- Settlement transactions in the EU are worth over €900 trillion per year.
- Clearstream Banking Luxembourg and Euroclear Bank.
- Euroclear group includes Euroclear Bank (the ICSD), and six national CSDs in France, Belgium, the Netherlands, Finland, Sweden, the UK and Ireland. The Clear stream group includes Clearstream Banking Luxembourg (the ICSD), and two national CSDs in Germany and Luxembourg. The two groups are responsible for over 80% of total settlement volumes in the EU. Euroclear UK & Ireland (EUI), part of the Euroclear Group is the de facto monopoly UK CSD and combines the settlement of UK and Irish equities, UK money market instruments and UK sovereign and corporate debt against sterling, US dollars and euros. EUI is a fully dematerialised settlement system that provides settlement accounts for a wide range of clients, from individual retail clients to participating market infrastructures.
- The most notable CSDs that offer limited banking services are the two ICSDs, Clearstream Banking Luxembourg and Euroclear Bank. Others in the EU are Clearstream Banking Frankfurt in Germany, OEKB in Austria and Keler in Hungary.
- See www.ecb.int/paym/t2s/html/index.en.html for a description of T2S. As at the end of April 2012 nine CSDs had announced that they would join T2S and had signed the Framework Agreement, with more CSDs expected to sign by June 2012. The UK and Swiss central banks have stated that they would not join the project.
- The text of the proposal can be found at: http://ec.europa.eu/internal_market/financial-markets/central_securities_deposi-tories_en.htm.
- See www.ecb.eu/press/pr/date/1998/html/pr980108.en.html for the ECB press release of 8 January 1998 and www.ecb.int/mopo/pdf/implement/assets/sssstandards1998.pdf for the standards.
- Committee on Payments and Settlement Systems (CPSS) of the Bank of International Settlements (BIS) and the International Organisation of Securities Commissions (IOSCO)
- CESR is the Committee of European Securities Regulators (CESR), which has since 1 January 2011 become the European Securities Market Authority (ESMA). These recommendations are available at: www.ecb.eu/press/pr/date/2009/html/pr090623_escb-cesr_recommendations.pdf?751acda08eb8a43 84882a6fcc21f0219.
- One of the main reasons why it took so long to apply the international standards in the EU related to the discussions on the scope of those standards – namely whether they should also cover other institutions that can perform settlement, such as custodian banks. The ECOFIN meeting of EU finance ministers of 3 June 2008 formally invited the ESCB and CESR to finalise the recommendations excluding custodian banks. A good overview of this is provided by K Lannoo and D Valiante in their paper, “Integrating Europe's Back Offices: 10 years of Turning in Circles”, 3 June 2009, published at: http://aei.pitt.edu/11731/1/1851.pdf. Similar discussions took place in the preparations of the proposal for the CSD Regulation, which also excluded custodian banks from its scope.
- See www.bis.org/publ/cpss101a.pdf.
- See http://ec.europa.eu/internal_market/financial-markets/docs/clearing/first_giovannini_report_en.pdf for first report, and http://ec.europa.eu/internal_market/financial-markets/docs/clearing/second_giovannini_report_en.pdf for the second report.
- See “A White Paper on the Operation of the European Repo Market, the Role of Short-selling, the Problem of Settlement Failures and the Need for Refor m of the Market Infrastructure”, ICMA, 13 July 2010, www.icmagroup.org/ICMAGroup/files/ac/ac9739eb-6c8b-4d0f-9f5c-d0f13e89bd8e.pdf. Other jurisdictions also faced increasing numbers of settlement fails during the crisis. Data for the US market gathered by the Basis Point Group and quoted by The Economist (see “Too Big a Fail Count” The Economist 4 June 2011: www.economist.com/node/18774844) shows that average daily settlement fails spiked up to almost $600bn at the height of the 2008 crisis. This historical data does not even exist for the European markets, which is in itself a failure.
- See in particular the study carried out by Oxera for the Commission on prices, costs and volumes of trading and post-trading services, covering 2006, 2008 and 2009, published at: http://ec.europa.eu/internal_market/financial-markets/clear-ing/communication_en.htm#monitoring. The study shows that while the gap between cross-border and domestic costs has declined since 2006 it remains significant.
- CSD costs typically represent a very small proportion of the costs associated with a trade. For instance, the Oxera report (Ibid) shows that the CSD costs incurred by funds are 1.5% of their total costs of holding and transacting, excluding fund management. The rest of the costs are represented by CCPs (1%), custodians (22%), trading venues (4.5%), and brokers (71%). However, the measures envisaged by CSDR would not contribute only to reducing the 1.5% represented by the CSDs, but equally the 22% represented by the custodians by simplifying the holding chain needed for the settlement of a cross-border transaction.
- In the Commission services 2004 communication, this cost gap was found to be up to 800%; this may have diminished since then, but is likely to remain high.
- “Cum dividend” means “with rights to dividends that have been declared but not yet paid”. The buyer of a cum dividend stock has the right to receive dividends. A stock is traded cum dividend until the ex dividend date, after which it trades without rights to dividends.
- “Ex dividend” means “without rights to dividends that have been declared by not paid”. The buyer of an ex dividend stock does not have the right to receive dividends. Dividends will therefore be paid to the investors who were holders of the shares on the ex dividend date, irrespective of who holds the shares after this date.
- Reported by the HSC (Harmonisation of Settlement Cycles) industry group at: http://ec.europa.eu/internal_market/financial-markets/docs/cesame2/subgroup/20100921_hsc_role_en.pdf.
- The co-legislators, the Council and the European Parliament, reached an agreement on the Commission's proposal on 9 February 2012 and the regulation will soon enter into force.
- The comments received are published at: http://ec.europa.eu/internal_market/consultations/2011/csd_en.htm
- See www.unidroit.org/english/conventions/2009intermediatedsecurities/main.htm
- See http://ec.europa.eu/internal_market/financial-markets/securities-law/index_en.htm
- This was the option favoured by the Harmonisation of Settlement Cycles working group, an industry group with broad representation, set up under the auspices of the Commission.
- The proposed Regulation is neutral on how transferable securities admitted to trading on regulated markets should be represented in book-entry form (ie immobilisation through the issuance of a global note, which represents the whole issue or direct issuance of securities into a dematerialised form).
- Published at: http://eur-lex.europa.eu/LexUriServ/LexUriS-erv.do?uri=OJ:L:2012:086:0001:0024:en:PDF
- Directive 98/26/EC of 19 May 1998 on settlement finality in payment and securities settlement systems, [1998] OJ L166, 45
- SA of the Annex.
- EUI will therefore be considered as a CSD under the proposed Regulation because it operates a securities settlement system and maintains the register containing the securities accounts held by its participants.
- Stake superior to 20% of the capital
- The competent authority shall take a decision within three months when a CSD applies for extension or outsourcing of its activities to third parties.
- The co-operation obligation also includes public authorities and bodies established or appointed under Directive 2003/87/EC (emission allowances).
- CSDs can be owned by public authorities, users, trading venues or any other private investor.
- In many cases it is the national law that determines the moment when transfers are final and irrevocable. In this case a CSD should only disclose this information to its participants.
- Any CSD wishing to provide its services in another Member State shall inform its home authority of its intention to provide services in another Member State, of the services it intends to provide and, in case of branches, of the organisational structure of the branch. Within three months, the home authority shall communicate this information to the competent authority in the host Member State unless the activities in the host Member CSDs, but equally the 22% represented by the custodians by simplifying the holding chain needed for the settlement of a cross-border transaction.
- Since both home and host authorities have an interest in CSDs being adequately supervised, the proposal provides for mechanisms of co-operation between these authorities. Home authorities may carry out onsite inspections of the branches of their CSDs in host Member States while host authorities have the right to be informed by CSDs and their home authorities of any relevant information concerning the activities of CSDs in their jurisdiction.
- For instance, the Depository Trust & Clearing Corporation (DTCC) from the US or SIX Securities Services from Switzerland.
- The European CSD association (ECSDA) the European exchanges federation (FESE) and the European CCP association (EACH).
- The requirements stated in Art 45 include the following obligations for linked CSDs: to have an appropriate contractual framework which should state an unambiguous choice of law that governs each aspect of the link's operations; to monitor and manage all potential sources of risk for themselves and their participants, in particular when they use intermediaries and as regards any possible credits taken by CSDs and the concentration and liquidity risks as a result of the link arrangements. The latter obligation is relevant for investor CSDs receiving credits for buying securities on behalf of their clients; to put in place robust reconciliation procedures to ensure that their records are accurate; in case of provisional transfers, to prohibit any retransfer of securities prior to the first transfer becoming final; to allow DVP settlement between participants in linked CSDs wherever practical and feasible. In addition, there is an obligation for interoperable securities settlement systems and CSDs using a common settlement infrastructure to put in place identical moments of entry of transfer orders into the system and finality of transfer orders and transfers.
- Three months for access of issuers to CSDs and access between CSDs; one month for access between CSDs and other market infrastructures.
- For access of issuers to CSDs, the refusal can also be based on the absence of access by the CSD to transaction feeds from the market where the requesting issuer's securities are, or will be traded.
- Art 19 of EU Regulation No 1095/2010.
- Directive 2006/48/EC of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions, [2006] OJ L177, 1.
- The CSDs that currently provide banking services provide only a limited range of such services – essentially opening accounts for settlement, taking deposits and granting intraday credits for settlement. While these services are limited, the amounts handled can be very significant. For instance, one of the biggest EU CSDs provides around €80bn of intraday credit.
- COM(2010) 716, 8.12.2010.
- The maximum level is fixed at 10% of the annual turnover of the offender if it is a legal person and at €5m or 10% of the annual income of the offender if it is a natural person. If the offender belongs to a group of companies, the relevant annual turnover to be taken into account is the one of the ultimate parent of the group. However, where the profits gained from a breach can be determined, competent authorities should be able to impose an administrative fine of up to twice the amounts of the profits gained.
- The Regulation refers to the rights of defence and to be heard and to the right to seek effective remedy before a tribunal against any decision affecting the accused person.
- Regulatory technical standards are specific delegated acts (see supra n 46) which are elaborated by ESMA and endorsed by the Commission following Arts 10–14 of EU Regulation No 1095/2010.
- Implementing technical standards are specific implementing acts (see supra n 46) which are elaborated by ESMA and endorsed by the Commission following Art 15 of EU Regulation No 1095/2010.
- Pursuant to Arts 290 and 291 of the Treaty on the Functioning of the EU (TFEU), a EU legislative act adopted by the Council (Member States) and/or European Parliament may delegate to the Commission: (a) the power to adopt secondary legislation to supplement or amend certain non-essential elements of the legislative act (delegated acts); (b) the power to take measures necessary to implement certain provisions of the EU legislative act (implementing acts).
- See Arts 63 and 65 of the proposal.
- See http://ec.europa.eu/internal_market/financial-markets/docs/clearing/draft/draft_en.pdf.
- The T2S economic impact assessment of 2008 estimates cost savings from T2S of €145m to €584m. See that document at: www.ecb.int/paym/t2s/pdf/eco_impact_080523.pdf?2db49cb1d862de41707929828601657d.
Law and Financial Markets Review
Volume 6, 2012 - Issue 4