Regulation (EU) No 909/2014 was promulgated on 23 July 2014. It imposes in particular, as from 1 January 2023, the immobilisation or dematerialisation of transferable securities admitted to trading or traded on trading venues. It also imposes the requirement that securities traded on these venues are recorded in book-entry form in a central securities depository. It imposes additional discipline in order to prevent settlement fails. Finally, it regulates the activities of central securities depositories and their supervision and implements a European passport for their activities.
Form and circulation of securities
As from 1 January 2023, securities admitted to trading or traded on trading venues (as defined by MiFID II: regulated market, MTF, OTF) should be represented in book-entry form as immobilisation or subsequent to a direct issuance in dematerialised form (Article 3). Immobilisation means the act of concentrating the location of physical securities in a central securities depository (CSD) in a way that enables subsequent transfers to be made by book entry (Article 2(1)(3) ). Dematerialisation refers to the fact that financial instruments exist only as book-entry records (Article 2(1)(4)).
When transactions in transferable securities take place on a trading venue, the relevant securities must be recorded in book-entry form in a CSD. The same applies when transferable securities are transferred following a financial collateral agreement as defined by Directive 2002/47/EC on financial collateral arrangements (Article 3(1) and (2)).
CSDs must provide for supervision and a penalty mechanism for settlements that fail to occur on the intended date. As regards transactions in transferable securities executed on a trading venue, the intended settlement date must be no later than the second business day after the trading takes place (T+2) (Article 5(2)).
CSDs
A CSD is a legal person that operates a securities settlement system and provides at least one of the following two services: (1) initial recording of securities in a book-entry system ("notary service"), and/or (2) maintaining securities accounts at the top tier level (Article 2(2)(1) and Annex, Section A).
Each CSD will, with some exceptions, be authorised to carry out the regulated activities. It must have "robust governance arrangements" (Article 26) and sufficient financial resources (Article 47).
Member States will designate the competent authorities responsible for the authorisation and supervision of CSDs established in their territory (Articles 10–12).
Each CSD must ensure the integrity of the securities issues submitted to it, in particular by taking reconciliation measures at least daily (Article 37(1)). Debit balances and, more generally, securities creation are not allowed (Article 37(3)). CSDs must segregate the securities of their participants (Article 38). They may not use the securities of their participants without prior express consent and requiring them to obtain any necessary prior consent from their clients (Article 38(7)).
In accordance with Directive 98/26/EC, a CSD must define the moments of entry and of irrevocability of transfer orders in the securities settlement system it operates and the moment the transfers of securities and cash are final (Article 39).
Securities transactions against cash between direct participants in a securities settlement system must be settled on a "delivery versus payment" ("DVP") basis (Article 38(7)). Normally, a cash settlement in such transactions should be settled through accounts opened with a central bank of issue of the relevant currency (Article 40(1)).
Where this settlement mode is not practical or available, the CSD may offer to settle the cash payments through accounts opened with a credit institution or through its own accounts (Article 40(2)). These credit institutions or CSD's are subject to specific prudential requirements for the banking-type ancillary services they provide (Title IV of the Regulation, Articles 54–60).
Entry into force
Regulation No 909/2014 was published in the Official Journal of 28 August 2014. It enters into force, with some exceptions, on the twentieth day following its publication, i.e. on 17 September 2014.
Transitional period
CSDs must apply for the necessary authorisations in order to comply with the regulation within six months from the entry into force of the implementing technical standards establishing standard forms, templates and procedures for the application of authorisation (Article 17(10)) and the regulatory technical standards provided for in Articles 26 (governance), 45 (operational risks), 47 (capital requirements), 48 (CSD links) and, where appropriate, 55 (provision of banking-type ancillary services) and 59 (prudential requirements in the case of provision of such services).
Until the decision on the authorisation is made, the CSD continues to be subject to national regulations applicable to its activities (Article 69(4)).
Implementing (ITS) or regulatory technical standards (RTS)
The ESCB and the EBA must develop draft implementing or regulatory technical standards by 18 June 2015 which may then be adopted by the Commission.