(1)

Regulation (EU) 2025/2075 of the European Parliament and of the Council (2) amended Article 5(2) of Regulation (EU) No 909/2014 by removing buy-sell back transactions and sell-buy back transactions from the scope of that provision. It is therefore necessary to update the list of transaction types, laid down in Article 2(1) of Commission Delegated Regulation (EU) 2018/1229 (3), that are to be submitted as part of written allocations.

(2)

Experience gained since the date of application of Delegated Regulation (EU) 2018/1229 has highlighted the importance of aligning, to the greatest extent possible, the data fields required for allocations and confirmations with those required for settlement instructions. That experience has also demonstrated that, to avoid late-stage adjustments which are particularly critical in the context of a shortened settlement cycle, the place of settlement should be communicated as early as possible in the settlement process.

(3)

To ensure that transactions can be settled without delay, investment firms should require their professional clients to provide accurate and up-to-date static or reference data, including information on the accounts to which financial instruments and cash are to be credited, the relevant market or place of settlement, and the custodians or intermediaries through which communication is to be routed sufficiently in advance of the intended settlement date. For the same reason, that requirement should also apply to settlement information sent by retail clients.

(4)

To maintain high settlement efficiency as transaction volumes increase, and to ensure the timely settlement of trades, the widespread use of straight-through processing (STP) across the market should be ensured. To that end, both direct and indirect market participants should have in place the necessary internal automation to fully benefit from available STP solutions. It is therefore appropriate to replace the current possibility for professional clients to send written allocations and confirmations electronically with a requirement for investment firms to ensure that such communications are transmitted in an electronic and machine-readable format.

(5)

Furthermore, the benefits of STP cannot be fully realised where market participants continue to use proprietary or domestic messaging standards, while central securities depositories (CSDs) operate on the basis of international open communication procedures and standards. To promote interoperability and efficiency, the use of international open communication procedures and standards for messaging and reference data should be extended to the transmission of allocations and confirmations.

(6)

The move to shorter settlement should not lead to large-scale migration of settlement from trading venues to over-the-counter markets. That is why CSDs and their participants should use a field indicating the place of trading in their settlement instructions to support monitoring and reporting of settlement fails.

(7)

Regulation (EU) 2025/2075 amended Article 5(2) of Regulation (EU) No 909/2014 by reducing the settlement period from two business days after the trading takes place to one business day. That amendment necessitates adjustments throughout the post-trade process, and in particular as regards the existing possibility under Article 2(2), point (b), of Delegated Regulation (EU) 2018/1229 for professional clients to provide written allocation and written confirmations to investment firms by 12.00 CET on the business day following that on which the transaction has taken place. Timely submission of settlement instructions is essential to enable CSDs to improve operational efficiency and maximise netting in view of the transition to a T+1 settlement cycle. In that context, some CSDs operate settlement phases during which optimisation algorithms are used to settle as many transactions as possible. CSDs should encourage participants willing to benefit from such optimisation to submit their settlement instructions before 23:59 CET on the trade date. However, the submission of settlement instructions after that time should not prevent CSDs from processing those settlement instructions, nor give rise to the application of cash penalties, which only apply when the conditions of Article 7(2) of Regulation (EU) 909/2014 are met.

(8)

To further support settlement efficiency and to be compatible with the acceleration and automation required for a shortened settlement cycle, all CSDs should offer a functionality that enables automatic partial settlement. However, as that functionality is not necessary in all cases, participants to the transactions should have the possibility to opt out of that functionality.

(9)

Different modes of settlement offer distinctive benefits. Real-time gross settlement minimises counterparty risk and credit exposure and liquidity can be managed more effectively, while settlement batches allow operational efficiencies by netting. CSDs should therefore offer one of the three possibilities: real-time gross settlement, at least three settlement batches per business day, or a combination of both.

(10)

CSDs should have sound and efficient system functionalities, policies and procedures that enable them to facilitate and incentivise settlement on the intended settlement date. The effective contribution to settlement efficiency by auto-partial settlement and by the hold and release functionalities has become evident since the application of the settlement discipline regime. It is therefore appropriate to remove the derogation from certain measures to prevent settlement fails, laid down in Article 12 of Delegated Regulation (EU) 2018/1229.

(11)

The provision of intra-day cash credit secured with collateral in central bank money or in commercial bank money provides significant liquidity for settlement. Those benefits could be of the upmost importance during the initial implementation of shorter settlement. That is why CSDs should facilitate access by their participants to the provision of intra-day cash credit secured with collateral via an automated collateralisation functionality. That requirement should not apply to CSDs holding a banking licence that directly provide their participants with intra-day cash credit secured with collateral, rather than merely facilitating access to such functionality.

(12)

To enable CSDs to identify the root causes of settlement fails, CSDs should require participants to inform them about the main reasons for such settlement fails and about the measures taken to prevent such settlement fails. In addition, in light of the changes introduced by Regulation (EU) 2025/2075 which tasks the European Securities and Markets Authority (‘ESMA’) with closely monitoring the settlement efficiency of securities financing transactions traded on or outside trading venues, it is necessary to add buy-sell back transactions and sell-buy back transaction to the list of transactions to be part of settlement fails monitoring.

(13)

To establish working arrangements with participants to reduce settlement fails, CSDs should be able to identify participants whose settlement fails may have a significant impact. To identify such participants, a CSD should take into account the share of a participant’s settlement fails in the total volume and value of settlement instructions processed at the level of the securities settlement system operated by the CSD. If not, smaller participants with few transactions may find themselves in the top failing participants list if their settlement fail rate is considered in absolute terms.

(14)

Monitoring and addressing settlement fails is a common effort involving the competent and relevant authorities, CSDs and their participants. CSDs should therefore regularly inform the competent authority and relevant authorities about the evolution of settlement fails in the settlement system they operate and about the measures they have undertaken to address those settlement fails. For the same reason, CSDs should ensure that their participants undertake planned efforts to improve settlement efficiency.

(15)

To allow for a more detailed monitoring of settlement efficiency, CSDs should report top failing participants in terms of volume and value of settlement instructions processed. For the same reason, CSDs should report settlement fails data by taking into account more granular categories of transactions, irrespective of whether the transactions are executed on or outside of trading venues and the duration of settlement fails by type of financial instruments.

(16)

In light of the principle of simplification and burden reduction, it is important to avoid any potential duplications in the reporting requirements. For that reason, and given that the information is already covered in the monthly reports that CSDs have to submit, the requirement for CSDs to submit annual reports on settlement fails should be removed. Where necessary, the competent authority should be able to request more frequent reporting and additional information on settlement fails from the CSD.

(17)

To ensure a higher level of transparency, CSDs should publish settlement fails data by type of financial instrument, the main reasons for settlement fails, and the proposed measures to address them.

(18)

The structural and organisational adjustments required by the transition to a shorter settlement cycle necessitate a differentiated approach to the dates of application of the various provisions of this Delegated Regulation. More in particular, the date of application should be deferred for provisions that contain requirements that involve IT developments, including CSDs’ functionalities aimed at enhancing settlement efficiency. At the same time, provisions introducing shorter timeframes for pre-settlement processes that support the transition to a T+1 settlement cycle should start to apply at an earlier stage so that market participants have sufficient time for testing well in advance of the move to T+1.

(19)

Other amendments, and more specifically those concerning the reporting and disclosure of settlement fails data by CSDs, should start to apply a few months ahead of the move to T+1 laid down in Article 5(2) of Regulation (EU) No 909/2014. Because ESMA is to report on settlement efficiency upon request from the Commission, adequate information about settlement fails before and after the transition to T+1 is critical. In that context, sufficient time should be given to CSDs and market participants to enable them to report data in line with the additional parameters laid down in Annex I and II to this Delegated Regulation, while providing for a sufficiently long observation period to meaningfully assess the impact on settlement efficiency, prior to and after the move to shorter settlement.

(20)

Delegated Regulation (EU) 2018/1229 should therefore be amended accordingly.

(21)

This Regulation is based on the draft regulatory technical standards submitted to the Commission by ESMA.

(22)

ESMA has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits as part of the consultation paper and requested the advice of the Securities and Markets Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council (4). Furthermore, in developing its recommendations ESMA engaged with the Market Infrastructure and Payments Committee of the European System of Central Banks (ESCB), in accordance with Article 10 of Regulation (EU) No 1095/2010,

(1)

Article 2 is amended as follows:

(2)

Article 3 is replaced by the following:

(3)

Article 5 is amended as follows:

(4)

in Article 8, point (b) is replaced by the following:

(5)

Article 10 is replaced by the following:

(6)

in Article 11, paragraph 4 is replaced by the following:

(7)

Article 12 is replaced by the following:

(8)

Article 13 is amended as follows:

(9)

Article 14 is replaced by the following:

(10)

Article 23 is replaced by the following:

(11)

Annex I to Delegated Regulation (EU) 2018/1229 is amended in accordance with Annex I to this Regulation;

(12)

Annex II to Delegated Regulation (EU) 2018/1229 is deleted;

(13)

Annex III to Delegated Regulation (EU) 2018/1229 is amended in accordance with Annex II to this Regulation.