While the main result of the Central Securities Depositories Regulation has been to harmonize settlement processes and systems across Europe, regulation article 9 sets rules on how to report trades settled outside formal settlement systems Central Securities Depositories (CSD) and Central Clearing Counterparties (CCPs). This will provide regulators with a comprehensive overview of the securities settlement and settlement infrastructure, allowing regulators to manage risks and to improve safety in the markets.
The report contains aggregated volumes and values in total and per asset class. In reporting volumes and values a distinction between professional and non-professional customers is made. Additionally, the share of failed settlements is to be disclosed.
The reporting obligation is quarterly reporting and will enter into force on March 10 2019. Reporting date is the 10th working day of the month, thus the first reporting day is July 12, 2019.
ESMA’s guidelines, published on March 28 2018, provide examples on how to report the requirements of article 9 correctly. The reporting scope is wide from an asset class perspective, and besides buys and sells also e.g. collateral management operations and securities lending transactions are in scope of reporting. To name a few other examples, ESMA has highlighted transactions covered by the directive to include transfers of securities between two accounts of the same client without involvement of CSD. The example below by ESMA highlights a case, where the settlement internaliser has one omnibus account at CSD and customers deliver securities from one to another within the omnibus account. CSD is not involved in the transaction and therefore the transaction is in scope of internalised settlement reporting.
Example: The settlement internaliser (SI) has one omnibus account at the CSD, including both client A’s and client B’s securities. SI does not send any instruction to the CSD in relation to the instructions the SI has received from its clients.
Example of reporting (SI reports all internalised settlement instructions (regardless of any possible netting) - SI reports four instructions 200 x2 and 70x2
*ESMA Final Report - Guidelines on Internalised Settlement Reporting under Article 9 of CSDR, p. 30
So, in terms of implementation effort, will CDSR article 9 provide to be the new MIFID 2 transaction reporting? The answers is certainly no, due to a few reasons. First of all, the major point of consideration for market participants is how many trades are in the scope of reporting. This is highly dependent on the individual bank’s group structure and internal settlement processes. Reporting scope is driven by the settlement methodology and therefore each market participant needs to evaluate their settlement flows in each reportable asset class to identify reportable trades. Secondly, end report granularity is different as internalised settlement reporting includes only aggregated figures, not the actual transactions.
Having said that, the European Commission is expecting that the reporting obligation will have significant impact on the market participants as they have stated in the implementing technical standards as follows: “The reporting requirements set out in this Regulation may require significant IT system changes, market testing and adjustments to legal arrangements of the institutions concerned”.
BearingPoint has a unique skill set of business and technological knowledge and can help end-to-end in identifying the reportable trades, streamlining post-trade processes and in reporting to the authorities. BearingPoint’s ABACUS Regulatory Reporting Suite offers solution for internalised settlement reporting amongst all major EU regulatory reporting regimes.