ESMA publishes technical advice on scope of CSDR settlement discipline regime

The European Securities and Markets Authority (ESMA) has published a final report and press release, providing technical advice to the European Commission (EC) on narrowing the scope of the Central Securities Depositories Regulation (CSDR) cash penalties under the CSDR settlement discipline regime. CSDR Refit, which came into force in January 2024, referred to the need for the settlement discipline rules to be more operational and better tailored to diverse market operations and transactions. To this end, ESMA's report provides technical advice to the European Commission on the underlying causes of settlement fails which are considered not to be attributable to participants in the transaction, as well as circumstances which are not considered as trading, and which should therefore not be subject to settlement discipline measures.

Scenarios where CSDR cash penalties would not be triggered according to ESMA include: (i) technical failures at the CSD level, such as system outages, cyberattacks or network disruptions; (ii) full-day trading suspensions of an ISIN on its most liquid market; and (iii) technical creation and redemption of fund units or shares on the primary market, including those related to exchange-traded funds. The EC will consider ESMA's technical advice when preparing a new delegated act supplementing CSDR further specifying the scope of operations and transactions subject to the settlement discipline regime.

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