These measures mostly apply to the EEA CSDs and include enhancements to the communication and processing of transaction details across market participants, as well as uniform and transparent monitoring and reporting of settlement fails by the CSDs. 

Implications for HSBC and Global Private Banking clients

HSBC accommodates CSDR measures to prevent and monitor settlement fails as applicable. Unless a specific communication on this topic is sent from their booking centre or RM, clients are not expected to take any action in respect of these measures.

Under the Settlement Discipline Regime, if a trade fails to settle on the intended settlement date and/or is matched after that date, the EEA central securities depository where the settlement should have taken place will be responsible to calculate and apply cash penalties for each business day of the fail until the settlement or cancellation of the transaction. 

Cash penalties are calculated as a percentage of the market value of the security and different rates apply dependent on the security type and its liquidity.

The EEA CSDs report cash penalties against the party found by the CSD to have caused the fail and in favour of the non-defaulting counterparty.

Cash penalties are reported by the EEA CSDs daily and charged in a consolidated netted way during the next calendar month.

Implications for HSBC and Global Private Banking clients

HSBC process both daily penalties reports and monthly penalty charges received from and/or due to the EEA CSDs. In the event that any future penalties are anticipated to or from client accounts, our booking centres will send relevant communication regarding these upcoming changes.

CSDR, and within it the SDR, will enhance the safety and efficiency of securities settlement in the EEA. The effects of CSDR will be largely transparent to our clients whilst already being protected from settlement delays through contractual arrangements. HSBC does however expect to see improvement in securities delivery timelines after SDR comes into effect.

The expectation is that securities settlement rates across the EEA will improve. This will be triggered by measures to prevent and monitor settlement fails and further incentivised by cash penalties against market participants causing the settlement fails and in favour of their non-defaulting counterparties. 

In most cases, no action is necessary. Where specific activity or awareness may be needed, our clients will receive communication from their booking centre regarding the upcoming changes. 

In most cases, no additional costs are expected. In circumstances where a settlement delay is caused directly by the actions of the client, HSBC may reserve the right to pass on cash penalties received from or due to the EEA CSDs. If and when action is required, clients will be informed. 

It applies to all types of instruments as long as:

• The transactions in these instruments are intended to settle through an EEA CSD;
• The instruments are admitted to trading or traded on a EEA trading venue or cleared by a EEA Central Counterparty (CCP);
• In the case of shares, the primary trading venue of the instruments is located in the EEA. 

This simply means the regulation applies to any securities transaction that is eligible to settle in one of the EEA CSDs, regardless of the location of the market participant or the end client entering into the transaction.

Further details and context can be found here:

European Securities and Markets Authority (ESMA): Central Securities Depositories Regulation 

The regulatory content relevant to the Settlement Discipline Regime can be found in:

• CSDR: Articles 6-7
• RTS (EU) 2018/1229 on Settlement Discipline (CSDR RTS)
• Delegated Act (EU) 2017/389 on Cash Penalties and Substantial Importance