The CSDR regulation was designed by ESMA in response to the growing public demand for transparency in transactional flows since the 2008 crisis.
The following entities are concerned:
The following instruments that are potentially traded and/or cleared in the EU/EEA area:
The reference text published by ESMA (No. 909/2014) came into force in February 2022. Given the impossibility of enforcing the entire regulation, ESMA published a number of relaxations in March 2022, including non-regulated derivatives, review of the mandatory buy-in principle, and review of penalty application and rates.
Central depositories (Euroclear, Clearstream, etc.) have delegated the monitoring of settlement obligations to local global custodians (BP2S, Caceis, SGSS, etc.). In reality, custodians have devised a strategy to address the issue from their point of view and to suit their needs, setting up automated "partialisation" as a default rule. They thereby protect themselves from the risks of penalties provided for by the new regulation instead of their clients whom the regulation was meant to protect.
If custodians fail to use all the means at their disposal to unwind their clients' settlement instructions, they are obliged to pay penalties to their clients to cover their losses due to late delivery and the cost of redemption as participants in the market regulated by their clearing house (LCH clearnet, etc.). By a domino effect, a rule that is supposed to protect clients (final investors) forces the latter to be subject to the regulation instead of the upstream players in the settlement/delivery chain.
Custodians put forward their interpretation of the regulatory text, with automated "play-by-play partialisation" by default for any settlement/delivery defaults on their clients' securities or cash positions.
JUMP carried out regulatory intelligence, well before ESMA's announcement on CSDR in 2014. Until January 2022, major custodians were communicating a default behaviour of "non-partialised" at the start of CSDR and identified impacts identified were on SSI and Swift communications. In February 2022 JUMP detected the first functional impacts in production.
Having identified these early impacts, JUMP worked to provide users with a solution that would allow them to stop and identify flows, giving them the necessary tools to comply with the regulation.
The JUMP solution allows for complete automation of the partialisation process (from order placement to reconciliation).