Secondary Markets
Secondary Markets
by Andy Hill and Elizabeth Callaghan
CSDR mandatory buy-ins On 23 September 2021, Anneli Tuominen, interim Chair of ESMA, wrote to European Commissioner Mairead McGuinness supporting a postponement of the mandatory buy-in regime and requesting urgent action to provide a signal that a modification of the current implementation timeline is being considered. The letter asks for clarification of a delay, ideally by the end of October 2021. Currently, mandatory buy-ins are due to come into force as part of the CSDR settlement discipline (SD) package on 1 February 2022. This is broadly viewed as a positive outcome following months of engagement by ICMA and others with various EU regulatory authorities and policy makers to push the case for a delay to the implementation of the mandatory buy-in (MBI) regime in order to review the framework and to undertake any necessary revisions. ICMA and the wider industry have consistently pointed to several elements of the MBI framework that could be challenging, if not impossible, to implement in practice. ICMA has also been among the most vocal in highlighting, and evidencing, the potential negative impacts of the regime for bond market liquidity and stability. The European Commission is currently undertaking a review of the MBI provisions, as part of the CSDR Targeted Review, including an impact assessment. It is widely expected that this will result in substantive changes to the buy-in regime, which in turn will have implications for the industry’s implementation efforts, not least the significant contractual remediation required to support its enforcement across multiple transaction types, markets, and global jurisdictions. Any legislative proposals following the review are expected toward the end of 2021 or early 2022 and would most likely come into force sometime in 2022 at the earliest. It is therefore imperative that the current MBI provisions do not go ahead as scheduled, and that sufficient time is given for the industry to implement the revised MBI regime. Better still would be that the MBI regime is suspended indefinitely and that the other components of SD are given adequate time to be implemented, assessed, and refined.
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It is now hoped that the European Commission will announce to the industry its intention to delay MBI implementation and give sufficient comfort that current implementation efforts can be put on hold. Meanwhile it is expected that the EU colegislators will find a way to decouple MBIs from SD, thereby allowing its other components, including cash penalties, to go ahead as scheduled in February 2022. ICMA has put its implementation efforts on hold in anticipation of imminent clarification from the European Commission. Concurrently, it is spearheading a number of initiatives aimed at improving settlement efficiency in the European bond and repo markets (see Repo and Collateral Markets Section). The ICMA CSDR-SD Working Group will also focus on ensuring the successful implementation of the CSDR cash penalty regime. Meanwhile, ICMA will continue to ensure that its longstanding buy-in rules, part of the ICMA Rules and Recommendations, remain an effective and efficient contractual remedy for settlement fails in the international bond markets. Contact: Andy Hill andy.hill@icmagroup.org
