The Commission's proposal to set up a European common regulatory framework for the institutions responsible for securities settlement, called Central Securities Depositories (CSDs) is part of the part of its ongoing efforts to create a sounder financial system.

The European Commission has presented a proposal aimed at bringing more safety and efficiency to securities settlement in Europe. In particular, it intends to set up a European common regulatory framework for the institutions responsible for securities settlement, called Central Securities Depositories (CSDs). The Commission consulted on this topic on January 2011.

According to the proposal, the settlement period will be harmonised and set at a maximum of two days after the trading day for the securities traded on stock exchanges or other regulated markets. Market participants that fail to deliver their securities on the agreed settlement date will be subject to penalties, and issuers and investors will be required to keep an electronic record for virtually all securities, and to record them in CSDs if they are traded on stock exchanges or other regulated markets. In addition, CSDs will have to comply with strict organisational, conduct of business and prudential requirements to ensure their viability and the protection of their users. Finally, authorised CSDs will be granted a 'passport' to provide their services in other Member States, and users will be able to choose between all 30 CSDs in Europe.

At the moment, CSDs are still regulated only at national level, and cross-border settlement is less safe (failure for cross-border transactions can reach up to 10% in certain markets) and efficient than domestic settlement: costs are up to four times higher. The Commission's proposal now passes to the European Parliament and the Council for negotiation and adoption.