The Association for Financial Markets in Europe (AFME) has published recommendations for partial settlement in view of the impending Central Securities Depository Regulation (CSDR), currently due to come into force in September this year but widely expected to be delayed until February 2021.
The recommendations aim to encourage greater and more harmonised use of partial settlement across the industry as a way of improving settlement rates, and are designed to support the rigorous new CSDR framework, which will introduce penalties for trades that fail to settle – with the goal of lessening the negative impact to firms.
“The increased adoption of partial settlement is one example of how the industry can improve settlement efficiency,” notes Stephen Burton, Managing Director, Post Trade at AFME. “Particularly at a time when the mandatory buy-in regime under CSDR is due to be implemented later this year, improving settlement rates will help to mitigate the possible negative impacts, including reduced liquidity and greater volatility, when investing in European securities.”
The market practice document is aimed at all market participants including buy-side clients, brokers and service providers such as intermediaries, central counterparties, custodians, banks and local agents. They cover three key areas including partial hold and release, auto-partial settlement, and manual partials.
For partial hold and release, AFME recommends that intermediaries provide client support including automated communication and messaging, along with options to opt in or out. For auto-partial settlement, the association highlights that all trading parties and market participants must agree to use, with intermediaries again providing support using ISO/SMPG standards – and that all receipt instructions should be auto-partial enabled, regardless of account structure. The association stresses that manual partials should be the least favoured option, due to inefficiencies around cancelling, resending and re-matching settlement instructions.
To learn more about the impact of CSDR, check back in next week for an in-depth interview with Broadridge’s Paul Clark on just why this upcoming regulation is so important.