08.01.2016

Get Ahead of CSDR (by Camille McKelvey, Trax)

Although the Central Securities Depository Regulation (CSDR) generates fewer column inches than MiFID II, it arguably causes far bigger operational headaches when it comes to implementation. Unlike other regulations whereby compliance is predicated on location, this will impact any party settling trades in Europe.

One of the biggest shake ups coming under the next wave of CSDR is the imposition of mandatory fines for all failed trades, and subsequent compulsory buy-ins in the event of ongoing failure to deliver.

Settlement rates, although in the 90% range, are not nearly at the level that the regulation dictates. Fines will now be imposed for any trade not settled on the intended settlement date (generally T+2 in Europe).

And fines won’t always be for the party that actually fails to deliver, but can also be imposed on the last party to match the trade at the depository. Altogether, the ECSDA estimated that based on current fail rates the fines will cost the industry €2.2 billion annually.

Although some fails are truly unavoidable, the majority of these issues can be mitigated through the implementation of robust trade date processes to confirm trades.

In theory exchanging some securities for some cash on a given day seems simple, but an efficient mechanism for settling trades is an absolute pre-requisite to making this happen.

This means Middle Office teams have got to focus on matching trades in near real-time, within 15 minutes of execution through automated systems in order to avoid serious P&L hits to the Front Office. Using a real-time trade date matching platform such as Trax gives users a near real-time view of any outstanding exceptions and can define what action is required in order to get trades fully agreed on trade date.

The industry must move to using trade date matching platforms to get all trades fully agreed on trade date ahead of CSDR implementation in 2018.

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