Commission acts to increase the safety and efficiency of securities settlement in Europe
The European Commission has issued a legislative proposal in the form of a draft Regulation which is intended to harmonise both the timing and conduct of securities settlement in Europe and the rules governing central securities depositories (CSDs) which operate the infrastructure enabling settlement.
The Commission has proposed this legislation on the basis that while generally safe and efficient within national borders, cross-border settlement presents higher risks and costs for investors.
The Commission believes that it is important to have a harmonised set of measures across Europe for settlement as well as for the institutions responsible for settlement, the CSDs. CSDs are currently regulated at national level but lack a common set of prudential, organisational and conduct of business standards at European level.
The Commission argues that these problems are important and need to be solved, as cross-border transactions in Europe continue to increase and CSDs become increasingly interconnected. These trends are expected to accelerate with the advent of Target2 Securities (T2S), a project launched by the Eurosystem to provide a common technical platform for securities settlement in Europe, which is scheduled to start in 2015.
The key elements of the proposal are:
- The settlement period will be harmonised and set at a maximum of two days after the trading day for the securities traded on stock exchanges or other regulated markets (currently two to three days are necessary for most securities transactions in Europe).
- Market participants that fail to deliver their securities on the agreed settlement date will be subject to penalties, and will have to buy those securities in the market and deliver them to their counterparties.
- Issuers and investors will be required to keep an electronic record for virtually all securities, and to record them in CSDs if they are traded on stock exchanges or other regulated markets.
- CSDs will have to comply with strict organisational, conduct of business and prudential requirements to ensure their viability and the protection of their users. They will also have to be authorised and supervised by their national competent authorities.
- Authorised CSDs will be granted a passport to provide their services in other Member States.
- Users will be able to choose between all 30 CSDs in Europe.
- CSDs in the EU will have access to any other CSDs or other market infrastructures such as trading venues or central counterparties, whichever country they are based in.
View Commission acts to increase the safety and efficiency of securities settlement in Europe, 7 March 2012
View Commission proposal on improving securities settlement in the EU and on central securities depositories FAQs, 7 March 2012
View Proposal for a Regulation on improving securities settlement in the European Union and on central securities depositories and amending Directive 98/26/EC, 7 March 2012
T2S online - winter 2012 edition
Target2 Securities (T2S) is a project launched by the Eurosystem to provide a common technical platform for securities settlement in Europe, which is scheduled to start in 2015.
The European Central Bank (ECB) has now published the winter 2012 edition of the T2S OnLine Quarterly Review. The Review starts with an editorial by Jean-Michel Godeffroy, Chairman of the T2S Programme Board, who discusses what it will mean to be part of the T2S community for those central securities depositaries and central banks that will soon enter into a contractual agreement regarding T2S with the Eurosystem.
The Review then provides:
- Information on how the members of the TS2 community will cooperate.
- A description of the T2S planning, monitoring and reporting framework.
- A general update on the progress made by T2S over the last few months.
- An interview with two T2S Network Service Providers, SWIFT and a consortium composed of SIA and Colt who discuss their motivation in becoming part of the T2S project, their offers for prospective T2S customers and the next steps of their preparation for T2S.
View T2S online - winter 2012 edition, 6 March 2012
Collateral requirements for mandatory clearing of over-the-counter derivatives
The Bank for International Settlements (BIS) has published a working paper produced by Daniel Heller and Nicholas Vause which concerns collateral requirements for mandatory central clearing of over-the-counter derivatives. Views expressed in the working paper are the authors and not necessarily of the BIS.
View Collateral requirements for mandatory clearing of over-the-counter derivatives, 6 March 2012
Joint Discussion Paper on Draft Regulatory Technical Standards on risk mitigation techniques for OTC derivatives not cleared by a CCP under the Regulation on OTC derivatives, CCPs and Trade Repositories
The European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority (together the ESAs) have published a discussion paper on draft regulatory technical standards (RTS) under the proposed Regulation on over-the-counter (OTC) derivatives, central counterparties (CCPs) and trade repositories (EMIR).
The discussion paper follows the political agreement reached by the European Commission, the European Parliament and the Council of the EU, in relation to EMIR, during the Trilogue meeting on 9 February 2012.
Under Articles 6 and 8 of EMIR, the ESAs are required to draft RTS specifying the requirements on risk mitigation techniques for OTC derivative contracts not cleared by a CCP. The purpose of the discussion paper is to set out the ESA’s preliminary views on this topic and to gather the stakeholders’ opinions at an early stage in the process.
The discussion paper contains:
- Preliminary considerations regarding collateral (margin) and capital requirements.
- Potential options regarding combinations of collateral and capital requirements.
- The application of variation and initial margins.
- Information on identifying eligible collateral and collateral valuation.
- Potential issues related to transactions with counterparties outside of the EU.
- Risk management procedures, operational processes for the exchange of collateral and minimum transfer amounts as well as intra-group exemptions.
- A data request for the cost-benefit analysis.
Comments on the discussion paper should be submitted by 2 April 2012.
View Joint Discussion Paper on Draft Regulatory Technical Standards on risk mitigation techniques for OTC derivatives not cleared by a CCP under the Regulation on OTC derivatives, CCPs and Trade Repositories, 6 March 2012
EBA Discussion Paper on Draft Regulatory Technical Standards on the capital requirements for CCPs under the draft Regulation on OTC derivatives, CCPs and Trade Repositories
The European Banking Authority (EBA) has published a discussion paper on draft regulatory technical standards (RTS) under the proposed Regulation on over-the-counter (OTC) derivatives, central counterparties (CCPs) and trade repositories (EMIR).
Under Article 12 of EMIR the EBA is required to draft RTS on the capital requirements that a CCP should meet. The purpose of the discussion paper is to set out the EBA’s preliminary views on these issues and to gather stakeholders’ opinions at an early stage in the process.
The EBA states that its preliminary view is that the capital of a CCP, including retained earnings and reserves, should be at all times at least equal to the higher of: (1) the CCP’s operational expenses during an appropriate time span for winding-down or restructuring its activities; and (2) the capital requirements for those risks that according to EMIR must be covered by appropriate capital.
The EBA also states that risk exposures and capital requirements should be calculated using the approaches set out for banks in the Capital Requirements Directive. Also, any capital held under international risk-based capital standards should be included to avoid double regulation.
Comments on the discussion paper should be submitted by 2 April 2012.
View EBA Discussion Paper on Draft Regulatory Technical Standards on the capital requirements for CCPs under the draft Regulation on OTC derivatives, CCPs and Trade Repositories, 6 March 2012