Commission Delegated Regulation (EU) 2018/1229 of 25 May 2018 supplementing Regulation (EU) No 909/2014 of the European Parliament and of the Council with regard to regulatory technical standards on settlement discipline (Text with EEA relevance.)

CHAPTER I

General

Article 1

Definitions

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

(a) ‘clearing member’ means an undertaking as defined in point (14) of Article 2 of Regulation (EU) No 648/2012 of the European Parliament and of the Council (¹);

(b) ‘exchange-traded fund (ETF)’ means a fund as defined in point (46) of Article 4(1) of Directive 2014/65/EU of the European Parliament and of the Council (²);

(c) ‘execution of orders’ means ‘execution of orders on behalf of clients’ as defined in point (5) of Article 4(1) of Directive 2014/65/EU;

(d) ‘retail client’ means a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU;

(e) ‘settlement instruction’ means a transfer order as defined in point (i) of Article 2 of Directive 98/26/EC of the European Parliament and of the Council (³);

(f) ‘trading party’ means a party acting as principal in a securities transaction referred to in point (c) of the first subparagraph of Article 7(10) of Regulation (EU) No 909/2014;

(g) ‘trading venue member’ means a member of, or a participant to, a trading venue.

CHAPTER II

Measures to prevent settlement fails

Article 2

Measures concerning professional clients

Investment firms shall require their professional clients to send them written allocations of securities or of cash to the transactions referred to in Article 5(1) of Regulation (EU) No 909/2014, identifying the accounts to be credited or debited. Those written allocations shall specify the following:

(a) one of the following types of transaction: (i) purchase or sale of securities; (ii) collateral management operations; (iii) securities lending/borrowing operations; (iv) repurchase transactions; (v) other transactions, which can be identified by more granular ISO codes;

(b) the International Securities Identification Number (ISIN) of the financial instrument or where the ISIN is not available, some other identifier of the financial instrument;

(c) the delivery or the receipt of financial instruments or cash;

(d) the nominal value for debt instruments, and the quantity for other financial instruments;

(e) the trade date;

(f) the trade price of the financial instrument;

(g) the currency in which the transaction is expressed;

(h) the intended settlement date of the transaction;

(i) the total amount of cash that is to be delivered or received;

(j) the identifier of the entity where the securities are held;

(k) the identifier of the entity where the cash is held;

(l) the names and numbers of the securities or cash accounts to be credited or debited.

Written allocations shall include all other information required by the investment firm for facilitating the settlement of the transaction.

Investment firms that have received confirmation of the execution of a transaction order placed by a professional client shall ensure through contractual arrangements that the professional client confirms its acceptance of the terms of the transaction in writing, within the timeframes set out in paragraph 2. That written confirmation may also be included in the written allocation.

Investment firms shall provide their professional clients with the option of sending the written allocation and the written confirmation electronically, through the international open communication procedures and standards for messaging and reference data referred to in Article 35 of Regulation (EU) No 909/2014.

Professional clients shall ensure that written allocations and written confirmations referred to in paragraph 1 are received by the investment firm by one of the following deadlines:

(a) by close of business on the business day on which the transaction has taken place where the investment firm and the relevant professional client are within the same time zone;

(b) by 12.00 CET on the business day following that on which the transaction has taken place where one of the following occurs: (i) there is a difference of more than two hours between the time zone of the investment firm and the time zone of the relevant professional client; (ii) the orders have been executed after 16.00 CET of the business day within the time zone of the investment firm.

Investment firms shall confirm receipt of the written allocation and of the written confirmation within two hours of that receipt. Where the written allocation and the written confirmation is received by an investment firm within less than one hour before its close of business, that investment firm shall confirm receipt of the written allocation and of the written confirmation within one hour after the start of business on the next business day.

Article 3

Measures concerning retail clients

Investment firms shall require their retail clients to send them all the relevant settlement information for transactions referred to in Article 5(1) of Regulation (EU) No 909/2014 by 12.00 CET on the business day after that on which the transaction has taken place within the time zone of the investment firm, unless that client holds the relevant financial instruments and cash at the same investment firm.

Article 4

Settlement facilitation and processing

A manual intervention in the automated settlement process shall occur in the following circumstances:

(a) where the feed of a received settlement instruction into the securities settlement system has been delayed or modified or where that settlement instruction itself has been modified outside of the automated procedures;

(b) where in the processing of received settlement instructions in the settlement engine, an intervention takes place outside of the automated procedures, including the management of IT incidents.

Article 5

Matching and population of settlement instructions

CSDs shall require participants to match their settlement instructions through the functionality referred to in paragraph 1 prior to their settlement, except in the following circumstances:

(a) where the CSD has accepted that the settlement instructions have already been matched by trading venues, CCPs or other entities;

(b) where the CSD itself has matched the settlement instructions;

(c) in the case of free of payment (‘FoP’) settlement instructions, referred to in point (g)(i) of Article 13(1), which consist of orders for transfers of financial instruments between different accounts opened in the name of the same participant or managed by the same account operator.

Account operators referred to in point (c) shall include entities that have a contractual relationship with a CSD and that operate securities accounts maintained by that CSD by means of recording book entries into those securities accounts.

CSDs shall require participants to use the following matching fields in their settlement instructions for the matching of settlement instructions:

(a) the type of settlement instruction, as referred to in point (g) of Article 13(1);

(b) the intended settlement date of the settlement instruction;

(c) the trade date;

(d) the currency, except in the case of FoP settlement instructions;

(e) the settlement amount, except in the case of FoP settlement instructions;

(f) the nominal value for debt instruments, or the quantity for other financial instruments;

(g) the delivery or receipt of the financial instruments or cash;

(h) the ISIN of the financial instrument;

(i) the identifier of the participant that delivers the financial instruments or cash;

(j) the identifier of the participant that receives the financial instruments or cash;

(k) the identifier of the CSD of the participant's counterparty, in the case of CSDs that use a common settlement infrastructure, including in the circumstances referred to in Article 30(5) of Regulation (EU) No 909/2014;

(l) other matching fields required by the CSD for facilitating the settlement of transactions.

In addition to the fields referred to in paragraph 3, CSDs shall require their participants to use a field indicating the transaction type in their settlement instructions based on the following taxonomy:

(a) purchase or sale of securities;

(b) collateral management operations;

(c) securities lending/borrowing operations;

(d) repurchase transactions;

(e) other transactions (which can be identified by more granular ISO codes as provided by the CSD).

Article 6

Tolerance levels

For the purpose of matching, CSDs shall set tolerance levels for settlement amounts.

The tolerance level shall represent the maximum difference between the settlement amounts in two corresponding settlement instructions that would still allow matching.

For settlement instructions in EUR, the tolerance level per settlement instruction shall be EUR 2 for settlement amounts of up to EUR 100 000 and EUR 25 for settlement amounts of more than EUR 100 000 . For settlement instructions in other currencies, the tolerance level per settlement instruction shall be of equivalent amounts based on the official exchange rate of the ECB, where available.

Article 7

Cancellation facility

CSDs shall set up a bilateral cancellation facility that enables participants to bilaterally cancel matched settlement instructions that form part of the same transaction.

Article 8

Hold and release mechanism

CSDs shall set up a hold and release mechanism that consists of both of the following:

(a) a hold mechanism that allows pending settlement instructions to be blocked by the instructing participant for the purpose of settlement;

(b) a release mechanism that allows pending settlement instructions that have been blocked by the instructing participant to be released for the purpose of settlement.

Article 9

Recycling

CSDs shall recycle settlement instructions that have resulted in a settlement fail until they have been settled or bilaterally cancelled.

Article 10

Partial settlement

CSDs shall allow for the partial settlement of settlement instructions.

Article 11

Additional facilities and information

CSDs shall provide participants with access to real-time information on the status of their settlement instructions in the securities settlement system, including information on:

(a) pending settlement instructions that can still be settled on the intended settlement date;

(b) failed settlement instructions that can no longer be settled on the intended settlement date;

(c) fully-settled settlement instructions;

(d) partially-settled settlement instructions, including both the settled and unsettled parts of either financial instruments or cash;

(e) cancelled settlement instructions, including information about whether those instructions have been cancelled by the system or by the participant.

The real-time information referred to in paragraph 2 shall include the following:

(a) whether the settlement instruction has been matched;

(b) whether the settlement instruction can still be partially settled;

(c) whether the settlement instruction is on hold;

(d) the reasons why instructions are pending or failing.

Article 12

Derogation from certain measures to prevent settlement fails

Articles 8 and 10 shall not apply where the securities settlement system operated by a CSD meets the following conditions:

(a) the value of settlement fails does not exceed EUR 2,5 billion per year;

(b) the rate of settlement fails, based either on the number of settlement instructions or on the value of settlement instructions, is lower than 0,5 % per year.

The rate of settlement fails based on the number of settlement instructions shall be calculated by dividing the number of settlement fails by the number of settlement instructions entered into the securities settlement system during the relevant period.

The rate of settlement fails based on the value of settlement instructions shall be calculated by dividing the value in EUR of settlement fails by the value of settlement instructions entered into the securities settlement system during the relevant period.

Where the assessment confirms that at least one of the conditions referred to in paragraph 1 no longer applies, CSDs shall apply Article 8 and Article 10 within one year from the date of the notification referred to in the first subparagraph.

CHAPTER III

Measures to address settlement fails

Section I

Monitoring settlement fails

Article 13

Details of the system monitoring settlement fails

CSDs shall establish a system that enables them to monitor the number and value of settlement fails for every intended settlement date, including the length of each settlement fail expressed in business days. That system shall, for each settlement fail, collect the following information:

(a) the reason for the settlement fail, based on the information available to the CSD;

(b) any settlement restrictions such as the reservation, blocking or earmarking of financial instruments or cash that make those financial instruments or cash unavailable for settlement;

(c) the type of financial instrument, within the following categories, affected by the settlement fail: (i) transferable securities as defined in point (a) of Article 4(1)(44) of Directive 2014/65/EU; (ii) sovereign debt as defined in Article 4(1)(61) of Directive 2014/65/EU; (iii) transferable securities as defined in point (b) of Article 4(1)(44) of Directive 2014/65/EU, other than sovereign debt referred to in point (ii); (iv) transferable securities as defined in point (c) of Article 4(1)(44) of Directive 2014/65/EU; (v) exchange-traded funds (ETFs); (vi) units in collective investment undertakings, other than ETFs; (vii) money-market instruments, other than sovereign debt referred to in point (ii); (viii) emission allowances; (ix) other financial instruments;

(d) the type of transaction, within the following categories, affected by the settlement fail: (i) purchase or sale of financial instruments; (ii) collateral management operations; (iii) securities lending/borrowing operations; (iv) repurchase transactions; (v) other transactions, which can be identified by more granular ISO codes as provided by the CSD;

(e) the place of trading and of clearing of the affected financial instruments, where applicable;

(f) the type of settlement instruction, within the following categories, affected by the settlement fail: (i) an intra-CSD settlement instruction, where the failing and the receiving parties are both participants in the same securities settlement system; or (ii) a cross-CSD settlement instruction, where the failing and the receiving parties are participants in two different securities settlement systems or one of the participants is a CSD;

(g) the type of settlement instruction, within the following categories, affected by the settlement fail: (i) FoP settlement instructions that consist of deliver free of payment (‘DFP’) and receive free of payment (‘RFP’) settlement instructions; (ii) delivery versus payment (‘DVP’) and receive versus payment (‘RVP’) settlement instructions; (iii) delivery with payment (‘DWP’) and receive with payment (‘RWP’) settlement instructions; or (iv) payment free of delivery (‘PFOD’) settlement instructions that consist of debiting payment free of delivery (‘DPFOD’) and crediting payment free of delivery (‘CPFOD’) settlement instructions;

(h) the type of securities accounts connected to the settlement fail, including: (i) a participant's own account; (ii) a participant's client individual account; (iii) a participant's client's omnibus account;

(i) the currency in which the settlement instructions are denominated.

Article 14

Reporting settlement fails

That information shall include the relevant values in EUR. Any value conversion into EUR shall be carried out using the official exchange rate of the ECB of the last day of the reporting period where that official exchange rate of the ECB is available.

CSDs shall report more frequently and provide additional information on settlement fails if so requested by the competent authority.

CSDs shall regularly monitor the application of the measures referred to in the first subparagraph and shall provide the competent authority and the relevant authorities, upon request, with any relevant findings resulting from such monitoring.

The value of settlement instructions referred to in Annexes I to III shall be calculated as follows:

(a) in the case of settlement instructions against payment, the settlement amount of the cash leg;

(b) in the case of FoP settlement instructions, the market value of the financial instruments referred to in Article 32(3) or, where not available, the nominal value of the financial instruments.

Article 15

Public disclosure on settlement fails

CSDs shall publish the information set out in Annex III for the securities settlement system it operates on their website for free, including the relevant values in EUR.

Any value conversion into EUR shall be carried out using the official exchange rate of the ECB of the last day of the reporting period where that official exchange rate of the ECB is available.

The information referred to in the first subparagraph shall be published annually and in a language customary in the sphere of international finance and shall be machine-readable.

Section 2

Cash penalties

Article 16

Calculation and application of cash penalties

The calculation referred to in the first subparagraph shall include settlement instructions that have been put on hold by a participant.

Where matching is required pursuant to Article 5(2), cash penalties shall only be applied to matched settlement instructions.

Where new settlement instructions are entered into the securities settlement system for any non-delivered financial instruments in accordance with Article 27(10), Article 29(11) or Article 31(11), cash penalties shall apply to the new settlement instructions from the day those instructions are entered into the securities settlement system.

Where settlement instructions have been matched after the intended settlement date, cash penalties for the period between the intended settlement date and the business day prior to the day on which matching has taken place shall be paid by the last participant who has entered or modified the relevant settlement instruction in the securities settlement system.

Article 17

Collection and distribution of cash penalties

Cash penalties shall be deposited into a dedicated cash account.

Article 18

Costs of the penalty mechanism

Article 19

Penalty mechanism for settlement fails relating to cleared transactions submitted by CCPs for settlement

With respect to settlement fails relating to cleared transactions submitted by CCPs for settlement, CSDs shall apply Articles 16, 17 and 18.

CCPs may allocate to their clearing members any remaining net amount of penalties, credit or debit, paid pursuant to Article 16 and distributed pursuant to Article 17(2).