Preparing for The Central Securities Depositories Regulation (CSDR)

What is CSDR?

The Central Securities Depositories Regulation (CSDR) is a European regulation which introduces new measures for the authorisation and supervision of European Central Security Depositories (CSDs) and sets out a common set of rules and business standards for securities settlement across the European Economic Area (EEA).

There are three general key themes in CSDR:

1. Omnibus and segregated accounts [already in force]

2. Internalised settlement reporting [already in force]

3. Settlement discipline regime [in force from 1 February 2022]

For more information, please refer to CSDR Regulation and Regulatory Technical Standards (RTS) on the settlement discipline regime.

What is a CSD?

A Central Securities Depository (CSD) is an entity which:

1. Operates a securities settlement system (“settlement service”);

2. Records newly issued securities in a book-entry system (“notary service”); and

3. Provides and maintains securities accounts at the top tier level (“central maintenance service”).

Examples of EEA CSDs include Euroclear and Clearstream.

What is the Settlement Discipline Regime?

The Settlement Discipline Regime (SDR) introduces new regulatory requirements for securities settlement, including:

• Measures to prevent settlement fails (Article 6), such as timely allocation and confirmation messages between investment firms and professional clients
• Measures to address settlement fails (Article 7), imposing cash penalties and mandatory buy-ins for late matching and settlement fails.

*The EU co-legislators agreed on 24th November 2021 to postpone the Mandatory Buy-Ins rules from 1st February 2022. The exact length of the delay has not been formally communicated. 

Who is impacted by the CSDR settlement discipline regime?

All parties in the settlement chain involved in transactions in European securities may be directly or indirectly impacted by the settlement discipline regime, including where the trading parties are not located in the European Economic Area (EEA).

When does the CSDR settlement discipline regime need to be complied with?

1 February 2022.

*The EU co-legislators agreed on 24th November 2021 to postpone the Mandatory Buy-Ins rules from 1st February 2022. The exact length of the delay has not been formally communicated. 

How has Brexit impacted the CSDR settlement discipline regime?

On 23 June 2020 the UK Treasury published a Written Ministerial Statement from the Chancellor of the Exchequer, outlining that the UK will not be implementing the CSDR settlement discipline regime.

However, UK firms involved in the settlement chain of transactions that settle on a European CSD might still be impacted by the CSDR settlement discipline regime. 

Which CSD Markets are in-scope for CSDR?

All EEA (I)CSD Markets are in-scope for the settlement discipline regime:

Austria / Belgium / Bulgaria / Croatia / Cyprus / Czech / Denmark / Estonia / Finland / France / Germany / Greece / Hungary / Ireland / Italy / Latvia / Lithuania / Luxembourg / Malta / Netherlands / Poland / Portugal / Romania / Slovakia / Slovenia / Spain / Sweden / Iceland / Norway / Euroclear bank (ICSD) / Clearstream Lux (ICSD)

Please refer to the ESMA register for a list of authorised CSDs.

How is Barclays preparing for CSDR and who should I contact if I have any questions?

Barclays has a dedicated team preparing our businesses for the CSDR settlement discipline regime.

If you would like to discuss CSDR further, please contact your Barclays representative, or our dedicated team at CSDRProgramme@Barclays.com.

What are the key requirements for Allocations?

Article 6(2) of the CSDR requires investment firms to take measures to limit the number of settlement fails. It specifies that these measures should at least consist of arrangements with their professional clients ensuring prompt communication of an allocation of securities to the transaction, confirmation of that allocation and confirmation of the acceptance or rejection of the terms in good time before the intended settlement date. This requirement is further specified in Article 2 of the regulatory technical standards (RTS) on settlement discipline, in respect of the content of this allocation message and deadlines for sending these messages.

For more information, please refer to Regulatory Technical Standards (RTS) on the settlement discipline regime.

What is the scope of Allocations?

The following products are in-scope for CSDR Allocations, to the extent they settle on an EEA CSD:

• Transferable securities
• Money-market instruments
• Units in collective investment undertakings (UCITs)
• Emission allowances

Transactions in any of the products listed above are in-scope for CSDR Allocations to the extent they settle on an EEA CSD.

Derivative transactions may also in scope to the extent that:

• they are physically settled derivatives where the underlying instrument is one of the products listed above which settled on an EEA CSD, or
• margin delivery includes one of the products listed above which settled on an EEA CSD.

What is the impact of Allocations to clients?

Clients will need to ensure they provide Barclays with written allocations including certain data points as stipulated within the regulation within the specified timeframes.  Barclays should receive the allocations message by close of business on the business day the transaction took place. If the two parties are in time zones with more than a 2-hour difference, or if the order has been executed after 16:00 CET, then there is an extension of the deadline until 12:00 CET on the following business day. 

Please note our Prime Brokerage business is out of scope for this rule; however we still encourage clients to send us allocation messaging as soon as possible within the specified timeframes above (to avoid any settlement delays).

Will Barclays make any changes to client contracts for Allocations?

Yes, we will be updating Barclays Bank Ireland plc's Terms of Business with the necessary language defined in Article 6. This language has been agreed at an industry-level for consistency. 

Other Barclays entities (besides Barclays Bank Ireland plc) will not be updating their contractual arrangements with clients as the requirement is only for EU Investment Firms.

Barclays will reach out to impacted clients in mid-January 2022 with the language which will be included in the Terms of Business for Barclays Bank Ireland plc. 

Please refer to the AFME Guidelines for details on necessary language defined in Article 6 of the CSDR.

https://www.afme.eu/Key-issues/CSDR/CSDR-Model-Contractual-Provisions

What are the key requirements for the new settlement instruction fields?

CSDs are required to provide functionality to participants with fully automated, continuous real-time matching of settlement instructions. CSDs require their participants to populate a number of fields for matching, including the type of settlement instruction, place of trade, place of clearing, and other trade economics including instrument identifier (ISIN), price, currency, quantity, etc.

In addition CSDs require their participants to use a field indicating the transaction type in their settlement instructions based on the following taxonomy: 

(a) purchase or sale of securities; 

(b) collateral management operations; 

(c) securities lending/borrowing operations; 

(d) repurchase transactions; 

(e) other transactions (which can be identified by more granular ISO codes as provided by the CSD)

Barclays recommend that the 'Place of Trade' field is also populated wherever possible or the 'Place of Clearing' for transactions clearing at a CCP. This will help ensure trades can be identified and benefit from the appropriate penalty rates for trades conducted on a SME Growth Market.

What is the impact of the new settlement instruction fields to clients?

Clients should ensure that they provide all relevant details required to ensure timely settlement. Please refer to the key requirements above.

What are the new settlement Tolerance Levels?

The matching tolerance levels for settlement amounts on against payment instructions.

• EUR 2.00 for settlement amounts ≤ EUR 100,000 equivalent
• EUR 25.00 for settlement amounts > EUR 100,000 equivalent

What are the key requirements for Bilateral Cancellation?

CSDs are required to operate a bilateral cancellation facility that requires participants to bilaterally cancel matched settlement instructions.

Many EEA CSDs already operate with bilateral cancellation functionality and the remaining markets are currently updating their processes.

What is the impact of Bilateral Cancellation to clients?

Clients will need to ensure that both parties to a matched settlement instruction will need to instruct a cancellation of the settlement instruction in order to prevent the transaction from settling.

What are the key requirements for Partial Settlement?

CSDs are required to provide participants with functionality to partially settle transactions. Early partial settlement at any point from ISD onwards can reduce the penalty fines payable by the delivering party and help speed up settlement.

This functionality ("auto-partials") will automatically settle partial amounts of a matched trade where some of the inventory is available. This functionality works if both parties are signed up to auto-partials and there is inventory available. 

How is Barclays managing Partial Settlement?

Barclays has opted-in for auto-partial functionality for all accounts at EEA CSD markets.

We encourage our counterparties to opt-in for auto-partials to help to reduce the impact of penalties.

Are there any instances where Barclays has not opted-in for Automatic Partial Settlement?

Barclays endeavours to partially settle trades automatically across all EEA CSD markets. However, for Stock Lending activities, we will manage partial settlement manually on a trade-by-trade basis. 

What is the impact of Partial Settlement to clients?

Clients have the ability to opt-in for the auto-partial functionality for in-scope CSD markets. 

Barclays encourages clients and counterparties to opt-in for auto-partials where possible. 

What are the key requirements for CSDR Cash Penalties?

CSDR requires EEA CSDs to impose cash penalties to CSD participants if a trade does not settle by the intended settlement date. Penalties accrue daily and are debited on a monthly basis from the participant causing the settlement failure, and credited to the participant impacted by the settlement fail. There are separate penalties for late matching and failed settlement.

What products are in-scope for Penalties?

The following types of financial instruments are considered in-scope:

• Transferable securities;
• Money market instruments;
• Units in collective investment undertakings; and
• Emission allowance

IF the instrument is admitted to trading or traded on a trading venue ("EU ToTV")

OR cleared by an EEA CCP

AND where the parties intend to settle on an EEA CSD

Which transactions are in-scope for Penalties?

Any transactions conducted on own account or on behalf of clients in an in-scope product are in-scope for Penalties.

CSDR does not define the term "transaction" but the RTS indicates a broad interpretation, as the relevant transaction types identified in the RTS are:

• purchase or sale of securities;
• collateral management operations;
• securities lending or borrowing operations;
• repurchase transactions (Article 22 RTS further indicates that each of the outward and return legs of a securities lending or borrowing or repurchase transaction should be treated as a separate 'transaction');
• 'other' transactions

Which transactions are out-of-scope for Penalties?

Penalties do not apply for transactions where:

• the failing participant is a CCP;
• insolvency proceedings are opened against the failing participant; or
• the principal venue for the trading of shares is located in a third country. Please find a list of exempt shares here. 

What are the different types of Penalties?

There are two types of cash Penalties:

• Late Matching Fail Penalty (LMFP) - applies when matching taking place after the Intended Settlement Date (ISD). The CSD will apply the fine to the final amending party.
• Settlement Fail Penalty (SEFP) - applies due to the non-settlement of a matched transaction after the ISD.

How are Penalties calculated?

CSDs calculate daily cash penalties from the Intended Settlement Date (ISD) until the trade settles or cancellation of the instruction.

On the 14th business day of the month, CSDs will provide the net Penalties to CSD participants for the previous month. On the 17th business day (3 days later), the CSD will debit and credit the CSD participants.

For historical trades, will penalties apply from original Intended Settlement Date or from 1st February 2022? 

Penalties will apply from the 1st February 2022. Any trades executed and failing prior to the 1st February will only begin to accrue daily penalties from 1st February 2022. 

Our understanding is CSDs will not ‘back date’ penalties for any dates prior to the 1st February 2022.  

Will Barclays pass-on penalties to clients?

In certain circumstances, Barclays may pass-on penalties to clients. This will be investigated and determined on a net monthly basis. 

January 2022 Update: During industry dry-run testing, we have noticed a number of data issues on the daily and monthly SWIFT messages we receive from the CSDs. For example, we have seen some CSDs send duplicate penalties or incomplete SWIFTs. In addition, certain CSDs have started testing late or have not begun testing at all. As a result, there may be data quality issues in the first month (including the penalties amounts we pass-on to clients); however, we will be implementing additional controls and reconciliations to help remediate these issues in the first month.  

When and how will CSDs report and collect Penalties?

Cash Penalties will be reported by CSDs to CSD participants daily, using MT 537 SWIFT messaging. This will be reported at a transactional level allowing us to align the costs to specific transactions.

The overall net impact of cash penalties will be reported by CSDs monthly and then debited from / credit to our agreed cash account with the CSD on the 17th business day of each month.

January 2022 Update: During industry dry-run testing, we have noticed a number of data issues on the daily and monthly SWIFT messages we receive from the CSDs. For example, we have seen some CSDs send duplicate penalties or incomplete SWIFTs. In addition, certain CSDs have started testing late or have not begun testing at all. As a result, there may be data quality issues in the first month (including the penalties amounts we provide clients); however, we will be implementing additional controls and reconciliations to help remediate these issues in the first month.  

Will Barclays make any changes to clients’ contracts for Penalties?

No, Barclays will not be making any client contractual changes as a result of CSDR Penalties. 

What is Barclays approach to CSDR Penalties?

Barclays has partnered with a new third-party platform, AccessFintech, to view and manage CSDR penalties. AccessFintech provides us with the ability to view penalties at a transaction level, as the platform will map MT537 SWIFTs received from CSDs to trade-level data. Please see the FAQ section on AccessFintech for details on how clients can also utilise the platform to view penalties.

Barclays has also setup new teams to manage various components of CSDR Penalties, including: penalties risk management, internal cost allocation, client pass-on and counterparty claims. 

What is Barclays approach to counterparty claims?

If we feel the CSD has made an error in debiting us with a penalty, Barclays will raise a claim against the counterparty to the trade. Barclays will generally follow the AFME guidelines, where appropriate, for counterparty claims. Where the counterparty has incurred a penalty and believes Barclays is at fault we will accept and consider incoming counterparty claims.

Please see the AFME guidelines on bilateral claims for more details. 

How do counterparties submit a penalty claim to Barclays?

Barclays has setup a new team internally to manage incoming claim requests from counterparties. If a counterparty wishes to raise a claim against Barclays, this should be done using the industry recomended standard template and submitted to our CSDR Claims Management team mailbox: csdrclaimsmanager@barclays.com.

Once we receive a claim request, we will send an acknowledgement receipt of the claim request within recommended AFME timescale of 5 working days and subsequently conduct the necessary investigations to determine the outcome.

What is AccessFintech Platform?

AccessFintech is a global technology solutions provider for supply chain management in the financial services industry, providing workflow management tools for variety of processes, from securities settlement to claims. 

Barclays have decided to partner with AccessFintech in order to increase workflow efficiencies, including the ability to view settlement instructions in real time, view and manage CSDR penalties at a transaction-level and improve settlement communications with clients and counterparties. 

How  AccessFintech impacts your interactions with Barclays?

Our new partnership with AccessFintech will introduce a number of changes to how our clients currently interact with Barclays for securities settlement. These changes will differ depending on how our clients choose to use AccessFintech tool. 

Clients have the option of using AccessFintech for free via Barclays sponsored package, allowing clients to view settlement status in real-time for trades with Barclays, and view the associated penalty charges under CSDR.

Clients who do not wish to use AccessFintech will receive the same service as they do today; however many reports Barclays send to clients can be enriched with additional settlement information (including accrued CSDR Penalties).

How can clients use AccessFintech?

Clients who wish to use AccessFintech can do so free of charge by using Barclays' sponsored package with AccessFintech. 

Our sponsored package allows clients to view settlement events in real time on the AccessFintech platform and view accrued CSDR Penalties for trades with Barclays.

If you choose not to use AccessFintech, your service will stay as-is and we will continue to communicate with you via existing channels. 

Please contact our dedicated Onboarding team at AFTClientOnboarding@barclays.com if you would like to use our sponsored package with AccessFintech or would like more information. 

When does Buy-In Regime Go-Live?

The EU co-legislators agreed on 24th November 2021 to amend the Central Securities Depositories Regulation (CSDR) in order to postpone the Mandatory Buy-Ins rules from 1st February 2022. The exact length of the delay has not been formally communicated. 

ESMA has issued a statement to EU national competent authorities to effectively not enforce Mandatory Buy-Ins from 1st February 2022, bridging the gap until the EU co-legislators publish the legislative changes to formally delay Mandatory Buy-Ins (expected in March 2022).

Barclays delivery for Mandatory Buy-Ins is currently on hold pending further guidance from the regulators.