Article 7
Measures to address settlement fails
1.
For each securities settlement system it operates, a CSD shall establish a system that monitors settlement fails of transactions in financial instruments referred to in Article 5(1). The CSD shall provide regular reports to the competent authority and relevant authorities as to the number and details of settlement fails and any other relevant information, including the measures envisaged by the CSD and its participants to improve settlement efficiency. Those reports shall be made public by the CSD in an aggregated and anonymised form on an annual basis. The competent authorities shall share with ESMA any relevant information on settlement fails.
2.
For each securities settlement system it operates, a CSD shall establish procedures that facilitate the settlement of transactions in financial instruments referred to in Article 5(1) that are not settled on the intended settlement date. Those procedures shall provide for a penalty mechanism that serves as an effective deterrent to participants that cause 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.
3.
The penalty mechanism referred to in paragraph 2 shall not apply to:
(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.
4.
A CCP may establish in its rules a mechanism to cover losses that it could incur resulting from the application of paragraph 2, third subparagraph.
5.
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.
6.
By 17 January 2026, ESMA shall publish and keep updated on its website a list of the financial instruments referred to in Article 5(1) which are admitted to trading or traded on a trading venue or cleared by a CCP.
7.
CSDs, CCPs and trading venues shall establish procedures that enable them to suspend, in consultation with their respective competent authorities, any participant that fails consistently and systematically to deliver the financial instruments referred to in Article 5(1) on the intended settlement date and to disclose to the public its identity only after giving that participant the opportunity to submit its observations and provided that the competent authorities of the CSDs, CCPs and trading venues, and of that participant have been duly informed. In addition to consulting before any suspension, CSDs, CCPs and trading venues shall notify, without delay, the respective competent authorities of the suspension of a participant. The competent authority shall immediately inform the relevant authorities of the suspension of a participant.
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.
8.
This Article shall not apply where the principal venue for the trading of shares is located in a third country. The location of the principal venue for the trading of shares shall be determined in accordance with Article 16 of Regulation (EU) No 236/2012.
9.
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.
10.
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.
( 3 ) Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (OJ L 119, 4.5.2016, p. 1).