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CSDR ESMA advises Commission on implementation of CSD Regulation Background See background on CSDR above. On 23 June 2014, the European Securities and Markets Authority (ESMA) received a provisional request from the European Commission (EC) to provide technical advice to assist the EC on the possible content of the delegated acts required by two CSDR provisions: « The substantial importance of a CSD’s activities. What’s in there? On 5 August 2015, ESMA published its technical advice on the implementation of the CSD ( Central Securities Depository) Regulation. In relation to the penalties for settlement fails, ESMA has analysed the penalty mechanisms that are currently in place in some markets at CSD and CCP (Central Counterparty) level in and out of the Union. ESMA recommended that the cash penal- ties should relate to the value of the transaction that fails to settle and should be proportionate and take into consideration the specificities of the different asset types, the liquidity and category of transactions. In relation to the substantial importance of a CSD, ESMA believes that the criteria should be linked to the quantitative assessment of the following services: « Notary Service (proposed threshold 15%); « Central Maintenance Service (proposed thresh- old 15%); and « Settlement Service (proposed threshold 15%). Following the authorisation of CSDs and the col- lection of the relevant data by CSDs, ESMA is of the opinion that the indicators for substantial im- portance should be recalculated on the basis of all the above indicators. « Penalties for settlement fails; and

tions to be made from common equity tier 1 item by intermediate entities or institutions. Hence the following definitions are provided: « A definition of "intermediate entities” for the pur- pose of "indirect holdings" to be deducted from common equity tier one item by those entities. As such, collective investments schemes shall qual- ify as intermediate entities (Article 15a); « Which products shall be deducted as synthetic holdings (Article 15b) ; « How indirect holdings should be calculated (Arti- cle 15c) for the purpose of such deduction; « The default and structured base approach to be used for the calculation of indirect holdings (Arti- cle 15d and 15e); « How to calculate a synthetic holdings (Article 15f); « How to calculate a significant investments (Ar- ticle 15g); « The order and the maximum amount of deduc- tions permitted for indirect holdings of own funds instruments of financial sector entities. consultation paper on RTS on the CSD Regulation Background On 7 March 2012, the European Commission pro- posed a Regulation on improving securities settle- ment in the European Zone and on central depos- itories (CSDs) and amending Directives 98/26/EC and 2014/65/EU and regulation (EU) No 236/2012 (CSDR). CSDR are systemically important infrastructures in modern securities markets. They perform decisive services that allow at minimum the registration, safekeeping of transfer of securities (that exist to a large extent only in book entry form) in exchange for cash and efficient processing of securities transactions in financial markets. Since they are at the end of the settlement chain, CSDs witnesses THE TEXT OF THE REGULATION IS AVAILABLE HERE. The Regulation entered into force on 7 July 2015. CSDR ESMA issues

all settlements fails occurring during the settle- ment process, and as such are a key element in ensuring the settlement discipline. CSDR establishes amongst other a buy-in pro- cess and under article 7(15) (c) to (h) grants to ESMA the power to draft technical standards specifying the process for the operation of Buy- in, including the timeframe to deliver the financial instruments.

On 17 September 2014, the CSD Regulation (EU) (CSDR) 909/2014 entered into force.

On 18 December 2014, ESMA issued a first con- sultation paper (CP) (ESMA/2014/1563), which demonstrated that there is currently no steady approach to buy-in by the CSDs, CCPs and trad- ing venues.

THE FIRST CP IS AVAILABLE HERE.

What’s in there? On 30 June 2015, ESMA published a second CP (CP) (ESMA/2015/1065) focusing on the buy-in provisions set forth in the draft RTS. With this second CP, ESMA is further seeking input and quantitative elements from stakeholders con- cerning 3 different options: 1. Trading level party executing the buy-in. The party at the origin of the transaction is respon- sible for the buy-in; 2. Trading level executing the buy-in with fall- back option. The party at the origin of the transaction is responsible for the buy-in as in option 1, but if the trading party does not perform the buy-in, the participant would be responsible for paying the compensation. 3. CSD participant level executing the buy-in. The participant is responsible for the buy-in pro- cess. When the buy-in is not possible the par- ticipant would be responsible for the payment of the cash compensation. What’s next? The Deadline for submission was 6th August 2015. The comments will be published following the close of consultation. ESMA will consider stakeholder's feedbacks when finalising the RTS for submission to the EC in September 2015. THE SECOND CP IS AVAILABLE HERE

THE ESMA TECHNICAL ADVICE IS AVAILABLE HERE.

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