A brave new SDR world?

25 February 2022

With the Central Securities Depositories Regulation (CSDR) Settlement Discipline Regime (SDR) having come into force on 1 February 2022, mandatory buy-ins for market participants that fail to settle a trade within a set period was postponed. flow provides a summary of the impact

On 1 February 2022, the Central Securities Depositories Regulation (CSDR)’s Settlement Discipline Regime (SDR) finally came into force – following two major changes to the deadline, which together amounted to a delay of nearly two and a half years.

The SDR affects all actors in the securities lifecycle, from investors to central securities depositories (CSDs), aiming to improve the safety and efficiency of securities settlement in the European Economic Area (EEA). To achieve this, the SDR introduces a set of measures to prevent and address failures in the settlement of securities.

These include a series of operational discipline measures designed to minimise settlement failures, such as stronger reporting requirements to encourage more timely and accurate information flow, and tighter inventory management controls. Where settlement fails do occur, they will now be subject to SDR’s cash penalties, depending on the reason for the failure and the size of the transaction.1

No buy-in regime

One measure, however, was conspicuous by its absence when the regulation finally entered into force, following significant amendments to the original plan just a few months before implementation.

In a statement published in December 2021, ESMA called for “urgent change in CSDR to allow postponing the application date of the buy-in regime”.2 This refers to initial plans to enforce a mandatory buy-in for market participants that fail to settle their trades within a set period. Throughout the Covid-19 period, the industry has been rallying for just such a delay to the implementation of these rules – with some participants even arguing that the rules should be made voluntary.3

The industry is now awaiting confirmation of the details of the postponement, including how long it will last – though informal indications point to a delay of two to three years.4 The official announcement, however, will involve a regulatory amendment – and it is unclear how long this will take.5

Mike Clarke"The implementation of CSDR penalties has gone relatively smoothly so far across the industry participants"
Mike Clarke, Global Head of Product Management, Securities Services at Deutsche Bank

Despite the noise in the industry, it is expected that the European Union’s legislators will still proceed with the introduction of a buy-in regime, likely through the previously announced CSDR refit scheduled for April 2022 – a pre-planned revision of the rules to adjust and correct them based on monitoring and feedback. There is hope within the industry that this process will see the buy-in rules benefit from meaningful revision and clarification of scope.6

How has the market responded?

So far, the response from market participants suggests that the implementation has gone relatively smoothly, despite a November 2021 poll of market participants conducted by the Securities Finance Times, which found that just 21% of respondents considered themselves completely ready or almost ready for the transition.7

“The implementation of CSDR penalties has gone relatively smoothly so far across the industry participants, albeit with some small challenges in the timing of daily reporting,” reflects Mike Clarke, Global Head of Product Management, Securities Services at Deutsche Bank. He continues, “As penalty regime beds in, the key test of the success of the regulation will be how participants in the value chain can use available settlement efficiency measures to ultimately reduce fails and minimise penalties.”

The reception has not been universally positive, however, with Pardeep Cassells, Head of Financial Products at AccessFintech, highlighting concerns of market participants having to deal with “duplication and straightforward miscalculation”.8

Whether these issues will come to light more as the reality of cash penalties hits home, or whether firms will be able to tighten their processes to better adapt to the new requirements, remains to be seen.

Between this and the potential reintroduction of mandatory buy-in rules, there is still plenty to watch out for in the SDR space.


1 See https://bit.ly/35hAhhT at corporates.db.com
2 See https://bit.ly/3JRPjtC at esma.europa.eu
3 See https://bit.ly/3IjzOu3 at securitiesfinancetimes.com
4 See https://bit.ly/3shVHoi at simmons-simmons.com
5 lbid.
6 See https://bit.ly/3JPfxNp at assetservicingtimes.com
7 See https://bit.ly/3Haf86F at securitiesfinancetimes.com
8 lbid.

Stay up-to-date with

Sign-up flow newsbites

Choose your preferred banking topics and we will send you updated emails based on your selection

Sign-up Sign-up

Subscribe Subscribe to our magazine

flow magazine is published twice per year and can be read online and delivered to your door in print

Subscribe Subscribe



CSDR: The final countdown CSDR: The final countdown

In September 2019, we published our CSDR: Settlement discipline regime client toolkit, to help clients prepare for the most impactful aspects of the new regulation. While the implementation date was subsequently pushed back, challenges remain ahead of the revised date of 1 February 2022. Our new toolkit provides an update on where we stand on this journey

CSDR: The final countdown More


CSDR: Settlement discipline regime client toolkit CSDR: Settlement discipline regime client toolkit

The Settlement Discipline Regime (SDR), a key element of the Central Securities Depositary Regulation (CSDR), comes into force on 14 September 2020. This effectively binds together trade and post-trade. With penalties for poor performance and discipline, all actors in an institution will need to understand their obligations and make the necessary operational changes

CSDR: Settlement discipline regime client toolkit More


Are you ready for CSDR? Are you ready for CSDR?

Contrary to what its name suggests, the Central Securities Depository Regulation (CSDR) is not just a regulation for CSDs. In fact, its requirements impact every participant in the post-trade value chain. As a provider of local custody services, Deutsche Bank sees the regulation as more than a compliance exercise, but an opportunity for the entire industry to come together and work on existing inefficiencies in the settlement space

Are you ready for CSDR? More