Are you Settlement Discipline Ready
17 January 2022
1 February 2022, the implementation date for the third phase of CSDR, the Settlement Discipline Regime (the "SDR"), is now a few weeks away.
The SDR aims to harmonise the operating rules currently used by CSDs across the EU to increase settlement efficiency and security and creates obligations on market participants involved in the trading / settlement life-cycle.
Scope (i.e. who should be acting)
- EU CSD's and EU CSD direct participants;
- EU investment firms more generally are in scope for many of the provisions, including allocation confirmations; and
- UK/other investment firms are out of scope of SDR, but are indirectly brought into scope via connection (direct/indirect) with EU CSDs.
Actions being taken
UK investment firms are sending updates (typically notifications/disclosures) to terms of business which cover:
- who will be responsible for cash penalties i.e. late matching fees and late settlement fees;
- de minimis values in relation to cash penalties (there is some mixed practice on this currently, which may be ironed out);
- whether, in some cases, cash penalties / credits can be retained with client agreement;
- responsibility for partial settlement in the event of a cash penalty;
- encouragement of clients to agree to partial settlement (including automatic); and
- agreement that clients/customers will confirm allocation information.
Investment managers also need to consider the above in the context of funds, and whether they can charge penalties / credits to their funds and any communications required here.
