Lynn Strongin Dodds explores why European CSDs cost more than their North American peers.
European Central Securities Depositories (CSDs) are significantly more expensive than their international counterparts, according to a new report – Analysis of CSD Fees in Major European Markets- from the Association for Financial Markets in Europe in collaboration with ValueExchange (AFME report).
The report, which analyses different CSDs in the EU against each other and their North American counterparts, found settlement fees averaging 65% higher and safekeeping charges up to 650% steeper than across the pond.
The research shows that these costs are not a reflection of market size or regulatory burden. European CSDs are, in fact, healthy organisation, which are 30% more profitable than their North American peers. They generate revenues from their main and lucrative non-core businesses, such as tri-party collateral management. There is also little evidence that scale or vertical integration translates into lower costs for users and there is limited competitive pressure to force changes.
The result is a maintained status quo which erodes investor returns and makes Europe a less attractive place for both issuers and investors. This is directly at odds with the goals of the Savings and Investment Union initiative, a pan European financial system that aims to deepen financial markets, enhance investment opportunities for investors such as pension funds and individual citizens, as well as improve Europe’s economic competitiveness amid global geopolitical shifts. (https://www.imf.org/en/Publications/fandd/issues/2025/06/europes-elusive-savings-and-investment-union-ravi-balakrishnan).
As Adam Farkas, CEO of AFME, notes, “policy makers have a clear opportunity in the upcoming European Commission market integration proposals to strengthen Europe’s post-trade markets by promoting competition between CSDs, standardising fee structures, and increasing transparency.”
The report notes that the problem is compounded by complexity. Fee schedules are opaque, fragmented, and vary dramatically between CSDs, with invoices containing dozens or even hundreds of line items. This makes it nearly impossible for market participants to compare providers on a like-for-like basis.
The report lists several reasons for these issues. Most notable custody fees are disproportionately excessive, with safekeeping often being the single largest item on the invoice. For example, non-core fees such as for penalties and partials can account for up to 59% of settlement costs.
Moreover, the European Central Bank’s T2S (TARGET2-Securities) has not delivered the predicted benefits. The platform, which was introduced in 2008 and fully operational in mid 2015. was supposed to facilitate settlements and lower cost by having a large number of CSDs outsourcing their processing traffic to the platform.
This did not materialise because the number of CSDs and currencies connecting falls below expectation. Those that do, continue to apply their own additional transaction processing fees. CSDs also apply T2S charges in different ways, with some embedding them within a single settlement instruction fee, while others invoice as a separate line item.
Numbers crunched show that for T2S CSDs, the average settlement instruction fee including explicit T2S charges is €0.34, 10.5 eurocents higher than the basic T2S instruction fee.
Efforts to improve the situation have also been hampered by the lack of publicly available historical data that makes it nearly impossible to track how CSD costs and structures have evolved over time.
To rectify the situation. AFME published a seven bullet point action list for near-term, practical measures to inject greater competition, increase disclosure, reduce costs, and improve client outcomes. First on the list is to harmonise and standardise fee schedules. This means clear, accessible, and consistent breakdowns of core against ancillary charges.
Second is issuing transparent invoices. Costs must be easily reconcilable, with explicit separation of T2S charges and removal of duplicative or opaque line items. There should also be fair treatment of all participants. In other words, no discrimination between local, international participants, or versus brokers and custodians.
At least three months’ advance notice for changes to fee schedules should be required while participants should not bear the cost of CSDs adapting their own systems to regulation. CSDs should pick up their own tab.
AFME also recommends the elimination of quasi-discipline fees such as recycling fees on settlement fails, and to allow reverse billing for reporting costs. This will enable economies of scale on pass-through costs such as SWIFT charges, with full transparency.
Looking at the longer term, the trade group calls on European policymakers to bring forward ambitious legislative proposals to increase further competition between CSDs. This could involve, amongst other measures: removing barriers to freedom of issuance and reviewing the current Issuer-Investor CSD model that creates an unlevel playing field.
It could also comprise allowing for the unbundling of CSD functions to catalyse new technologies and the review of the requirement of CSDR Article 3 for all transactions to be recorded in a CSD.
