ICMA submits its response to the Targeted consultation on the review of CSDR
2 February 2021 ICMA’s response focuses exclusively on the section relating to Settlement Discipline, in particular the provisions relating to mandatory buy-ins, which ICMA points out is market regulation, not post-trade regulation. In its response ICMA provides data and analysis to illustrate the expected impacts of the mandatory buy-in regime on EU bond market pricing and liquidity, and the costs that will be incurred by investors and potentially issuers. The response also seeks to evidence the procyclical and destabilizing effects the regime would have had during the March-April 2020 COVID-19 market turmoil.
As well as noting extensive cross-industry work to improve settlement efficiency in the EU, ICMA recommends that the CSDR cash penalty mechanism be implemented as soon as practicable, and that the regulatory authorities monitor its impact on both settlement efficiency rates and market liquidity over an appropriate time period, then recalibrate as required. During this time, mandatory buy-ins should not be implemented. Requiring investment firms to have in place contractual arrangements to remedy settlement fails (such as those that already exist in the international bond and SFT markets), could be an effective alternative consideration.