Review of the EU post-trade legislation: Draft regulation to amend CSDR and regulation on a DLT pilot regime for markets infrastructures

This paper aims to examine the two most recent EU initiatives to update the existing regulatory framework for central securities depositories (CSDs). First, it analyses and evaluates the draft regulation released on 16th March, 2022, which amends the existing CSDs Regulation (CSDR) of 2014, including simplifying the passporting process and enhancing cooperation among competent and relevant authorities. It also establishes a more targeted scope for the CSDR's settlement discipline regime. The proposed simplification measures indeed appear timely, but it remains to be seen whether they will increase competition and improve settlement efficiency. Secondly, it assesses the challenges of the existing EU legal framework for digitalising post-trade activities. It concludes that the existing framework does not permit the full tokenisation of the settlement of token securities, and thus it requires adaptation. Against this backdrop, the paper fully supports the stepwise regulatory approach followed by the EU. The recently adopted regulation creating a pilot regime to test Distributed Ledger Technology (DLT) market infrastructures and allow them to be exempted from some existing requirements temporarily will help identify possible medium-term options for a suitable legal framework. Meanwhile, users should remain alert to the fact that exemptions remain proportionate and are conducive to improving CSDs' efficiency.