How Do Central Securities Depositories (CSDs) Affect Transaction Reporting?

A Central Securities Depository (CSD) is a financial institution that safeguards and manages the transfer of securities such as stocks and bonds in electronic form. As part of post-trade processing, CSDs ensure that transactions are settled securely and that ownership records remain accurate and up to date. CSDs play a key role in reducing market risk, ensuring regulatory compliance and maintaining trust and stability in financial markets.

How Do CSDs Affect Transaction Reporting?

CSDs play a critical role in post-trade transaction reporting by providing verified settlement data that regulators can rely on to confirm trade activity. CSDs are responsible for finalising securities transactions and maintaining ownership records and can report accurate and transparent trade details.

Under regulations such as Markets in Financial Instruments Regulation (MiFIR), European Market Infrastructure Regulation (EMIR), Securities Financing Transactions Regulation (SFTR) and Central Securities Depositories Regulation (CSDR), firms must report settlement status, trade execution details and any discrepancies. Accurate reporting is essential for market transparency and risk monitoring while also ensuring that firms remain compliant.

CSDs help firms:

• • • Ensure that reported trade data corresponds with settlement data
    • Identify and resolve discrepancies
    • Facilitate regulatory oversight for authorities to monitor market activity

Key Regulations Affecting CSDs and Transaction Reporting

CSDs play an important role in providing accurate settlement data, and several key regulations set requirements for both firms and CSDs to ensure transparency and compliance. These requirements help regulators to monitor trade execution and settlement activity to identify potential risks in financial markets.

– Markets in Financial Instruments Regulation (MiFIR)

MiFIR mandates post-trade transparency and requires firms to report trade execution details, including whether a transaction has been cleared and settled. This allows regulators to track market activity and assess potential risk exposure. CSDs ensure that settlement records accurately reflect the executed trades, reducing inconsistencies in post-trade reporting and regulatory oversight.

– European Market Infrastructure Regulation (EMIR)

EMIR requires derivative transactions to be reported to trade repositories (TRs), including information on clearing and settlement. CSD helps to maintain accurate data, which helps firms to ensure the reported trades match the settlement records.

– Securities Financing Transactions Regulation (SFTR)

SFTR mandates the reporting of securities financing transactions (SFTs) such as repo agreements and securities lending. Many of these types of transactions settle through CSDs, ensuring that regulators can track collateral use and leverage in financial markets.

Central Securities Depositories Regulation (CSDR)

The Central Securities Depositories Regulation (CSDR) is the primary EU regulatory framework regulating CSDs. It establishes and enforces settlement standards, risk controls and reporting obligations for firms and CSDs to improve post-trade reporting accuracy and integrity.

The CSDR implemented the following:

• • • T+2 settlement cycle: Transactions must settle within two business days to reduce counterparty risk and improve market efficiency
    • Settlement Discipline Regime (SDR): Introduced measures to reduce failed settlements through penalties and buy-ins, but the CSDR Refit later softened these requirements
    • Stronger prudential and supervisory requirements: This ensures CSDs maintain robust risk management, governance and business rules to safeguard financial stability

CSDR Refit (2024 Update)

To address some challenges in the original framework, the CSDR Refit (Regulation (EU) 2023/2845) introduced the following changes:

• • • Simplified cross-border settlement: by easing passporting requirements for CSDs
    • Reduced compliance burdens: by making prudential requirements more proportional
    • Modified settlement discipline rules: by removing mandatory buy-ins but keeping penalties for failed settlements

CSDs are integral to transaction reporting and regulatory compliance, ensuring that settlement data accurately reflects trade execution. Under regulations such as MiFIR, EMIR, SFTR and CSDR, firms must align their processes to maintain transparency and reduce the potential for market abuse.

With the CSDR Refit introducing changes to settlement processes and reporting obligations, firms must ensure that their reporting systems are accurate, efficient and compliant with evolving regulations.

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