ISLA: CSDR to help create new efficiencies in securities lending
26 February 2019 London
Image: Shutterstock
Central Securities Depositories Regulation (CSDR) represents an important step in the harmonisation of EU CSD’s which will in turn create new efficiencies in the settlement of both securities lending transactions and the wider market place, according to an International Securities Lending Association (ISLA) white paper.
The paper entitled ‘CSDR: Settlement Discipline Impact to Securities Lending’, noted that the securities lending market will be impacted by the enforcement of settlement fail cash penalties.
It will also be impacted by buy-in regimes contained within CSDR, expected to go-live September 2020.
ISLA added that timing challenges inherent in reporting obligations of Securities Financing Transaction Regulation (SFTR) mean that accurate records, reconciled with counterparties, will be key to its success and fails will significantly impact reporting accuracy.
In light of the increasing need to improve settlement rates driven executive operations board of ISLA, the CSDR Working Group identified key settlement issues and causes of fails faced by the market.
Some of the key findings found that Available automated [vendor] solutions may not meet market needs and are not consistently utilised by firms.
Functionality in TARGET2-Securities (T2S) is not being fully utilised because of internal restrictions and budget restraints.
Delivery versus Payment settlement generally prioritised above Free of Payment settlement by market participants and intermediaries, creating challenges for efficient securities lending settlement, also featured in their key findings.
Meanwhile, in the white paper’s Summary of the provisions for mandatory buy-ins, it was cited that the buy-in process shall be part of the contractual documentation applicable to each participant of a CSD, central counterparty (CCP) and trading venue.
Additionally, it was added that buy-ins should avoid unnecessary costs for the failing
counterparty and avoid any risk taking by the CSD, CCP, and trading venue.
Adrian Dale, director of regulation and market practice, ISLA, said: “This is a major step forward for the industry as we work with our members to understand the full ramifications of CSDR.”
The paper entitled ‘CSDR: Settlement Discipline Impact to Securities Lending’, noted that the securities lending market will be impacted by the enforcement of settlement fail cash penalties.
It will also be impacted by buy-in regimes contained within CSDR, expected to go-live September 2020.
ISLA added that timing challenges inherent in reporting obligations of Securities Financing Transaction Regulation (SFTR) mean that accurate records, reconciled with counterparties, will be key to its success and fails will significantly impact reporting accuracy.
In light of the increasing need to improve settlement rates driven executive operations board of ISLA, the CSDR Working Group identified key settlement issues and causes of fails faced by the market.
Some of the key findings found that Available automated [vendor] solutions may not meet market needs and are not consistently utilised by firms.
Functionality in TARGET2-Securities (T2S) is not being fully utilised because of internal restrictions and budget restraints.
Delivery versus Payment settlement generally prioritised above Free of Payment settlement by market participants and intermediaries, creating challenges for efficient securities lending settlement, also featured in their key findings.
Meanwhile, in the white paper’s Summary of the provisions for mandatory buy-ins, it was cited that the buy-in process shall be part of the contractual documentation applicable to each participant of a CSD, central counterparty (CCP) and trading venue.
Additionally, it was added that buy-ins should avoid unnecessary costs for the failing
counterparty and avoid any risk taking by the CSD, CCP, and trading venue.
Adrian Dale, director of regulation and market practice, ISLA, said: “This is a major step forward for the industry as we work with our members to understand the full ramifications of CSDR.”
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