Secondary Markets
Secondary Markets
by Andy Hill and Elizabeth Callaghan
CSDR cash penalties On 1 February 2022, the CSDR cash penalty regime went live. The penalty framework requires EU regulated (I)CSDs and CCPs to levy cash penalties on participants who fail to settle a transaction, while crediting the equivalent amount to the non-failing party. The penalties which are specified in Level 2 regulation, are an ad valorem fee based on the current market value of the failing securities, and are applied on every business day for the duration of the failed settlement. The applied penalty fee varies depending on the underlying asset class. Leading up to the launch of the “go-live”, members of ICMA’s CSDR-SD Penalty Workstream (a sub-group of ICMA’s CSDR Settlement Discipline Working Group) had raised concerns about inconsistencies with the previous month’s market “dry run” intended to identify any challenges with the reporting processes of the various EU CSDs and ICSDs. While there was intense focus among all stakeholders on addressing many of these issues, it was widely anticipated that the first month of the go-live would be fraught with implementation difficulties. As we rolled into March, and the 14 March deadline passed for CSD participants to file appeals to the CSDs for incorrectly processed penalties, as per the daily penalty reports provided by CSDs, and as the 18 March date for CSDs to send out their monthly aggregate reports approached, it became clear that a successful application of the monthly penalty collections and redistributions would not be possible on the scheduled date of 23 March. On 17 March, the European CSD Association (ECSDA) announced that an industry proposal, led by AFME and supported by ICMA, to delay the collection and redistribution process had been accepted by ESMA. Accordingly, CSDs would have an extended period in which to send out their monthly reports (up to 30 March), with the collection and redistribution process deferred until 13 April. The hope was that the delay would be a one-off, and that the penalty process would be back on track from April (with respect to March). However, concerns remain that, while many of the issues are being addressed, a possible delay to
the March collection and redistribution process should not be ruled out. ICMA continues to monitor closely the roll-out of the CSDR penalty regime, while supporting its successful implementation for the bond and repo markets, including through the publication and updating of FAQs and Best Practice Recommendations. Contact: Andy Hill andy.hill@icmagroup.org
ICMA’s recommendations on MiFIR bond transparency regime Toward the end of 2021, the European Commission published its proposed amendments to MiFIR as part of the overall CMU package announcements. ICMA welcomed the announcements regarding the establishment of a consolidated tape and the fact the Commission has planned for one consolidated tape per asset class. This is particularly welcome news for bond traders and investors. However, in order to create a well-functioning and competitive EU bond market, ICMA has suggested modifications to some of the European Commission’s proposals. These recommendations concern pre- and posttrade transparency as well as the analysis required for a successful bond consolidated tape. The following outlines ICMA’s views and recommendations regarding the appropriate bond market transparency regime and its vehicle, the consolidated tape.
Pre-trade transparency Market participants broadly agree MiFIR pre-trade transparency is not desired or used in bond market trading. ICMA considers that the European Commission and ESMA should recognise the importance of pre-trade pricing distribution definitions1 and best practice, as illustrated
1. Bond pricing distribution standardised definitions: Cash bonds – corporates & sovereigns: PAGE 32 | IS S U E 65 | SECOND QUARTER 2022 | ICMAGROUP.ORG
