ICMA has responded to the ESMA consultation on the EU CSDR Penalty Mechanism


29 February 2024 ICMA has responded to the ESMA consultation on the EU CSDR Penalty Mechanism.

ICMA and its members welcome the opportunity to review the EU CSDR Penalty Mechanism and to make constructive suggestions to enhance its effectiveness. However, it is disappointed that the proposals put forward in the consultation are not only disproportionate in their calibration but are unsupported by any data or analysis.

ICMA and its members support industry and regulatory efforts to improve settlement efficiency across the EU bond markets. This includes the potential of a penalty mechanism to help to address the subset of “behavioural fails” in very low interest rate environments, highlighting the strong correlation between significant improvements in settlement efficiency and short-term rates in the EU over the past two years. In its response, ICMA points to the US TMPG Penalty Framework as a proportionate and effective mechanism. ICMA’s modelling of settlement efficiency rates in the EU suggests that a longer observation period is necessary in order to identify the effectiveness of a penalty mechanism, as well as the appropriate calibration.

In the meantime, ICMA looks forward to ESMA consulting with stakeholders on other tools to improve settlement efficiency. It is here that ICMA and its members believe that a meaningful and sustainable improvement to EU settlement efficiency can be made, far beyond the relative limitations of a penalty mechanism. In addition, we would also very much welcome a renewed focus of the EU authorities on the important structural barriers to further post-trade integration and consolidation that persist in the EU, and which have been well documented since the early 2000s.

View response here.

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