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Last year, for the first time in our history, the whole world was confronted with the reality of a pandemic and its social, economic consequences that affect everyday life. Countries and citizens are still occupied with fighting the epidemic and maintaining their own economic stability.

In the EU capital markets had no time to relax after the first wave of the crisis, because of incoming new regulations that place a significant burden on financial market participants. In our two-part series, we present the key information about this new regulation and the details of its implementation, as well as the challenges for IT infrastructure.

What is the new regulation?

The new regulation is called the Settlement Discipline Regime (SDR) which is comprised of the following three pieces of legislation:

Regulation No 909/2014/EU of the European Parliament and of the Council, which places particular emphasis on establishing and maintaining a clearing discipline, setting standards for not only CSDs (Central Securities Depositories) but also CCPs (Central Counterparties).

Regulation of the European Committee 2018/1229, the provisions of which are closely interlinked as they deal with measures to monitor the failure of settlement and the allocation (and collection) of fines in case of settlement failure. It also encourages adherence to settlement disciplines by defining operational details of the SDR buy-in procedure for the prevention of non-settlement cases.

The detailed rules for CSDR (Central Securities Depositories Regulation) on fines are laid down in Regulation No 2017/389/EU: the parameters for calculating fines for settlement failure and the addition of CSDs’ activities in recipient states

The original date of the entry into force of the provisions would have come at the worst possible time:

The original date of application of the SDR provisions was 13 September 2020, as first amended by a technical standard issued by ESMA (European Securities and Markets Authority) to 1 February 2021. Subsequently, on 28 July 2020, the official news was published on ESMA’s website that work had begun on a proposal to postpone the entry into force of the CSDR clearing discipline until 1 February 2022, mainly due to the regulatory projects of CSDs and the difficulties of IT deliveries caused by the pandemic.

The request for a postponement of the entry into force came mainly from the European Commission.

As a consequence, the new deadline for legal compliance is 1 February 2022.

The relevant detailed report was published by ESMA on its website on 28 August 2020.

What gave rise to SDR regulation?

The European Union’s harmonization efforts have given rise to SDR regulation, which aims to introduce a single clearing system for each national securities and capital market, with the same penalties for uniform ‘non-compliance’ and even subsequent procedures. So, in fact, as its name implies, they want to establish a clearing discipline because of the increased number of failed settlements and the SDR buy-ins procedures under individual national clearing houses.

Therefore, the European Union has established uniform requirements for the clearing of financial instruments within the Union and lays down rules for the organization and management of CSDs in order to promote safe, efficient and smooth settlement. Directives 98/26 / EC and 2014/65 / EU on the improvement of securities settlement and central securities depositories in the European Union and the regulation No 909/2014/EU amending the No 236/2012/EU regulation (CSDR), entered into force on 18 September 2014 and is directly applicable in all Member States of the European Union, including Hungary, due to the form of its decree.  The provisions of the CSDR to which execution rules (Regulatory Technical Standard-RTS, or Implementing Technical Standard-ITS) are linked, as a general rule, should only apply once the execution rules have been adopted and entered into force.

The aim and key elements of CSDR are:

The main objective of CSDR is primarily to increase secure and efficient clearing and settlement infrastructure (CSD) in the EU, inter alia by ensuring:

  • Shorter settlement periods
  • Settlement disciplinary measures (mandatory cash penalties and their “settlements” in case of settlement failure, settlement failure reporting)
  • Obligation to dematerialize most securities;
  • Strict prudential and business rules for CSDs;
  • Strict access rights to CSD services; and
  • Increased prudential and supervisory requirements for CSDs and other institutions providing ancillary banking services for securities settlement.

As we can see, the new SDR regulations are creating a rather complex regulatory framework. We encourage you to stay with us in the next part of our series, in which we will show how all these provisions are implemented in Hungary and what IT issues are raising.

The exact text of the SDR Regulation can be found here:

DELEGATED REGULATION OF THE EUROPEAN COMMISSION 2018/1229 of 25 May 2018 supplementing Regulation No 909/2014/EU of the European Parliament and of the Council as regards regulatory technical standards on settlement discipline (

Further information and regulatory Q&A information are available on the European Commission’s website.

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