Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012 Text with EEA relevance

TITLE I

SUBJECT MATTER, SCOPE AND DEFINITIONS

Article 1

Subject matter and scope

Article 2

Definitions

For the purposes of this Regulation, the following definitions apply:

(1) ‘central securities depository’ or ‘CSD’ means a legal person that operates a securities settlement system referred to in point (3) of Section A of the Annex and provides at least one other core service listed in Section A of the Annex;

(2) ‘third-country CSD’ means any legal entity established in a third country that provides a similar service to the core service referred to in point (3) of Section A of the Annex and performs at least one other core service listed in Section A of the Annex;

(3) ‘immobilisation’ means the act of concentrating the location of physical securities in a CSD in a way that enables subsequent transfers to be made by book entry;

(4) ‘dematerialised form’ means the fact that financial instruments exist only as book entry records;

(5) ‘receiving CSD’ means the CSD which receives the request of another CSD to have access to its services through a CSD link;

(6) ‘requesting CSD’ means the CSD which requests access to the services of another CSD through a CSD link;

(7) ‘settlement’ means the completion of a securities transaction where it is concluded with the aim of discharging the obligations of the parties to that transaction through the transfer of cash or securities, or both;

(8) ‘financial instruments’ or ‘securities’ means financial instruments as defined in point (15) of Article 4(1) of Directive 2014/65/EU;

(9) ‘transfer order’ means transfer order as defined in the second indent of point (i) of Article 2 of Directive 98/26/EC;

(10) ‘securities settlement system’ means a system under the first, second and third indents of point (a) of Article 2 of Directive 98/26/EC that is not operated by a central counterparty whose activity consists of the execution of transfer orders;

(11) ‘settlement internaliser’ means any institution, including one authorised in accordance with Directive 2013/36/EU or with Directive 2014/65/EU, which executes transfer orders on behalf of clients or on its own account other than through a securities settlement system;

(12) ‘intended settlement date’ means the date that is entered into the securities settlement system as the settlement date and on which the parties to a securities transaction agree that settlement is to take place;

(13) ‘settlement period’ means the time period between the trade date and the intended settlement date;

(14) ‘business day’ means business day as defined in point (n) of Article 2 of Directive 98/26/EC;

(15) ‘settlement fail’ means the non-occurrence of settlement, or partial settlement of a securities transaction on the intended settlement date, due to a lack of securities or cash and regardless of the underlying cause;

(16) ‘central counterparty’ or ‘CCP’ means a CCP as defined in point (1) of Article 2 of Regulation (EU) No 648/2012;

(17) ‘competent authority’ means the authority designated by each Member State in accordance with Article 11, unless otherwise specified in this Regulation;

(18) ‘relevant authority’ means any authority referred to in Article 12;

(19) ‘participant’ means any participant, as defined in point (f) of Article 2 of Directive 98/26/EC in a securities settlement system;

(20) ‘participation’ means participation within the meaning of the first sentence of point (2) of Article 2 of Directive 2013/34/EU, or the ownership, direct or indirect, of 20 % or more of the voting rights or capital of an undertaking;

(21) ‘control’ means the relationship between two undertakings as described in Article 22 of Directive 2013/34/EU;

(22) ‘subsidiary’ means a subsidiary undertaking within the meaning of Article 2(10) and Article 22 of Directive 2013/34/EU;

(23) ‘home Member State’ means the Member State in which a CSD is established;

(24) ‘host Member State’ means the Member State, other than the home Member State, in which a CSD has a branch or provides CSD services;

(25) ‘branch’ means a place of business other than the head office which is a part of a CSD, which has no legal personality and which provides CSD services for which the CSD has been authorised;

(26) ‘default’ means, in relation to a participant, a situation where insolvency proceedings, as defined in Article 2, point (j), of Directive 98/26/EC, are opened against a participant or an event defined in the CSD’s internal rules as constituting a default;

(27) ‘delivery versus payment’ or ‘DVP’ means a securities settlement mechanism which links a transfer of securities with a transfer of cash in a way that the delivery of securities occurs if and only if the corresponding transfer of cash occurs and vice versa;

(28) ‘securities account’ means an account on which securities may be credited or debited;

(29) ‘CSD link’ means an arrangement between CSDs whereby one CSD becomes a participant in the securities settlement system of another CSD in order to facilitate the transfer of securities from the participants of the latter CSD to the participants of the former CSD or an arrangement whereby a CSD accesses another CSD indirectly via an intermediary. CSD links include standard links, customised links, indirect links, and interoperable links;

(30) ‘standard link’ means a CSD link whereby a CSD becomes a participant in the securities settlement system of another CSD under the same terms and conditions as applicable to any other participant in the securities settlement system operated by the latter;

(31) ‘customised link’ means a CSD link whereby a CSD that becomes a participant in the securities settlement system of another CSD is provided with additional specific services to the services normally provided by that CSD to participants in the securities settlement system;

(32) ‘indirect link’ means an arrangement between a CSD and a third party other than a CSD, that is a participant in the securities settlement system of another CSD. Such link is set up by a CSD in order to facilitate the transfer of securities to its participants from the participants of another CSD;

(33) ‘interoperable link’ means a CSD link whereby CSDs agree to establish mutual technical solutions for settlement in the securities settlement systems that they operate;

(34) ‘international open communication procedures and standards’ means internationally accepted standards for communication procedures, such as standardised messaging formats and data representation, which are available on a fair, open and non-discriminatory basis to any interested party;

(35) ‘transferable securities’ means transferable securities as defined in point (44) of Article 4(1) of Directive 2014/65/EU;

(36) ‘shares’ means securities specified in point (44)(a) of Article 4(1) of Directive 2014/65/EU;

(37) ‘money-market instruments’ means money-market instruments as defined in point (17) of Article 4(1) of Directive 2014/65/EU;

(38) ‘units in collective investment undertakings’ means units in collective investment undertakings as referred to in point (3) of Section C of Annex I to Directive 2014/65/EU;

(39) ‘emission allowance’ means emission allowance as described in point (11) of Section C of Annex I to Directive 2014/65/EU, excluding derivatives in emission allowances;

(40) ‘regulated market’ means regulated market as defined in point (21) of Article 4(1) of Directive 2014/65/EU;

(41) ‘multilateral trading facility’ or ‘MTF’ means multilateral trading facility as defined in point (22) of Article 4(1) of Directive 2014/65/EU;

(42) ‘trading venue’ means a trading venue as defined in point (24) of Article 4(1) of Directive 2014/65/EU;

(43) ‘settlement agent’ means settlement agent as defined in point (d) of Article 2 of Directive 98/26/EC;

(44) ‘SME growth market’ means an SME growth market as defined in point (12) of Article 4(1) of Directive 2014/65/EU;

(45) ‘management body’ means the body or bodies of a CSD, appointed in accordance with national law, which is empowered to set the CSD’s strategy, objectives and overall direction, and which oversees and monitors management decision-making and includes persons who effectively direct the business of the CSD. Where, according to national law, a management body comprises different bodies with specific functions, the requirements of this Regulation shall apply only to members of the management body to whom the applicable national law assigns the respective responsibility;

(46) ‘senior management’ means those natural persons who exercise executive functions within a CSD and who are responsible and accountable to the management body for the day-to-day management of that CSD;

(47) ‘group’ means a group within the meaning of Article 2, point (11), of Directive 2013/34/EU;

(48) ‘close links’ means close links as defined in Article 4(1), point (35), of Directive 2014/65/EU;

(49) ‘qualifying holding’ means a direct or indirect holding in a CSD which represents at least 10 % of the capital or of the voting rights, as set out in Articles 9, 10 and 11 of Directive 2004/109/EC of the European Parliament and of the Council (¹), or which makes it possible to exercise a significant influence over the management of the CSD;

(50) ‘deferred net settlement’ means a settlement mechanism whereby cash or securities transfer orders in relation to securities transactions of the participants in the securities settlement system are subject to netting, and whereby settlement of participants’ net claims and obligations takes place at the end of predefined settlement cycles during or at the end of the business day.

TITLE II

SECURITIES SETTLEMENT

CHAPTER I

Book-entry form

Article 3

Book-entry form

Where transferable securities are transferred following a financial collateral arrangement as defined in point (a) of Article 2(1) of Directive 2002/47/EC, those securities shall be recorded in book-entry form in a CSD on or before the intended settlement date, unless they have already been so recorded.

Article 4

Enforcement

CHAPTER II

Settlement periods

Article 5

Intended settlement date

The authorities competent for the supervision of trading venues shall ensure that paragraph 2 is applied.

CHAPTER III

Settlement discipline

Article 6

Measures to prevent settlement fails

Such measures shall at least consist of arrangements between the investment firm and its professional clients as referred to in Annex II to Directive 2014/65/EU to ensure the prompt communication of an allocation of securities to the transaction, confirmation of that allocation and confirmation of the acceptance or rejection of terms in good time before the intended settlement date.

ESMA shall, in close cooperation with the members of the ESCB, issue guidelines in accordance with Article 16 of Regulation (EU) No 1095/2010 on the standardised procedures and messaging protocols to be used for complying with the second subparagraph of this paragraph.

ESMA shall, in close cooperation with the members of the ESCB, develop draft regulatory technical standards to specify the measures to prevent settlement fails in order to increase settlement efficiency and in particular:

(a) the measures to be taken by investment firms in accordance with paragraph 2, first subparagraph;

(b) the details of the procedures that facilitate settlement referred to in paragraph 3, which could include the shaping of transaction sizes, partial settlement of failing trades and the use of auto-lend/borrow programmes provided by certain CSDs; and

(c) the details of the measures to encourage and incentivise the timely settlement of transactions referred to in paragraph 4.

ESMA shall submit those draft regulatory technical standards to the Commission by 17 July 2025.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.

Article 7

Measures to address settlement fails

Before establishing the procedures referred to in the first subparagraph, a CSD shall consult the relevant trading venues and CCPs in respect of which it provides settlement services.

The penalty mechanism referred to in the first subparagraph shall include cash penalties for participants that cause settlement fails (‘failing participants’). Cash penalties shall be calculated on a daily basis for each business day that a transaction fails to be settled after its intended settlement date until the transaction is either settled or bilaterally cancelled. The cash penalties shall not be configured as a revenue source for the CSD.

The penalty mechanism referred to in paragraph 2 shall not apply to:

(a) settlement fails the underlying cause of which is not attributable to the participants in the transaction;

(b) operations that are not considered as trading;

(c) transactions where the failing participant is a CCP, except for transactions entered into by a CCP where it does not interpose itself between the counterparties; or

(d) transactions where insolvency proceedings are opened against the failing participant.

The Commission shall be empowered to adopt delegated acts in accordance with Article 67 to supplement this Regulation by specifying parameters for the calculation of a deterrent and proportionate level of the cash penalties referred to in paragraph 2, third subparagraph, of this Article based on all of the following:

(a) asset type;

(b) liquidity of the financial instrument;

(c) type of transaction;

(d) duration of the settlement fail.

When specifying the parameters referred to in the first subparagraph, the Commission shall take into account the level of settlement fails per class of financial instruments and the effect that low or negative interest rates could have on the incentives of counterparties and on settlement fails. The parameters used for the calculation of cash penalties shall ensure a high degree of settlement discipline and the smooth and orderly functioning of the financial markets concerned.

The Commission shall review the parameters for the calculation of the level of the cash penalties on a regular basis and at least every four years in order to reassess the appropriateness and effectiveness of the cash penalties in achieving a level of settlement fails in the Union deemed to be acceptable having regard to the impact on the financial stability of the Union.

Public disclosure of suspensions shall not contain personal data as defined in Article 4, point (1), of Regulation (EU) 2016/679 of the European Parliament and of the Council (³).

This paragraph shall not apply to failing participants which are CCPs or in cases where insolvency proceedings are opened against the failing participant.

The Commission shall be empowered to adopt delegated acts in accordance with Article 67 to supplement this Regulation by specifying:

(a) the underlying causes of settlement fails that are considered as not attributable to the participants in the transaction under paragraph 3, point (a), of this Article; and

(b) the circumstances in which operations are not considered as trading under paragraph 3, point (b), of this Article.

ESMA shall, in close cooperation with the members of the ESCB, develop draft regulatory technical standards to specify:

(a) the details of the system monitoring settlement fails and the reports on settlement fails referred to in paragraph 1;

(b) the processes for collection and redistribution of cash penalties and any other possible proceeds from such penalties in accordance with paragraph 2;

(c) the conditions under which a participant is deemed to fail, consistently and systematically, to deliver the financial instruments as referred to in paragraph 7.

ESMA shall submit those draft regulatory technical standards to the Commission by 17 January 2025.

Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.

Article 7a

Mandatory buy-in process

The Commission may adopt the implementing act referred to in the first subparagraph only if both of the following conditions are met:

(a) the application of the penalty mechanism referred to in Article 7(2) has not resulted in a long-term sustainable reduction of settlement fails in the Union or in maintaining a reduced level of settlement fails in the Union, even after a review of the level of cash penalties in accordance with Article 7(5), second subparagraph;

(b) the level of settlement fails in the Union has or is likely to have a negative effect on the financial stability of the Union.

For the purposes of reaching the decision referred to in the first subparagraph, the Commission shall take into account all of the following:

(a) the potential impact of the mandatory buy-in process on financial markets in the Union;

(b) the number, volume and duration of settlement fails, including the number and volume of settlement fails outstanding at the end of the extension period referred to in paragraph 4;

(c) whether a particular financial instrument or category of transactions in that financial instrument is already subject to appropriate contractual provisions that provide a right for receiving participants to trigger a buy-in.

The implementing act shall be adopted in accordance with the examination procedure referred to in Article 68(2). It shall specify a date of application that is not earlier than one year after its entry into force.

Before adopting the implementing act referred to in paragraph 1, the Commission shall:

(a) assess the effectiveness and proportionality of the penalty mechanism referred to in Article 7(2) and, where appropriate, change the structure or severity of the penalty mechanism in order to increase settlement efficiency in the Union;

(b) consider whether the conditions referred to in paragraph 1 are met, despite the prior application of the penalty mechanism referred to in Article 7(2) and the rationale for, and potential cost implications of, subjecting specific financial instruments and categories of transactions to mandatory buy-ins.

By way of derogation from the first subparagraph, based on the asset type and liquidity of the financial instruments concerned, the extension period may be increased to a maximum of seven business days where a shorter extension period would affect the smooth and orderly functioning of the markets concerned.

By way of derogation from the first and second subparagraphs, where the transaction relates to a financial instrument traded on an SME growth market, the extension period shall be 15 business days unless the SME growth market decides to apply a shorter period.