The European Commission has postponed the implementation of Central Securities Depositories Regulation (CSDR) mandatory buy-in provisions following months of speculation, as well as industry requests for the execution date of 1 February 2022 to be pushed back.
The provision, which is part of the settlement discipline regime (SDR) under CSDR, creates an obligation for trading parties to execute buy-ins against counterparties who fail to settle their trades within a required period.
There were concerns during Covid-19 that it would “present a significant risk to Europe’s recovery from the Covid-19 crisis and will likely disproportionately impact on small and medium-sized enterprises and less liquid securities”, according to an opinion by the Association for Financial Markets in Europe (AFME) earlier this year.
Several trade groups have also expressed their opinions including an alliance of 14 that among others comprised the International Capital Markets Association (ICMA), the International Securities Lending Association (ISLA), AFME, the International Swaps and Derivatives Association and the European Fund and Asset Management Association.
Not surprisingly, the industry has welcomed the Commission’s announcement. Pablo Portugal, Managing Director of Advocacy at AFME, said, “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.
He added. “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.
Portugal also noted, “Market participants will be awaiting further clarity from European authorities on the implementation of settlement discipline measures in February 2022.
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.”
Alex Dockx, Executive Director, J.P. Morgan’s Securities Services, said “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.”
©Markets Media Europe 2021
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