In comparison to the US, European corporations tap the capital markets to a much lesser extent, preferring to borrow directly from banks. Settlement inefficiency across the EU is seen as one reason for this and the comprehensive set of measures contained in ESMA’s Central Securities Depository Regulation (CSDR) is an attempt to address this.
This is not a new concept — the drive for reduced settlement cycles and associated sanctions have been gaining momentum for many years. Where CSDR departs from these historical attempts is with the scope and scale of measures to be implemented over multiple years, while attributing significant responsibility to those closest to the process, central securities depositories (CSDs), to police the activity. CSDR adopts an extensive arsenal of “incentives” to motivate market participants to elevate their back and middle-office activities in order to avoid penalty.
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