07 March 2011

AFME response to the consultation on CSDs and on the harmonisation of certain aspects of Securities Settlement

In consideration of:

• the need to minimise risks to the core functions of CSDs as systemically important market infrastructures;

• the scope for innovative and competitive development CSDs should have;

• current market structures and the likelihood of profound changes in a T2S environment; and

• the fact that future CSD legislation is part of a broader existing or evolving regulatory landscape, it is in essence AFME’s view that:

• the stability and resilience of the core functions performed by CSDs need to be maintained and, together with ancillary services that do not attract any other risks than operational risks, should be ring-fenced (‘ring-fenced functions’);

• that the provision of risk-taking ancillary services should not be constrained but be separated functions performed through a separate legal entity;

• only the ring-fenced functions should be in scope of future CSD legislation;

• CSDs, however, should not be subject to limitations in offering ancillary services to allow innovation and competition; for such ancillary services existing authorisation, regulation and supervision (e.g. MiFID, CRD, SLD) should apply;

• Barrier 9 should be removed;

• key post trading processes need to be harmonised, such as processes that provide for smooth cross CSD settlement, corporate actions processing, ETF processing, CSD account structures, settlement of registered shares and shareholder registration as well as the harmonisation of settlement cycles at T+2 by 30 June 2013, whereby the required settlement discipline should be a matter of best market practices not legislation;

• level 1 legislation could be restrictive for the development of the European capital markets, reducing global competitiveness.

Market participants (for example, broker-dealers) who are located within the European Union, and who have clients located outside the European Union, may be dependent for their own compliance with, for example, trade verification requirements on the compliance of their clients. Too specific legislative requirements may impose, and freeze, specific market models and specific technical solutions, and thereby impede competition and innovation; flexibility is required to support market development and AFME does see a role for legislation setting out certain high level rules and minimum requirement.

Full position paper 

© AFME