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EU to simplify penalty mechanisms for settlement fails
Technical amendments to the Central Securities Depositories Regulation (CSDR) have been published in the Official Journal of the EU and are intended to simplify the penalty mechanism for settlement fails relating to cleared transactions submitted by central counterparties (CCPs).
What’s the impact: The amendments aim to facilitate the calculation and distribution of cash penalties for cleared transaction settlement failures while reducing the risks and costs involved.
- Specifically, the amendments remove the separate process for settlement discipline and put CSDs in charge of the entire process of collection and distribution of penalties.
- The revisions also specify that in the event of imbalanced positions in respect of cleared transactions, CCPs may allocate the remaining penalties’ amount, credit or debit to their clearing members.
Important context: These changes come under the existing legal framework for CSDR but it is important to note that the CSDR framework itself is set to change. Under reforms recently agreed, preconditions will be introduced so that mandatory buy-ins are only imposed as a last resort.
Next steps: To provide firms time to implement the adjustments, the new rules will apply from September 2, 2024 and will not apply to settlement fails that begin before this date.
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Bloomberg
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