Postponement of CSDR Mandatory Buy-Ins Welcomed
European regulators have postponed the mandatory buy-in rules which were due to come into force as part of the Central Securities Depositories Regulation (CSDR) Settlement Discipline Regime in February 2022.
In July sixteen trade association representing buy-side, sell-side and market infrastructures, had written to ESMA and the European Commission regarding the challenges over the timeline for implementation of the mandatory buy-in rules.
Alex Dockx, executive director at J.P. Morgan Securities Services, said in an email: “Mandatory buy-ins under CSDR had real potential to impact market liquidity, especially in stressed circumstances, and the ability for the market to trade in European securities at attractive rates. It would also create a huge burden for investors to enforce buy-ins, and would have required a major repapering of contracts for the industry. J.P. Morgan very much welcomes the decision to decouple buy-ins and review the regime. This is a very positive development for European financial markets.”
Pablo Portugal, Managing Director of Advocacy at the Association for Financial Markets in Europe, said:
“We strongly welcome the agreement by EU legislators to postpone the implementation of the mandatory buy-in provisions in the Central Securities Depositories Regulation (CSDR). The mandatory buy-in rules have been widely acknowledged as being flawed and disproportionate. Their impact would lead to wider spreads and less liquidity, meaning more expensive and less efficient capital markets for Europe’s issuers and investors.”
AFME strongly welcomes today's postponement of the mandatory buy-ins in the #CSDR – the planned review in 2022 should fundamentally reconsider mandatory buy-ins & lead to a more proportionate regime that supports Europe’s capital markets https://t.co/5vNcvrgxXL
— AFME (@AFME_EU) November 24, 2021
“We therefore support the approach to decouple the implementation of the mandatory buy-in rules from all other aspects of the settlement discipline regime. This would allow other appropriate measures, such as the penalties regime, to take effect as planned in February 2022, but avoid implementation of the current buy-in rules.
“Market participants will be awaiting further clarity from European authorities on the implementation of settlement discipline measures in February 2022 following today’s announcement.
“The planned review of the CSDR in 2022 should fundamentally reconsider mandatory buy-ins and lead to a more proportionate regime that supports Europe’s capital markets.”
International Capital Market Association
ICMA said in a statement: “ICMA very much welcomes the news of the delay to the CSDR mandatory buy-in regime. ICMA has long taken the position that this regulatory initiative contained a number of critical design flaws as well as ambiguity around scope and process, not only from an implementation perspective, but also with respect to the potential implications for EU bond market liquidity and stability.”
International Securities Lending Association:
ISLA is delighted with the announcement of the delay to Mandatory Buy-ins under the Central Securities Depository Regulation. The planned review in 2022 will be vital when re-evaluating mandatory buy-ins.
— ISLA (@__isla) November 25, 2021
The Investment Company Institute:
European policymakers made the right call to delay the mandatory buy-ins (MBIs) of the CSDR. Although many aspects of the CSDR should improve settlement in the EU, delaying MBIs will allow for a thorough review of their effects on liquidity, costs, and fund investors.
— ICI (@ICI) November 24, 2021
The settlement discipline regime will be implemented in February 2022.
CSDR buy-in requirements are scheduled to go live on 1 February 2022.
CSDR introduces cash penalties and buy-ins for securities transactions which fail to settle.
The Central Securities Depositories Regulation had a mandatory buy-in regime.
Central Securities Depositories Regulation is a step towards harmonization in European post-trade.