1
Question
Do you think the proposed timeframes for allocations
and confirmations under Art 2 RTS are adequate?
If not what would be feasible
Response
We do not believe that the proposals here are relevant to our business model. Our clients
do not have to move stock between depots ready for settlement and therefore
implementing the proposals under Art 2 of the RTS would incur significant expense and
process change for no impact of reduction of settlement fails.
Given that the intent is to reduce settlement fails, we would propose instead that internal
process changes are made whereby the investment firm takes on the role of communication
with the client’s custodian directly to expedite settlement.
2
3
When matching would not be necessary
0.5% settlement fails threshold.
4
Views on RTS Annex I Chapter II
5
What are your views on the proposed draft RTS on the
monitoring of settlement fails as included in Section 1 of
Chapter III of Annex I?
No comments
This seems very high. A significant amount of work on systems, processes and associated
controls that will be required by participants if the SSS does not meet this threshold (use of
a hold and release mechanism, partialling). The proportion of SSS participants that do not
meet this threshold needs to be understood before comment can be made as to whether it
will address underperformance or will in fact create significant amount of work for the
majority of participants..
Additionally, clarification is needed as to how the benchmark will be set and whether
weighting will be given to different settlement instruction/ transaction type mixes that
participants may have.
As before: we do not see how this will reduce settlement fails under Wealth business
model and propose different measures as outlined above.
The requirement under Art 4(3) to set up working flow with the top ten participants with
the highest rate of settlement fails needs to be defined, in particular whether there are
systems/reporting requirements here for participants to consider.
6
What are your views on the proposed draft RTS related
to the penalty mechanism?
We recommend that the working flow would have as its objective root cause analysis and
action planning to remediate the settlement fails.
There are no standards laid out for how any participant may challenge the CSD billing
calculations – in respect of timings, basis for challenge and process to challenge. An
appeals/ challenge process is required to implemented under the RTS to enable any
reconciliation queries to be addressed and to allow for challenge of ‘fault’ of fail.
Clarity is required as to whether transfers in same name are out of scope. Settlement
instruction under CSDR is defined as transfer order as per Art 2 98/26/EC. This implies a
change of beneficial owner which transfer between same name accounts is not. we
recommend that, given there is no risk of economic loss with these transfers, they are
confirmed as out of scope.
The RTS prescribe penalty rates across asset classes. The liquidity of equities is taken
account by allowing a longer extension period for SME growth market but it will have the
same penalty rate applied as more liquid markets. It would be appropriate to also reflect
this in a separate penalty rate. We would recommend that ESMA therefore prescribes a
second rate for less liquid equities as per bonds.
The situation where a trade fails because of lack of cash needs to be further defined, in
particular what the timescales are for the trade to be remedied.
7
What are your views on the proposed draft RTS related
to the buy-in process.
Finally, absolute confirmation that transfers are out of scope is required. It is our opinion
that they are, given there is no risk of economic loss or change of beneficial ownership.
It is stated that a buy-in may be deferred only once – and have a limited timeframe. Clarity
is required on what the timeframe is within which a buy-in may be deferred – the text refers
to timeframes laid out in Article 9 – can we assume that this is a typographical error and in
fact the correct reference is Article 12.
In addition, it is not clear whether, where a buy-in is deferred, do the requirements laid out
under extension period, settlement in partials and cash compensation apply as per the RTS
once the buy-in is reinitiated. We would recommend that the requirements do apply to the
deferred buy-in.
Finally, if the buy-in deferral is chosen, it needs clarified whether penalties will be
suspended and then applied again when the deferred buy-in is initiated and are calculated
for the duration of the buy-in period as prescribed.
Another point of definition relates to roles within the buy-in process:
- Annex I RTS point 24 states that the CSD or the trading venue should not
perform the buy-in as counterparty and should only instruct a buy-in agent.
Art 11 RTS: the CSD, CCP, trading venue or receiving participant shall appoint a buyin agent or execute the buy-in by auction.
This appears contradictory.
With respect to multiple buy-ins, it would prove difficult to identify a chain of fails. For
example where multiple participants are failing to deliver in the same stock due to a
"liquidity" issue in the market, it would not be possible to state to the CSD who is at fault
and causing the issue.
8
What are your views on the proposed draft RTS related
to the buy-in timeframe and extension period?
The extension period and execution period must differentiate further bonds and shares in
illiquid markets using criteria like rating. In addition, where settlement is between two CSDs
(cross border) then there is the argument that an extra day should be provided for
settlement.
9
10
11
12
13
14
What are your views on the proposed draft RTS related
to the type of operations and their timeframe that
render buy-in ineffective?
What are your views on the proposed draft RTS related
to the calculation of the cash compensation
What are your views on the proposed draft RTS related
to the conditions for a participant to consistently and
systematically fail?
What are your views on the proposed draft RTS related
to the settlement information for CCPs and trading
venues
What are your views on the proposed draft RTS related
to anti-avoidance rules for cash penalties and buy-in?
Do you agree that 18 months would be an appropriate
timeframe for the implementation of the settlement
discipline regime under CSDR? If not, what would be an
appropriate timeframe in your opinion? Please provide
concrete data and evidence justifying a phase-in for the
settlement discipline measures and supporting your
proposals
No comment.
Do the RTS define 10% as an absolute or proportionate rate?
Yes.
Wealth Management Association
22 City Road
Finsbury Square
London EC1Y 2AJ
Tel: +44(0) 20 7448 7100
[email protected]
13 February 2015