CSD Regulation Gains Provisional Trilogue Agreement

Trilogue is an EU-specific neologism used to describe, according to the European Commission's glossary of terms: "informal tripartite meetings attended by representatives of the European Parliament, the Council and the Commission". It is regarded as one of the final stages before the passage of a directive or regulation.

A key element of CSD Reg has been the harmonization of settlement cycles to T+2, or two days after trade date. Currently, settlement cycles range from T+2, to over T+6 in some cases, depending on the instrument. Critically, CSD Reg provides one of three 'arms' of incoming market regulation in the EU ─ trading is covered by the Markets in Financial Instruments Directive (Mifid), clearing by the European Market Infrastructure Regulation (Emir), and settlement by CSD Reg.

Ancillary Services
Highlights of the agreement include the cooperation of supervising authorities in overseeing banking services provided by CSDs, seen as ancillary to settlement, such as securities lending, collateral management and asset servicing. This has become a point of contention for European CSDs in particular, given the effective outsourcing of the settlement function for Eurozone securities in central bank money, with the advent of the Target2-Securities (T2S) project. Under the agreement, CSDs will incur a capital surcharge for providing these services. Also included was a preservation of a mandatory buy-in for settlement failures

"I welcome the provisional agreement reached this morning between the European Parliament and the EU Member States on new rules on securities settlement and CSDs in the EU," says Michel Barnier, commissioner for internal market and services at the European Commission. "Settlement is a very important process for securities markets and for the financing of our economy. The numbers speak for themselves: in the EU, transactions worth over one quadrillion euro were settled by CSDs in last two years. This agreement will ensure that settlement is carried out in a safer and more efficient manner."

New Year
Sharon Bowles, member of the European Parliament for South-East England, and chair of the influential Economic and Monetary Affairs Committee, said via Twitter that technical work on CSD Reg would begin early next year. The European Securities and Markets Authority is responsible for the technical implementation of market regulation.

The numbers speak for themselves: in the EU, transactions worth over one quadrillion euro were settled by CSDs in last two years. This agreement will ensure that settlement is carried out in a safer and more efficient manner.

CSD Reg, as a regulation of the European Parliament and Council, enters into the statute books of member states as law. Directives such as Mifid, by contrast, are generally implemented on a national level by competent authorities.

Later trilogue discussions on Mifid II, the review of the original Mifid, proved unsuccessful despite widespread optimism that an agreement would be reached. Bowles also said via her Twitter account that the next discussions would take place on January 14, 2014.