Financial Markets: Commission consults on post-trade services rules

The European Commission has launched two related consultations seeking input on rules concerning settlement finality, and financial collateral arrangements. The answers to these consultations will feed into a Commission Report to the European Parliament and Council. The current review covers a variety of issues that have come up since the last review of the settlement finality directive (SFD)  and the closely related financial collateral directive (FCD), back in 2008 and 2009. The SFD regulates and protects designated securities settlement and payment systems.

It guarantees that transfer orders entered into such systems are also finally settled, regardless of whether the sending participant has become insolvent. The participants to designated systems may for instance be financial institutions like banks, systems operators, such as central securities depositories (CSDs) or central counterparties (CCPs). The FCD has created an EU legal framework for the receipt and enforcement of financial collateral. The  latter  consists  of  cash,  financial  instruments  or  credit  claims. In fact, financial collateral is an asset provided by a borrower to a lender. It minimises the risk of financial loss to the lender if the borrower fails to meet their obligations. Collateral is used throughout the EU to support all kinds of financial transactions, from derivatives to general bank lending.

The directive facilitates this cross-border use of financial collateral and plays a key role in ensuring that EU post-trade systems function properly. This framework contributes to the integration and cost-efficiency of European financial markets. Harmonized collateral rules reduce losses and encourage cross-border business and competitiveness. The consultations will remain open for 12 weeks. For more information please see the full texts of the SFD consultation and the FCD consultation.

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