Central Securities Depositories Regulation (CSDR) – regulation memo

The Central Securities Depositories Regulation (CSDR) applies to European Central Securities Depositories (CSDs), their participants and to securities settlement systems in the European Union (EU).

About CSDR

What is the objective of CSDR?

The objective of CSDR is to introduce a common European regime governing various issues related to CSDs and to harmonise securities settlement within the EU by:

• Introducing common rules on the authorisation, supervision and passporting of CSDs as well as their minimum organisational requirements
• Harmonising some aspects of securities settlement and the settlement cycle in order to increase the safety and efficiency of securities settlement (through dematerialisation, internalised settlement, a common settlement cycle timing at T+2, etc.)
• Introducing settlement discipline measures (penalties and buy-ins)
• Determining the conditions under which CSDs may provide banking-type ancillary services

CSDR Regulatory Technical Standards (RTS)

CSDR was published in the Official Journal in August 2014. In 2017, the European Commission published Regulatory Technical Standards notably on authorisation and supervision of CSDs, prudential requirements for CSDs and reporting of internalised settlement. The authorisation process of CSDs conducted in 2018 was a major step in the effective implementation of CSDR.

Scope and requirements of CSDR

The Central Securities Depositories Regulation applies to:

• CSDs, i.e. entities that operate a Securities Settlement System and accept issuance from the issuer and/or hold securities at a centralised level
• Issuers that issue securities in EU CSDs
• Participants to CSDs
• Banks that offer banking services to CSDs

The CSDR requirements provide detailed legislative provisions on:

• Settlement: harmonisation of settlement cycles to T+2, dematerialisation of issuances (2020), rules on internalised settlements
• Central Securities Depositories: provisions on prudential requirements, internal organisation and access to CSD services (acceptance of issuances from issuers, fair and open access to CSDs) as well as recognition of third-country CSDs
• Banking services: conditions under which CSDs may provide banking services or use commercial banks
• Intermediaries: disclosure of settlement internalisation and use of segregated accounts under certain conditions
• Settlement discipline: the implementation of the settlement discipline regime was delayed during the COVID crisis. Its scope was then modified, with the application of its buy-in component being delayed to November 2025. The buy-in regime especially was further reviewed during the CSDR Refit negotiations.

In March 2022, the European Commission proposed a review (“CSDR Refit”) of CSDR covering:

• Passporting rules
• Supervisory convergence
• A review of the rules governing banking-type ancillary services and a revised approach to settlement discipline with the introduction of a two-step approach to mandatory buy-ins (“MBIs”)

CSDR Refit entered into force in January 2024 after the EU Council and Parliament reached an agreement on the proposal in June 2023.

The main measures of CSDR Refit were:

• A simpler passporting regime for CSDs
• A review of the conditions under which CSDs can access and provide banking-type services
• A revised settlement discipline regime with a clearer distinction between penalties and mandatory buy-in measures. CSDR Refit also includes new rules to the buy-in mechanism that put strong limits to the circumstances under which buy-ins can be introduced and the text also provided exemptions to their application.

Finally, CSDR Refit provided the European Securities and Markets Authority (ESMA) with mandates to notably:

• Consider measures to improve settlement efficiency (report expected in 2025)
• Draft a report on the potential shortening of the settlement cycle (i.e. T+1 or T+0), including an assessment of the costs and benefits and an overview of international developments on settlement cycles and their impact on the Union’s capital markets. ESMA published its report on 18 November 2024, recommending a move to T+1 for the EU in Q4 2027.
• Review the technical standards to the mandatory buy-in rules should the measure be activated by the Commission.

In the meantime, ESMA consulted in 2024 on the scope of cash penalties (a report is expected to be published) and on the penalty mechanism review for which a technical advice was published in November 2024.

For an in-depth look at CSDR Refit, read our dedicated article.

Securities Services’ view

We believe that CSDR has been an important step towards building safer and more integrated post-trade infrastructures. It also increases the efficiency of securities settlement. CSDR is a crucial element of the success of TARGET2-Securities (T2S).

While we supported the newly-defined settlement discipline framework for penalties as it aimed to reduce settlement fails without jeopardising market liquidity, we believe that other mandatory settlement discipline measures such as the reviewed buy-in regime would not be as effective or cost efficient for market participants. The recent stance taken on T+1 might bring yet further changes to CSDR. We welcome the various mandates given to ESMA to improve settlement efficiency. We continue to engage closely with clients and market participants to discuss future proposals to improve securities settlement.

For additional regulatory insights, visit our regulatory intelligence hub

Key dates of CSDR