Click here to read our perspective on the Trade Associations Letter to the European Commission
Click here to read our CSDR PoV / Perspective
CSDR SDR penalties (cash penalties and mandatory buy-ins) are due to be implemented on 1st February 2022. The regime’s objective is to reduce the number settlement fails and their duration. It is likely to be successful: the costs of processing cash penalites and buy-ins are going to be significant.
The regime’s impact will be global. It will apply to cash, repo, and securities lending trades settling in European CSDs/ICSDs. The location of the settling party is irrelevant: it will apply to firms in Frankfurt, London, New York and Tokyo. Similarly the role of the settling party is irrelevant: it will apply to banks, brokers and fund managers.
The value and volume of cash flows will be large. At current fail levels, we estimate in excess of €1.5bn (annual total) of debit and cash penalties. If each penalty debit and credit cash penalty is processed by an average of 4 firms, the total flows will be €6bn. Every firm in the chain – custodian, bank, broker, fund manager, etc. - will need to ensure that amounts are correct, appropriately booked and passed on in a timely manner. Query and SLA management will add to the cost and complexity.
Mandatory buy-ins are much more challenging. Not only are they manual and difficult to process but they can also have P&L, contractual, and client service impacts on both sell and buy-side front offices.
Improving settlement rates
Processing the penalties received
Processing mandatory buy-ins
Preparation needs to include Legal & Compliance – not only contractual implications but also confirmation that the proposed approach is permissible (e.g. no risk of Client Asset or Inducement to Trade breaches)
CSDR Settlement Discipline project readiness assessment and planning
Consultancy resources and tools to support project activities to reduce fails and implement the necessary processes and controls to support penalty and buy-in processing
Co-ordination with linked programmes such as Operational Resilience, Cost Reduction, and Supplier Management