The European Commission (EC) has proposed new regulations for the institutions handling securities settlement, designed to open borders and minimise risks.
Institutions responsible for securities settlement, called Central Securities Depositories (CSDs) and which cover a quadrillion euro market, will primarily see the time it takes for security settlement shortened in a risk-reduced environment.
Under the new proposals, a settlement period will be limited to a maximum of two days after the securities are traded on stock exchanges and authorised CSDs will be given greater cross-border participation.
Market participants which fail to deliver securities, in addition to being subjected to penalties, will have to buy the securities in question in the market and deliver them to the counterparty.
Michel Barnier, commissioner for internal market and services, says: “I am committed to ensuring that all financial markets are properly regulated and supervised. Settlement is a crucial process for the securities markets and the financing of our economy, and as such its safety and efficiency needs to be ensured. (article continues below)
“The numbers speak for themselves: in the European Union, transactions worth over one quadrillion euros were settled by CSDs in the last two years. Today’s proposal will introduce, in line with our international partners, common standards across the union for securities settlement and CSDs to ensure a true single market for the services provided by national CSDs.”
CSDs are currently only regulated on a national level and have higher costs and risks associated with cross-border settlement.
The proposal now passes to the European Parliament and the European Council for negotiation and adoption.