Central Securities Depository Regulation

Transcription

1 Central Securities Depository Regulation Alignment of T+2 Settlement Period

2 Central Securities Depository Regulation Alignment of T+2 Settlement Period The European Commission has proposed new legislation to govern Central Security Depositories (CSDs). The purpose of this legislation is to align settlement periods across European Economic Area (EEA) countries as a key step to reducing settlement risk, facilitating settlement of cross-border transactions and driving efficiency in the trade capture, allocation and confirmation process. Key Points The Central Securities Depository Regulation (CSDR) will likely come into force during Q2 / Q The legislation requires the alignment of settlement periods across EEA countries (plus Switzerland) to T+2. This change relates to transactions in transferable securities executed on trading venues, i.e. Regulated Markets (RM), Multilateral Trading Facilities (MTFs) and Organised Trading Facilities (OTFs) While implementation would be required by 1st Jan 2015 the timing of the change to T+2 settlement is being announced on a country basis by the respective trading venues (1) Timeline March 2014 CSDR compromise text published June 2014 (est) CSDR entry into force October 2014 T+2 adoption for most (2) EEA markets + Switzerland 1 January 2015 T+2 regulation applies Frequently asked questions 1. What is happening? EEA countries (plus Switzerland) will be required under the CSDR proposed legislation to move to T+2 settlement by 1 st January 2015 The timing of the change is being led by the trading venues and CSDs in each of the EEA countries (plus Switzerland) 2. When? Most EEA countries (plus Switzerland) have announced a 6 th October 2014 switch-over to T+2. This means trades will settle as follows: (1) With the exception of Greece, where the settlement period is written into National Law (2) Three EEA countries already use T+2, we are still awaiting notification from several other EEA countries 1

3 Trade date Thursday 2 nd October Friday 3 rd October Monday 6 th October Tuesday 7 th October Settlement date Tuesday 7 th October Wednesday 8 th October Wednesday 8 th October Thursday 9 th October The following adoption announcements are as at 22nd April 2014: Already T+2: Bulgaria Germany (Eq) Slovenia 6th October 2014: Austria Belgium Croatia Czech Republic Denmark Estonia Finland France Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Norway Portugal Poland Slovakia Sweden Switzerland UK ~ Q4 2015: Spain As at the writing of this document, we are still awaiting notification of timing from the remaining EEA countries: Unconfirmed: Cyprus Germany (Fixed Inc) Iceland Liechtenstein Romania 3. What is in scope? 3.1. Markets T+2 applies to transactions executed on trading venues, i.e. Regulated Markets (RM), Multilateral Trading Facilities (MTFs) and Organised Trading Facilities (OTFs) within the EEA plus Switzerland Instrument/Transaction Types T+2 applies to transferable securities, such as; Shares in companies and other securities equivalent to shares in companies, partnerships or other entities, and depositary receipts in respect of shares; Bonds or other forms of securitised debt, including depositary receipts in respect of such securities; any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures; 4. What is out of scope? 4.1. Securities OTC Transactions Although not explicitly required by the regulation, Deutsche Bank will ensure uniformity in its settlement of Cash OTC transactions and OTC derivatives transactions, where the underlying is an in scope instrument. To this end, the settlement cycle, with clients, for these instruments will match those traded on trading venues. 2

4 4.2. IPOs and New Issuances The regulation does not apply to the first transaction where transferable securities are subject to initial recording in book-entry form Securities Lending and Repo Whilst off-exchange securities lending, repo and reverse repo agreements are not specifically within the scope of the regulation, please see Section 6 below on how CSDR is likely to impact these transactions. 5. What about clients based outside of the EEA? The regulation applies to all transactions in transferable securities executed on EEA (and Swiss) trading venues irrespective of the location of the client. 6. What does T+2 mean from a practical perspective? In order to facilitate T+2 settlement, allocations, confirmations and affirmation should be completed early in the trade lifecycle, using standardized industry tools, messaging or protocols. Clients should consider the use of electronic affirmation to increase efficiency. The release of accurate settlement instructions to custodians, prime brokers or outsourcing providers should be provided to settlement agents as soon as possible post affirmation, to allow for prompt pre-matching in line with the likely advancement of settlement deadlines. All parties should be adequately positioned to process exceptional settlement volume on Wednesday 8th October Off-exchange securities lending, repo and reverse repo agreements, whilst not specifically within the scope of the regulation, are expected to move to a T+1 settlement cycle to support funding and liquidity needs. For dividends and all other types of distributions, the relationship between ex date and record date will be reduced by one business day. Therefore ex date will now be one business date prior to the record date. For all other types of corporate actions Deutsche Bank will liaise with the Issuer community to ensure they are aware of the change. Should an Issuer be thinking of announcing a corporate event in October 2014 they will need to consider the T+2 settlement cycle within their timetable. 7. Does CSDR impact settlements in any other way? CSD Regulation will have implications beyond T+2 settlement. Full details will be available when ESMA publish its final technical standards. However, in the interim there are two impacts of particular note. 1. Daily fines for failing transactions 2. Mandatory buy-in within SD+4. Both 1 and 2 will support the expected harmonization goals of CSDR, and will replace the settlement discipline aspects of the existing Short Selling Regulation (November 2012) currently applied to European on-exchange CCP cleared transactions. Deutsche Bank will continue to keep its clients informed on the implementation of this regulation as more information becomes available. If you would like to know more, please contact your local salesperson for further information. 3

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