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Settlement finality
The Settlement Finality Directive (SFD) adopted in May 1998 is a crucial piece of EU legislation aimed at minimizing the risks associated with the transfer of financial instruments and payments, particularly those risks linked to the insolvency of transaction participants.
Settlement Finality Directive (SFD)
Notification Requirements
The Settlement Finality Directive plays a vital role in ensuring the stability and reliability of financial transactions within the EU, particularly by protecting the finality of settlements even in cases of insolvency.
Settlement Finality Directive (SFD)
- Adopted in May 1998, the SFD regulates designated systems used by participants to transfer financial instruments and payments. It ensures that transfer orders entered into these systems are final and settled, even if the participant who initiated the order becomes insolvent or if the transfer orders are revoked after being entered. This directive applies to participants such as financial institutions (e.g., banks) and system operators like central securities depositories (CSDs) and central counterparties (CCPs).
Notification Requirements
- The SFD mandates that Member States designate the national systems and respective system operators under the directive's scope to the European Securities and Markets Authority (ESMA). Additionally, Member States must notify ESMA of the national authorities to be informed when insolvency proceedings are initiated against a participant or a system operator. This information is published by ESMA on their website.
The Settlement Finality Directive plays a vital role in ensuring the stability and reliability of financial transactions within the EU, particularly by protecting the finality of settlements even in cases of insolvency.
