CSDR: An unsettled regime?

What this survey reveals.

In 2021, €178.30 trillion worth of securities were settled across the EU’s ‘TARGET2-Securities platform.’ T2S, as it is known, was introduced in 2015 to harmonise the EU’s fragmented settlement system.

The platform has made progress in integrating and streamlining Europe’s post-trade functions, which were once siloed by country. There are now more efficiencies.

Yet despite this progress, settlement fails – when a buyer or seller in a securities transaction does not get what they expected – are still a feature of the landscape. Earlier this year, a system of punitive measures for settlement delays was introduced as part of the Central Securities Depositories Regulation (CSDR). In other words, there are now daily fines for unsettled securities trades.

Although the CSDR aims for further harmonisation of the settlement system, its primary objective is to increase safety and efficiency for investors by forcing market actors – such as fund managers – to adopt greater settlement discipline to mitigate failure risk.

The so-called Settlement Discipline Regime affects firms right across the world if they trade securities that are settled in an EU-domiciled central securities depository.

So, how can firms navigate this CSDR landscape – a landscape that could become even more difficult as CSDR implementation evolves?

Funds Europe’s survey, in association with RBC Investor & Treasury Services, highlights an increasing need for technology among respondents as they seek greater ability to comply with the regulation. Legacy technology employed by one market actor in a whole chain of counterparties subject to a trade could impact everyone in that chain.

Investing in technology appears more important to asset managers than ever. The expense of this, however, could lead to an increase in larger-scale middle-office outsourcing as a means of gaining more value.

CSDR may have come as a bigger shock to market actors than was expected. But at least we glean one positive aspect from our research: platforms supporting ‘standard settlement instructions’ have reduced booking errors, which were once a common cause of failure.

Our survey and expert commentary also offer insights into what market actors think about UK divergence.

Read the full report