12 July 2012

EBF's comments on the Commission's proposal for a regulation on improving securities in the EU and on CSDs

The EBF welcomes the comprehensive approach of the proposed Regulation. The EBF recommends that a CSD be defined as a legal entity which performs concurrently all three core functions of central settlement, central safekeeping and notary. In this respect, the Federation invites the co-legislators to choose the wording carefully in order to avoid that any of the current infrastructures performing settlement tasks fall out of the scope of the proposed Regulation.

The EBF believes that definitional consistency regarding key terms is crucial if the proposed Regulation is to be implemented effectively across the Single Market. In this respect, the Federation is working on a set of suggested amendments to be shared in due course with relevant policy-makers. European banks support the principle of immobilisation or dematerialisation, however such change must be carefully implemented.

The EBF supports a standard settlement cycle of T+2 for trades in transferable securities which are executed on regulated trading venues. This obligation should however not apply to financial instruments and markets which are inherently unsuitable for T+2 settlement. This includes repo trading, OTC trading, pre-IPO trading and trading in illiquid securities.

European banks are concerned about possible unintended effects of an inappropriate wording related to the penalty mechanism in the context of settlement discipline. It is indeed important that the penalty regime itself does not become a new source of risk, and that it allows for the proper attribution of sanction down the intermediary chain. The EBF also calls on the co-legislators to align the provision on buy-in with the Regulation on Short-Selling in order to have a consistent and unified legal framework.

The EBF welcomes the establishment of a European-wide CSD Register operated by ESMA. The EBF welcomes the establishment of user committees that are independent from any direct influence by the management of the CSD.

The EBF believes that a CSD shall offer to keep records and accounts that enable a participant to distinguish the securities of that participant from those of that participant's client upon demand of that participant. European banks recommend that the DVP principle only applies to trades executed on trading venues regulated by MiFID.

The EBF recommends not to offer participants the option of choosing between commercial and central bank money if a CSD offers settlement in both, but to impose settlement in central bank money “whenever practical and available”.

The EBF supports the free access of issuers to the CSD of their choice. However, some parallel legal and market actions should be taken to ensure efficient use of this right and to avoid greater complexity, higher costs and new operational and systemic risk. Moreover, the EBF recommends including a new provision to ensure the uniqueness of the issuance account.

The EBF recommends clarifying and simplifying the provisions on links in the proposed Regulation. The EBF believes that the proposed derogation to the principle, according to which a CSD shall not provide itself any banking type of ancillary services, is contrary to the safety objectives of the Regulation. A clear segregation of core CSD services and banking services would meet these objectives better as it would entirely eliminate the danger of transfer of risks from the banking services to the core infrastructure services.

In the event that the Regulation does continue to permit the derogation, any such derogation shall meet precise and strict conditions. As it stands, the derogation is not satisfactory or consistent with the approach taken by the European regulatory authorities to prevent systemic risk in the financial system. The EBF has decided not to comment on the issue of conflict of laws. The Federation invites the co-legislators to refer to individual comments from its member associations as contributions to the discussion.

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