Secondary Markets
Secondary Markets
by Andy Hill, Elizabeth Callaghan and Irene Ray
CSDR mandatory buy-ins Hope for the best On 29 June 2021, the European Commission published its keenly anticipated report to the European Parliament and the Council on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012. The report provides little detail with respect to Settlement Discipline and the mandatory buy-in (MBI) regime. However, it does state that it is appropriate to consider proposing certain amendments, subject to an impact assessment, to avoid potential undesired consequences. Respondents to the December 2020 European Commission’s consultation, part of its Targeted Review of CSDR, highlighted both the need to make important structural revisions to the MBI framework before attempting implementation, as well as the potential for adverse and disproportionate market impacts, particularly during times of market stress. These points were outlined in ICMA’s response, which builds on years of analysis and review of the MBI regime. While the problems with the design of the MBI framework are well documented and broadly understood, the report provides little indication of what any proposed amendments to the regime could be. Importantly, it is also not clear whether the conclusions of the report form a strong enough legal basis for ESMA to propose a delay to the existing implementation schedule. This may require concrete legislative proposals from the Commission, following the cited impact assessment, and therefore unlikely to be before late 2021, noting that MBIs are due to come into effect in early 2022.
Prepare for the worst In light of this ongoing regulatory uncertainty around CSDR MBIs, even following the Commission’s report, and the relatively short time until “go live”, ICMA is working with its members and other industry bodies to find a pragmatic solution to comply with the extensive contractual requirements under Article 25, across a broad range of markets and products. PAGE 28 | IS S U E 62 | THIRD QUARTER 2021 | ICMAGROUP.ORG
Without confirmation of a delay to implementation, contractual compliance is widely anticipated to involve a two-phase approach, with a second round of industry repapering following any revisions to the Regulation as well as eventual clarification on a number of critical issues. This second contractual phase is expected to include the production of an annex to the GMRA to support compliance specific to in-scope repo transactions. With respect to cross-border bond markets, ICMA expects to update its Buy-in Rules (part of the ICMA Secondary Market Rules & Recommendations) to provide a contractual framework and market best practice in time for the 1 February 2022 “go live”, before making further revisions following any changes to the Regulation. In the meantime, ICMA will continue to discuss with relevant authorities the challenges arising from the design of the MBI framework, as well as the lack of clarification needed to facilitate successful implementation. In doing so, ICMA will continue to put forward the case for making the necessary amendments to the Regulation before attempting implementation, even if this means a further delay. Importantly, ICMA will also continue to flag its members’ concerns about the potential impacts of MBIs on European bond market pricing and liquidity, which will put European bond markets at a disadvantage to other international markets. Contact: Andy Hill andy.hill@icmagroup.org
ECB corporate bond purchases Purchases under the ECB’s Corporate Sector Purchase Programme (CSPP) remained steady during April and May 2021, with €5 billion and €5.4 billion net purchases respectively (versus an average monthly rate of €5.4 billion since March 2020). This takes total net cumulative purchases under the CSPP to €276.5 billion (of which €61.7 billion, or 22%, are primary market purchases, and €214.8 billion, or 78%, are secondary). Including the €31 billion purchases of corporate bonds under
