CSDR Refit Settlement Discipline Regime: Latest developments
LuxCSD1 informs clients about the main CSDR Refit2 Settlement Discipline Regime (SDR) changes that are expected to enter into force between December 2026 and October 2027.
Background
Following CSDR Refit entry into force on 16 January 2024, ESMA (European Securities and Markets Authority) published three reports further specifying changes in relation to the CSDR Settlement Discipline Regime:
1. “Final report on the CSDR penalty mechanism” proposing keeping the current penalty mechanism unchanged but to increase the daily penalty rates for some instrument types. While the report was not yet adopted by the EU Commission, the entry into force is expected in H1 2027.
Overview of the proposed penalties rates changes:
Type of settlement fail | Current penalty rate | Proposed change |
Settlement fail due to a lack of shares that have a liquid market within the meaning of Regulation (EU) No 600/2014 (excluding financial instruments covered under item 3). | 1.0 basis point | None |
Settlement fail due to a lack of shares that do not have a liquid market within the meaning of Regulation (EU) No 600/2014 (excluding financial instruments covered under item 3). | 0.5 basis point | Increase by 50% to 0.75 basis points. |
Settlement fail due to a lack of financial instruments traded on SME growth markets (excluding debt instruments covered under item 6). | 0.25 basis point | None |
Settlement fail due to a lack of debt instruments issued or guaranteed by sovereign issuers, third-country sovereign issuers, local government authorities, central banks, multilateral development banks, the European Financial Stability Facility (EFSF) or the European Stability Mechanism (ESM). | 0.10 basis point | Increase by 100% to 0.20 basis point. |
Settlement fail due to a lack of debt instruments other than those covered under items 4 and 6. | 0.20 basis point | Increase by 50% to 0.30 basis point. |
Settlement fail due to a lack of debt instruments traded on SME growth markets. | 0.15 basis point | None |
Settlement fail due to a lack of all other financial instruments not covered under items 1 to 6. | 0.5 basis point | Increase by 50% to 0.75 basis points. |
Settlement fail due to a lack of cash. | Official overnight credit interest rate charged by the central bank issuing the settlement currency, subject to a minimum rate of 0. | The methodology remains unchanged, but the minimum rate (floor) is increased from 0 to 1. |
Source: “ESMA Final report on the CSDR penalty mechanism”.
LuxCSD will apply any new penalty rates as of the applicable date to be stipulated by the EU Commission. It is assumed that the new rates would apply for any Settlement Fails (SEFP) and Late Matching fails (LMFP) penalties that are calculated on and after the entry into force date, that is, only the new rates will be used going forward, irrespective of the actual Intended Settlement Date of the falling transactions subject to SDR.
2. “Final Technical Advice on the scope of CSDR Settlement Discipline” focusing on “underlying causes of settlement fails that are considered as not attributable to the participants in the transaction” and “circumstances in which operations are not considered as trading”. While the report was not yet adopted by the EU Commission, its entry into force is expected in H2 2027.
“Settlement fails not attributable to participants” will be handled by CSDs “ex-post”, same as today.
Regarding the exemption of settlement fails of “operations not considered as trading” from the SDR penalties application, the T2S CSG CSDR Task Force agreed in April 2026 on the following approach that shall be applied by the T2S penalty mechanism as well as the non-T2S CSDs and ICSDs subject to CSDR:
Settlement transactions subject to ex-ante exemption from penalties application according to the ESMA report will be identified using the ISO settlement transaction codes (SETR) as provided by clients in their settlement instructions. This mechanism is already in place since 2022 for Corporate Actions on Stock (SETR “CORP”) and takes into account the assessment from the T+1 EU Industry Committee Standard Settlement Instructions (SSI) Task Force published in December 2025, on the market practice for the population of transaction types to be considered in the context of the proposed exemptions from cash penalties.
ESMA exemption list | Transaction codes | Comments |
a. Free of Payment (FOP) securities transfers to securities accounts at CSDs in the context of the (de)mobilisation of collateral. (De)mobilisation of collateral for ESCB credit operations or for the purposes listed in Annex V to Guideline ECB/2024/22 | CNCB | The CNCB ISO transaction code was agreed in September 2025 at Eurosystem level, in the Market Infrastructure and Payments Committee of the European System of Central Banks. |
b. Market claims and corporate actions on stock such as cash distributions (including cash dividend, interest payment), securities distributions (including stock dividend, bonus issue) and reorganisations (including conversion, stock split, redemption, tender offer | CORP, CLAI | CORP was already implemented in the T2S and (I)CSDs´ penalty mechanisms as part of their original implementation in 2022. |
c. The process of technical creation of securities, that is, the transfer from the CSD's issuance account to the issuer/ issuer's agent CSD account or the initial recording of securities in the issuer / issuer's agent CSD account | ISSU, PLAC, NSYN, SYND, MKUP, MKDW | Used for technical creation of securities, low volumes. |
d. Share registration, that is, the process of officially recording the transfer of ownership of shares from one party to another in the issuer’s share register maintained by the CSD | -- | Only relevant for T2S due to CEU as the German CSD; handled as separate process, see T2S CR-0868. |
e. The process of technical creation and redemption of fund units or shares on the primary market (including ETFs shares), that is, the crediting (in the case of creation) or the debiting / elimination (in the case of redemption) of the fund units or shares from the fund / transfer agent CSD account | MKDW, MKUP | MKUP, MKDW also used for technical creation of funds. ETFT was not included given the low volume and its usage for a wider scope of transactions than ESMA requirements. SUBS, REDM not included because used not only for technical creation of securities, high volumes. Subject to further investigation. |
f. Technical realignment operations between CSDs including T2S technical realignment operations | -- | Already implemented in T2S penalty mechanism as part of original implementation via specific logic (ISO code “REAL” of T2S generated instructions). No exemption will be applied by ICSDs. |
Source: ECB / T2S CSG CSDR TF.
Important Note: Penalties exemption will be applied to failing settlement transactions only when the identical exempted ISO code is contained in both legs, that is, the receipt as well as the delivery instruction.
Relevant T2S changes are addressed in CR-0862 and CR-0868 currently planned for implementation in June 2027, see the List of T2S Change Requests for details.
3. “Final Report on the RTS (Regulatory Technical Standards) on Settlement Discipline”, including several T+1 settlement aspects (hence, a number of T+1 Industry Committee recommendations become legally binding through the ESMA RTS) as well as settlement efficiency reporting related changes mainly for CSDs. The report was adopted by the EU Commission on 6 July 2026. After completing the EU Council and Parliament scrutiny latest in October 2026, the entry into force dates will vary between 7 December 2026 and 11 October 2027.
The following table summarises the areas of changes. In context of LuxCSD’s settlement services, the main impacts are due to T+1 related changes, where applicable (clients should consult the “T+1 Implementation Guide for Clearstream clients” on the website for details):
Effective date | Regulatory provisions |
7 December 2026 | T+1 relevant changes:
|
1 July 2027 | CSDR fails reporting changes; main impact on clients is related to the use of proper transaction qualifiers and the provision of Trading Venues MICs in settlement instructions as well as reporting concrete measures to improve settlement efficiency on a monthly basis:
|
11 October 2027 |
T+1 settlement relevant changes:
|
Source: ESMA “Final Report on the RTS (Regulatory Technical Standards) on Settlement Discipline”.
Further information
LuxCSD will inform clients when the legal texts are fully adopted and the Clearstream Client Handbooks will be updated as appropriate.
The ECSDA Penalties Framework will be updated in due course.
For further information, please contact your Relationship Officer.
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1. LuxCSD refers to LuxCSD S.A., registered office at 42, Avenue J.F. Kennedy, L-1855 Luxembourg, registered with the Luxembourg Trade and Companies Register under number B-154.449.
2. Regulation (EU) 2023/2845 of the European Parliament and of the Council of 13 December 2023 amending Regulation (EU) No 909/2014 as regards settlement discipline, cross-border provision of services, supervisory cooperation, provision of banking-type ancillary services and requirements for third-country central securities depositories and amending Regulation (EU) No 236/2012.