Central securities depositories are responsible for making sure that securities--including equities, bonds and certain investment funds--properly change hands after a trade is made on stock exchanges and other regulated marketplaces.

The system of CSDs date back to digitalisation of securities trading that began in the late 1960s, which eventually led to the creation of the company that today is Kirchberg-based Clearstream. Yet many types of transactions were still left for each country’s CSD to settle, and each national CSD has so far remained focused on domestic markets, Patrick Georg, general manager of LuxCSD--a joint venture between the Banque Central du Luxembourg and Clearstream International--told Delano last year.

In its announcement this week, the European Commission said its draft CSD regulations would further the development of the single European financial market. According to the commission, cross-border settlements fail up to ten percent of the time and cost up to four times more than using domestic providers.

Under the proposed rules, all European CSDs would have to comply with strict, EU-wide, technical and organisational requirements. At the same time, CSDs authorised by their home country regulator would be given a “passport” that would allow them to offer their services in all EU member states. That means banks and brokerages would then be able to choose freely between all 30 CSDs in Europe.

“In the European Union, transactions worth over one quadrillion euro were settled by CSDs in the last two years,” Michel Barnier (photo), the internal markets and services commissioner, said. The “proposal will introduce, in line with our international partners, common standards across the union for securities settlement and CSDs to ensure a true single market for the services provided by national CSDs.”

Clearstream, now a subsidiary of the Deutsche Börse Group, “welcomes the regulation,” a spokesman for the company told Delano. Introducing new rules “demonstrates that the EU is making significant progress toward fulfilling G20 commitments aimed at improving the stability and safety of financial markets.” Clearstream is also keen on the idea of harmonised cross-border rules that will be applied in all member countries, he said.

However, “we have concerns with regards to specific aspects of this initiative affecting CSDs providing banking services in Europe, which aims to implement an untested model for parts of the well functioning market for securities settlements.”

The spokesman also said the proposal “could run counter to the spirit” of a separate project called TARGET2-Securities, which is being planned by the independent European Central Bank. T2S also aims to make stock and bond trade settlement systems interoperable across EU borders. The programme is meant to begin operating in 2015, although its launch date has already slipped several times in the past.

The commission’s measure now goes to the European Parliament and the European Council of member state governments for consideration.