Introduction of new mandatory buy-in regime incl. cash penalties according to the EU CSD Regulation

Release date: 30 Oct 2019

075/2019 Introduction of new mandatory buy-in regime incl. cash penalties according to the EU CSD Regulation Xetra Circular 075/2019

1. Introduction

Regulatory Background

In September 2020*, harmonised standards to increase the settlement discipline for securities transactions will come into force in the European Union as part of the CSD Regulation (Regulation (EU) 909/2014).

The new regulatory framework provides for mandatory cash penalties from the first day of settlement delay, which are automatically debited by the Central Securities Depository (CSD) and credited to the receiving party. In case of centrally cleared transactions, the CCP is expected to handle the payment processing.

In addition, the regulation provides for mandatory buy-ins by a neutral buy-in agent, should the securities delivery fail beyond a certain period. In future, these mandatory buy-ins will affect all types of securities transactions, irrespective of the origin and settlement of the transaction (OTC, on-exchange/MTF, cleared, non-cleared).

Since each Market Participant who processes securities via an EU CSD must be prepared for the situation of a buy-in, Deutsche Börse Group has decided to offer a comprehensive buy-in agent service operated by the newly established company Eurex Securities Transactions Services GmbH, a subsidiary of Eurex Frankfurt AG. Subject to regulatory approval, the solution will provide a high level of standardisation and automation in order to resolve the operational burden which is associated with the new mandatory buy-in process.

The new company is also expected to take over the execution of buy-ins for centrally cleared transactions of Eurex Clearing AG already in June 2020 and will also accept buy-in orders from Registered Customers from non-centrally cleared transactions as of the entry into force of the EU Regulation in September 2020*.

Frankfurt Stock Exchange (Frankfurter Wertpapierbörse, FWB®) is the only stock exchange in Germany which offers already today with its centrally-cleared business (CCP) a high level of post-trade integrity with high settlement efficiency.

*Due to a delayed readiness of T2S enhancements, the settlement discipline regime is expected to enter into force with the SWIFT Standards MT maintenance release on 23 November 2020.

2. Details of the initiative

To implement the buy-in agent, Deutsche Börse is currently building up a new core IT platform. Market Participants of the Deutsche Börse Buy-in Agent will be able to submit buy-in requests to the system via a GUI or an API.

Based on the buy-in requests from its Market Participants, the Deutsche Börse Buy-in Agent will conduct scheduled, automated auctions in order to source the securities from Network Partners and deliver the securities onward to the buyer in the original transaction.

In line with CSDR, service fees charged by the buy-in agent as well as potential price differences shall be borne by the Failing Counterparty in the original transaction.

Network Partners are clients of the Deutsche Börse Buy-in Agent providing liquidity during the scheduled auctions. Network Partners will have to register for this role and will be assigned dedicated User-IDs for their activities in the Network Partner role.

3. Required actions

Usage of the Deutsche Börse Buy-in Agent service will require a contractual relationship with Eurex Securities Transactions Services GmbH, which will offer the new platform from summer 2020, subject to regulatory approval. Currently it is expected that the onboarding of Market Participants and a simulation phase can be started from Q2/2020, in order to give Market Participants sufficient time to get familiar with the service before the Settlement Discipline Regime under CSDR becomes effective.

Deutsche Börse invites all Market Participants, who are

a) interested in the new service to comply with its obligations under CSDR, or

b) interested to provide liquidity as a Network Partner,

to request more detailed information via

Clients who contact the project team through this e-mail address will be registered and will receive updates on the Deutsche Börse Buy-in Agent service exclusively via this channel in the future.

Recipients:All Xetra® Members and Vendors
Target groups:Traders, Back Office, Technical contacts, General
Authorized by:Michael Krogmann, Cord Gebhardt

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