The Depository Trust & Clearing Corporation. Euro CCP Ltd. Contact person: Andrew Douglas Head of Public Affairs, Europe

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Solomon Maxwell
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2011 Response from The Depository Trust & Clearing Corporation Euro CCP Ltd.

1 Central Securities Depositories (CSDs) and the harmonisation of certain aspects of securities settlement in the European Union Consultation 1st March 2011 Response from The Depository Trust & Clearing Corporation Euro CCP Ltd. Contact person: Andrew Douglas Head of Public Affairs, Europe Page 1

2 Introduction The Depository Trust & Clearing Corporation (DTCC) thanks the European Commission for providing the opportunity for industry participants and practitioners to provide direct input to the development of legislation in a critical area of the European financial markets. As DTCC does not provide settlement or depository services within the EU and there is no content relevant to 3 rd country operators of depository services, we have restricted our comments to the area of harmonisation dealt with in Section II. DTCC/EuroCCP is represented on the Harmonisation of Settlement Cycles Working Group (HSC WG) and our comments are in line with the detailed recommendations made by that group in its answer to this consultation. We commend the submission of the HSC WG to the Commission for a more detailed response on several of the questions within the consultation. As with other legislation and regulation under consideration by within the EU, we reiterate our belief that it is critically important that European and US legislation is harmonised in order to avoid the potential for regulatory arbitrage. In drafting this response, DTCC has drawn on its almost 40 years of experience in operating CCPs and a central securities depository in the world s largest cash market. Page 2

3 Section II Harmonisation of certain aspects of securities settlement in the European Union Q44) According to you, is the above described harmonisation of key post trade processes important for the smooth functioning of cross-border investment? Yes? No? No opinion? If yes, please provide some practical examples where the functioning of the internal market is hampered by absence of harmonisation of key post trading processes. If no, please explain your reasoning. The harmonisation of the key processes defined in the consultation is critical to the smooth functioning of cross-border investment. If harmonisation is not achieved and, for example, different settlement discipline regimes continue to exist across the European Union, then the same security settling in different markets (CSDs) could have a different penalty and buy-in regime applied to it in each different market. Europe requires greater harmonisation and less fragmentation to make it as efficient as other global markets. Q45) Do you identify any other possible area where harmonisation of securities processing would be beneficial? In addition to the benefits to T2S, Corporate Actions processing would also benefit from settlement harmonisation to avoid confusion around critical entitlement dates. Q46) According to you, is a common definition of settlement fails in the EU needed? Yes? No? No opinion? Please explain why. If yes, what should be the key elements of a definition? A common EU definition of a settlement fail is needed. The simplest way to define a settlement fail is as a securities trade that fails to settle on the intended settlement date, no matter what the reason. Once a common definition is agreed, it can be used to standardise collation of data on settlement fails across the EU. This data can then be used by regulators, participants and market infrastructures to assess risk and identify areas where both regulatory and selfregulatory market discipline measures are required. Q47) According to you, should future legislation promote measures to reduce settlement fails? Yes? No? No opinion? If yes, how could these measures look like? Who should be responsible for putting them in place? If no, please explain. Future legislation should be used to promote the reduction of settlement fails. Harmonisation of buy-in regimes is an example where it would assist the market to understand when a buy-in will occur. Page 3

4 EuroCCP currently utilises a specific buy-in regime per market cleared and today operates 9 separate buy-in regimes. The various timelines and schedules are dictated by the primary stock exchange, primary CCP or primary CSD. We would support the introduction of a harmonised Pan European process and are actively involved in working group discussions in Brussels to support a harmonised buy-in process with a suggested a deadline of SD+5. Q48) What do you think about promoting and harmonising these ex-ante measures via legislation? We do not believe that the sole use of legislation is necessarily the best way to promote and harmonise settlement discipline and market standards. We would like to see the involvement of industry groups such as ECSDA, ESF and AFME for example, in the achievement of these goals. 49) What do you think about promoting and harmonising these ex-post measures via legislation? See above answer to Q48. 50) According to you, is there a need for the harmonisation of settlement periods? Yes? No? No opinion? Please explain why There is a need for harmonisation of settlement periods within the EU. As a member of the CESAME sponsored Harmonisation of Settlement Cycles Working Group (HSC WG), we would ask the Commission to refer to the HSC WG s detailed response on this issue, which DTCC fully supports. 51. In what markets do you see the most urgent need for harmonisation? Please explain giving concrete examples We believe that equities and equity-like markets should take priority in relation to harmonisation. 52. What should be the length of a harmonised period? Please explain your reasoning We believe that the harmonisation of the settlement cycle is more important than the duration on which it is harmonised. The majority of European markets use a T+3 cycle and from a CCP perspective this delivers a high settlement rate, currently averaging around 97%. However, we also understand the risk reasons behind why the EU markets should harmonise on the lowest cycle time in the EU, this being T+2. Page 4

5 53. What types of trading venues should be covered by a harmonisation? Please explain your reasoning Settlement cycles should be harmonized no matter what the venue. However there may be circumstances under which transactions or groups of transactions by specific product types, investor categories or due to the nature of the transaction may intentionally not follow the normal cycle (either shorter or longer) and these should not be prohibited by legislation. 54. What types of transactions should be covered by a harmonisation? Please explain your reasoning We believe harmonisation should cover cash instrument trading. We do not believe harmonisation should cover Financing transactions including repos, collateral movements and securities lending. This is because the underlying nature of these activities is very different and the arguments for harmonisation of settlement cycles for standard cash trading largely do not apply to securities financing. 55. What would be an appropriate time span for markets to adapt to a change? Please explain Prior to the implementation of T2S, which is currently scheduled for Sept 2014, to avoid the implementation of multiple settlement cycles within T2S. This is needed to ensure the market has sufficient time to prepare, plan and implement the necessary changes required as part of their preparation for T2S, avoiding redundant investment in the run-up to the implementation of T2S. 56. According to you, how should the principles examined in the communication on sanctions apply in the CSD and securities settlement environment? EuroCCP would support any methods to ensure the rules are followed especially around default situations, to ensure any risk is closed out in a controlled manner. Page 5

Re: Public consultation: CSD s and Harmonisation of Securities Settlement

Re: Public consultation: CSD s and Harmonisation of Securities Settlement To: European Commission DG Markt G2 D(201) 8641 Rue de Spa Brussels BE 1049 by email to: markt-consultation-csd@ec.europa.eu March 1 st 2011 From: Omgeo Ltd 33 Aldgate High St London GB - EC3N 1DL For