CSDR SETTLEMENT DISCIPLINE: ESMA’S 2025 AMENDMENTS TO IMPROVE SETTLEMENT EFFICIENCY AND PREPARE FOR T+1
EXTERNAL ARTICLE
Estimated reading time: 5 min.
On 13 October 2025, the European Securities and Markets Authority (ESMA) published its Final Report on amendments to the RTS on Settlement Discipline — a pivotal update to the post-trade framework under the Central Securities Depositories Regulation (CSDR).
These changes aim to enhance settlement efficiency across EU markets and ensure operational readiness for the transition to T+1 settlement.
BACKGROUND: FROM SETTLEMENT DISCIPLINE TO OPERATIONAL EFFICIENCY
The Settlement Discipline Regime (SDR) was introduced under CSDR to reduce settlement fails through penalties, buy-ins, and matching rules.
Since its implementation in 2022, market participants have criticized its rigidity and limited capacity to address the operational root causes of inefficiency.
With this latest revision, ESMA shifts focus from enforcement to prevention — maintaining penalties but prioritizing automation, standardization, and process harmonization.
KEY CHANGES IN THE 2025 ESMA RTS ON SETTLEMENT DISCIPLINE
Enhanced allocation and confirmation processes
New timing requirements are introduced for institutional trade allocation and confirmation. ESMA promotes the adoption of ISO and SWIFT standards, with mandatory inclusion of key fields such as PSET to improve matching and traceability.
Inclusion of buy-sell back transactions
The amended RTS explicitly covers buy-sell back and sell-buy back transactions, ensuring consistent treatment across EU CSDs.
Automatic partial settlement as the default
CSDs must now enable automatic partial settlement whenever possible. Participants may still use hold/release or opt-out functionalities, but automation becomes the baseline. ESMA clarifies that penalties should not discourage partial settlement.
Refined penalty mechanism
While the penalty framework remains, the rates are fine-tuned rather than re-designed. ESMA reaffirms their purpose as behavioral incentives rather than sanctions.
New tools to boost settlement efficiency
The RTS introduces structural improvements such as the mandatory Unique Transaction Identifier (UTI), required PSET and PSAF fields, and better alignment of CSD operating hours and cut-off times. Automated securities lending is discussed as a future avenue for efficiency, though not yet mandated.
IMPLEMENTATION TIMELINE AND TRANSITION TO T+1
To allow smooth adaptation, ESMA proposes a phased implementation:
- December 2026 → Application of new allocation and confirmation requirements
- October 2027 → Full alignment with the EU-wide T+1 settlement cycle, including partial settlement and harmonized field structures
This timeline gives CSDs, custodians, and asset managers sufficient time to adapt their systems and workflows.
STRATEGIC IMPACT: A SHIFT TOWARD HARMONIZED AND REAL-TIME SETTLEMENT
Through these amendments, ESMA signals a strategic evolution — from discipline by penalty to efficiency by design.
By promoting standardization, interoperability, and automation, the regulator aims to create a more resilient, synchronized, and T+1-ready post-trade ecosystem across Europe.
KEY TAKEAWAYS FOR MARKET PARTICIPANTS
The 2025 RTS revision rebalances CSDR toward efficiency and interoperability.
Partial settlement and automated workflows will become operational norms.
Market participants should review system readiness for new mandatory data fields and cut-offs.
These changes lay the groundwork for future real-time or T+0 settlement models.