September 27, 2018

ESMA updated its questions and answers (Q&As) on the Benchmarks Regulation and the Central Securities Depository (CSD) Regulation. The updated Q&As provide answers to questions regarding practical issues on the implementation of the Benchmarks Regulation and the new CSD Regulation regime.

The Benchmarks Regulation, which entered into force on January 01, 2018, introduces new compliance requirements for benchmark administrators, contributors, and users, with regard to interest rate, foreign exchange, security, commodity, and other benchmarks used in financial transactions. The added Q&As on Benchmarks Regulation provide clarifications about the following topics: 

  • When the written plan to be produced by users of benchmarks should be considered robust and how such plans should be reflected in the contractual relationship with clients
  • The reference to systematic internalizer in the definition of financial instruments
  • When banks issuing certificates classify as users of benchmarks
  • Why NAV of investment funds should be considered input data and not benchmarks
  • The application for endorsement of family of benchmarks
  • The language of benchmark statements

The aim of CSD Regulation is to harmonize certain aspects of the settlement cycle and settlement discipline and to provide a set of common requirements for CSDs operating securities settlement systems across EU. The latest batch of Q&As on CSD Regulation cover the following topics:

  • Book-entry form requirements—The Q&A specifies the scope and timing of application of the requirement in Article 3(2) of CSDR to dematerialize certain transferable securities when they are transferred as collateral.
  • Organizational requirementsThe Q&A concerns the scope of the services and activities of a CSD covered by the requirements set out in Article 30 of CSD Regulation on Outsourcing.
  • Settlement DisciplineESMA published the first set of Q&As on the settlement discipline issues following the publication of Commission Delegated Regulation (EU) 2018/1229 on settlement discipline. The updated Q&As covers four issues in this area:
    • Frequency of the update of the exchange rate used to determine the tolerance level for settlement instructions in currencies other than EUR
    • Scope of the joint management of the penalty mechanism for CSDs which use a common settlement infrastructure
    • Clarification that the use of a common framework or rulebook is not sufficient to comply with the requirement for joint management of the penalty mechanism by CSDs using a common settlement infrastructure
    • Possibility for CSDs to perform bilateral netting of cash penalties, as long as it is followed by the aggregation of the amounts resulting in one credit and one debit amount per CSD participant

 

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Keywords: Europe, EU, Securities, Q&A, Benchmarks Regulation, CSD Regulation, ESMA

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