operational 
costs.  Based  on  Commission  estimates  following  the  submission  of  confidential 
data461,  ESMA  estimated  costs  for  one  third-country  CSD  notification  would 
amount  to  ca.  EUR 2 600  per  notification.  Assuming  that  5  third-country  CSDs 
would notified, the costs would be estimated around ca. EUR 13 000 for ESMA. 
This would be one-off cost that could potentially be covered by a notification fee 
to  be  paid  by  each  third-country  CSD.  The  introduction  of  the  end-date  for  the 
grandfathering  clause  will  mean  that  ESMA  may  adopt  some  recognition 
decisions, however this is a task that already lies with ESMA. 

  NCAs:  NCAs  may  be  consulted  when  ESMA  assesses  an  application  for 
recognition  by  third-country  CSDs  which  may  marginally  increase  their 
operational  costs;  in  addition,  NCAs  will  have  access  to  increased  information 
regarding  the  activities  of  third-country  CSDs  which  will  help  them  to  identify 
and monitor risks. 

461  Based on confidential information provided to DG FISMA services.  

 
 
 
 
                                                           
ANNEX 8: GRAPHS AND FIGURES  

Figure I: Passporting of CSD services in the EU462 

ATHEXCSD 
Lux CSD 
Clearstream Banking AG 

Clearstream  Banking 
(ICSD) 

SA 

Euroclear Bank (ICSD) 

Euroclear Belgium  

Euroclear France 

Euroclear Netherlands 

Euroclear Sweden 
Euroclear Finland  
Iberclear Spain 
ID2S 
KDD Slovenia  
KDPW Poland 
Nasdaq Latvia 
OeKB CSD Austria 
Monte Titoli 

VP Securities A/S Denmark  

were 

EEA 
countries 
passport is sought/obtained 
1 (CY) 
3 (DK, FR, NL) 
8 (AT, FI, FR, IE, LU, NL, ES 
and LI). 
28  (AT,  BG,  CY,  CZ,  DK, 
EE,  FI,  FR,  DE,  EL,  HU,  IS, 
IE, LV, LT, MT, NL, NO. PL, 
PT,  RO,  SK,  SI,  ES,  SE ; 
process  ongoing  in  BE,  HR, 
IT) 
27  (AT,  BG,  HR,  CY,  CZ, 
DK, EE, FI, FR, DE, EL, HU, 
IS,  IE,  IT,  LV,  LT,  LU,  MT, 
NL,  PL,  PT,  RO,  SK,  SI,  ES, 
SE) 

25  (AT,  BG,  CY,  CZ,  DK, 
EE,  FI,  FR,  DE,  EL,  HU,  IE, 
IT, LV, LT, LU, MT, NL, PL, 
PT, RO, SK, SI, ES, SE) 
27  (AT,  BE,  BG,  CY,  CZ, 
DK,  EE,  FI,  DE,  EL,  HU,  IE, 
IT, LV, LT, LU, MT, NL, PT, 
RO,  SK,  SI,  ES,  SE;  process 
ongoing in IS, LI, PL) 
26 (AT, BE, BG, CY, CZ, DE, 
DK,  EE,  FI,  FR,  EL,  HU,  IE, 
IT, LU, LV, LT, MT, PT, RO, 
SK,  SI,  ES,  SE;  process 
ongoing in IS, LI) 
4 (DE, DK, FR, FI) 
4 (BE, DK, DE, SE) 
1 (DE) 
1 (IE) 
1 (BG) 
3 (CY, LU, NL)  
3 (EE, IS, LT) 
1 (DE) 
7  (AT,  DE,  EL,  FR,  IE,  LU, 
MT, NL) 
1 (process ongoing in MT) 

EEA  countries  where  CSD  is  of 
substantial importance 
0 
0 
6 (BE, IE, LI, LU, SK, SI) 

19 (AT, BG, HR, CY, EE, FI, DE, IS, 
IE, LV, LI, LT, MT, NL, NO, PT, RO, 
SK, SI) 

23 (AT, BG, HR, CY, DK, EE, FI, FR, 
DE,  EL,  IS,  IE,  LV,  LI,  LT,  LU,  MT, 
NL, NO, PT, RO, SK, SI) 

0 

3 (BE, IE, NL) 

0 

3 (DK, FI, MT) 
0 
1 (IE) 
0 
0 
0 
3 (EE, IS, LT) 
1 (LI) 
1 (IE) 

0 

Note: The table shows the extent of cross-border service provision by individual CSDs (left column) and in 
what Member States a given CSD is systemically important (right column). Although a growing number of 
CSDs provide service on a cross-border basis (15 CSDs have obtained or applied for a passport in at least 
one  host  Member  State),  only  a  small  number  has  expanded  their  offering  in  non-domestic  markets 
sufficiently to become systemically important (9). Source: ESMA CSD Register.  

462  ESMA CSD Register (see note 26).  

 
 
 
 
 
                                                           
Figure  II:  Settlement  efficiency  on  EU  capital  markets  (Total  and  separately  for 
debt and equity instrument)  

Note: The graphs show the evolution of settlement fails for all in-scope financial instruments (both equity 
and  debt)  in  terms  of  %  of  turnover  (left  graph)  and  total number  of  instructions  (right  graph).  The  left 
graph shows that following a spike in  spring 2020 settlement fails returned to pre-crisis levels, while the 
values  in  the  right  hand  graph  remained  elevated,  indicating  potentially  that  a  higher  number  of  small-
value transactions fail.  

Note:  The  graphs  show  the  evolution of  settlement  fails  for  debt  instruments  (corporate  and  government 
bonds) in terms of % of turnover (left graph) and total number of transactions (right graph). The graphs 
show a stable settlement fail rate for corporate bonds in terms of value (left graph), while the number of 
failing corporate bonds instructions continues to fall, indicating an increasing number of high value bond 
transactions failing. In the case of government bonds this evolution is even more pronounced.  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note:  The  graphs  show  the  evolution  of  settlement  fails  for  equity  instruments  (exchange-traded  funds 
(ETFs) and equities) in terms of % of turnover (left graph) and total number of transactions (right graph). 
The graphs show a stable settlement fail rate for ETFs in terms of value and number of transactions. The 
values for equities show that most recently both the value and number of failed equities transactions has 
increased.  

Figure III463: Euroclear governance structure 

Note: Euroclear is one of the biggest groups of CSDs in the EU. Euroclear SA is the parent company for 
six domestic CSDs and an ICSD, Euroclear Bank. Risk management is carried out at both group level and 
at  the  level  of  each  daughter-company  (CSD)  to  identify  local  risks.  Three  domestic  CSDs  (France, 
Belgium and the Netherlands) use a common settlement platform (ESES).  

Figure  IV464:  Estimates  of  the  expected  increase  in  mandatory  buy-in  bid/offer 
spread  

463  https://www.euroclear.com/about/en/ourgovernancestructure.html 
464  Based on confidential information provided to DG FISMA services.  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Note: The table shows the estimated465 impact of mandatory buy-in (MBI) on European government bonds 
(EGB)  with  a  10-year  maturity  in  basis  points  (bp)  for  a  financial  institution.  The  pricing  data  is  taken 
from an inter-dealer electronic platform (MTS). Taking account current liquidity conditions (Spring 2021), 
the application of MBI to EGBs would lead to a 50% to 100% increase in bid-offer spread (B/O spread) 
depending on the size and the status of the markets to a complete drop of activity (off). 

ANNEX 9: DESCRIPTION OF THE BUY-IN PROCESS 

When  the  seller  fails  to  deliver  the  securities  within  a  predetermined  extension  period 
following the  ISD, a mandatory  buy-in process  is set  in  motion.  A buy-in provides  the 
buyer of securities – in case of a settlement fail  – with the right to obtain the securities 
elsewhere, cancel the original transaction and settle the costs of the buy-in, as well as any 
price difference, with the original seller. 

The  extension  period,  following  which  the  mandatory  buy-in  must  be  triggered,  varies 
depending on the type of security and its liquidity466, as does the timeframe during which 
the execution of the buy-in must be completed. Once the extension period has ended, a 
buy-in agent must be appointed in order to execute the buy-in. This buy-in agent must act 
in accordance with best execution requirements when executing the buy-in. If the buy-in 
process fails or where a buy-in is not possible, the failing seller is required to pay cash 
compensation  to  the  buyer.  The  buyer  can,  however,  prior  to  this  cash  compensation, 
defer the buy-in for an additional timeframe, which is equal to the timeframe originally 
provided for the completion of the buy-in process. 

In  addition  to  bearing  the  costs  related  to  the  buy-in,  the  failing  seller  will  also  be 
required  to  pay  the  price  difference  between  the  buy-in  price  and  the  price  originally 
agreed at the time of the transaction, if the latter is lower than the price effectively paid at 
the  buy-in  execution.  On  the  other  hand,  if  the  original  price  agreed  at  the  time  of  the 

465  Initial year and without taking into account the buy-in agent nor the increase in funding costs.  
466  Four business days for financial instruments other than those traded on an  SME growth market. Based on 
asset type and liquidity of the financial instruments concerned, the extension period may be increased from 
four business days up to a maximum of seven business days where a shorter extension period would affect 
the smooth and orderly functioning of the financial markets concerned. For operations composed of several 
transactions  including  securities  repurchase  or  lending  agreements,  the  buy-in  process  referred  to  in 
paragraph 3 shall not apply  where the timeframe of those operations is sufficiently short and renders the 
buy-in  process  ineffective.  It  should  be  noted  that  such  exemptions  mentioned  above  shall  not  apply  in 
relation  to  transactions  for  shares  where  those  transactions  are  cleared  by  a  CCP.  Finally,  for  financial 
instruments traded on an SME growth market the extension period is of 15 business days (unless the SME 
growth market decides to apply a shorter period). 

 
 
 
                                                           
original transaction is higher than the price effectively paid at the buy-in execution, the 
price  difference  will  be  “deemed  paid”,  which  means  that  the  failing  seller  will  not  be 
entitled to payment of the difference by the buyer.