The European Commission has launched a public consultation in order to gather opinions from stakeholders regarding Central Securities Depositories (CSDs) and the harmonisation of certain aspects of securities settlement in the European Union. This consultation whose results will inform the legislative proposals due in June 2011, will be open for participation until 1 March 2011.

The Commission's initiative to set common rules for Central Securities Depositories (CSDs) and securities settlement represents an important part of the agenda to enhance the safety and soundness of the financial system. Together with the proposal for a Regulation on "OTC derivatives, central counterparties and trade repositories" (EMIR) adopted by the European Commission on 15th September 2010 and the Markets in Financial Instruments Directive (MiFID, currently under review), it will form a framework in which systemically important securities infrastructures such as trading venues, central counterparties, trade repositories and central securities depositories are subject to common rules on a European level.

These new rules aim to increase the safety and efficiency of the internal market for securities transactions, by introducing harmonisation of key aspects of securities settlement. They will try to fully remove the barriers to an efficient market for services emerging after a trade has taken place, i.e. post trading.

Key elements of the Consultation on CSDs and harmonisation of securities settlement

Common regulatory framework for CSDs

CSDs in the European Union should operate under a common regulatory framework that ensures the robustness of their operation. Such a framework should include common definitions of CSD services, common rules on authorisation on ongoing supervision of CSDs, high prudential standards for CSDs and rules on access and interoperability. The Consultation seeks stakeholders' comments on the proper design of such a common regulatory structure.

Harmonisation of key aspects of securities settlement

• The consultation also asks what measures could be taken to address concerns relating to the well-functioning of securities settlement. It seeks stakeholders' input on how to improve settlement discipline, i.e. that a transaction actually settles on the intended settlement date. This question is linked to the Proposal for a short selling regulation adopted by the Commission of 15 September 2010 which already foresees specific measures arising from patterns that factor in late settlement into a trading strategy.
• Another important aspect of the consultation concerns the harmonisation of settlement periods, i.e. the time between the conclusion of a transaction and settlement. Currently, European securities markets do not follow a common settlement period (e.g. for equities, regulated markets either settle two days or three days after trade (T+2 or T+3)).

The Consultation on central securities depositories (CSDs) and on the harmonisation of certain aspects of securities settlement in the European Union, will be open for participation until 1 March 2011.