The European Securities and Markets Authority’s (ESMA) Central Securities Depositories (CSDR) Regulation on Securities Lending, which was implemented in February, will introduce cash penalties and mandatory redemptions for transactions that fail beyond the scheduled or contractual settlement dates.
Industry lobbying over unclear elements of the regulations regarding securities financing transactions led to a 12-month delay in its introduction. Despite this delay, uncertainties remain about the short-term impact of the regulations.
Paola-Maria Deantoni, Public Affairs Officer at Societe Generale Securities Services, explains that the pre-implementation testing period highlighted the lack of a single data stream to capture common elements for the calculation of penalties. She adds that the lack of testing by central securities depositories outside T2S remains a source of uncertainty.
Due to the data flow issue, the Association of European Central Securities Depositories has confirmed that price differences between depositories on the same security and the same expected settlement date would not be an acceptable reason for appeal.
“Overall, the concerns raised by industry participants have been taken seriously and, if necessary, there will be room for escalation after the activation date,” says Deantoni.