Central Securities Depositories Regulation

What is the Buy-in aspect of the CSDR?

The Central Securities Depository Regulation (CSDR) introduces mandatory Buy-ins for unsettled securities transactions after a certain number of days following the intended settlement day. The receiving Trading Party or Trading Venue Member side the transaction must appoint a Buy-in Agent who executes the Buy-in. In case the Buy-in Agent is unable to source the securities, a mandatory Cash Compensation Process starts.

When will the Buy-in obligation of the CSDR apply to the market?

The mandatory Buy-in requirements are currently scheduled to enter into force on 1 February 2022. This will apply when no objections from the European Parliament and the European Council are received.

How do cash penalties relate to the Buy-in Agent?

Cash penalties apply from the first day of settlement failure until the end of the Buy-in process. The Buy-in Agent is not involved in the calculation or processing of the cash penalties, which is conducted on the CSD level.

Which instruments/asset classes are in the scope of the Buy-in obligation?

The Buy-in obligation covers all deliverable securities which are traded or admitted for trading at one of the EU stock-exchanges, trading venues or cleared/admitted for clearing at one of the EU central counterparties, and which are supposed to settle in an EU CSD or ICSD. Shares which have their primary trading venue outside the EU are exempted from the Buy-ins. A list of excluded shares is provided by ESMA.

What does the extension period mean?

The extension period is a grace period following the intended settlement day (ISD) that allows the Failing Counterparty to still deliver the securities and thereby cure the fail. During the extension period, CSDs are calculating and processing settlement fails penalties. The Buy-in request must be initiated at the latest after the extension period expires. The extension periods are as follows:

  • ISD +4 for liquid shares
  • ISD +7 for other financial instruments
  • ISD +15 for shares traded on a SME growth market

Which transactions are subject to a mandatory Buy-in?

For all non-centrally cleared securities transactions which fail to settle in an EU CSD or ICSD, the receiving trading party or trading venue member must initiate the Buy-in process with the Buy-in Agent. There are only a few exceptions (e.g. certain repo and securities lending transactions). In the case of transactions via a central counterparty (CCP), the CCP executes the Buy-in or appoints a Buy-in Agent. In case a CCP fails to deliver securities, no Buy-in shall be triggered by the receiving Clearing Member.

Are there any transactions that are exempt from the Buy-in regime?

Securities lending and repo transaction with a maturity of less than 30 business days are exempt from the mandatory Buy-in, as well as transactions in shares which have their primary trading venue outside the EU. A list of excluded shares is provided by ESMA.

What if the Buy-in was not triggered?

In case the Buy-in was not triggered, the receiving party is violating the Terms of the CSDR, which concerns settlements in all EU CSDs and is applicable to any entity (worldwide) that is the trading party in such a transaction.

Will there be any central/system to determine if a security is liquid or illiquid?

In general, the classification of the instrument should be done on the basis of the following ESMA registers:

  • Financial Instrument Reference Data System
  • Financial Instruments Transparency Reporting System
  • Exemption list from EU Short Selling Regulation

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