The European Securities and Markets Authority (ESMA) is consulting on settlement discipline, with the objective of improving settlement efficiency across various areas and taking into account the transition to T+1 in the European Union.
The set of proposals to amend the technical standards on settlement discipline include:
- reduced timeframes for allocations and confirmations,
- the use of electronic, machine-readable allocations and confirmations according to international standards, and
- the implementation of hold & release and partial settlement by all central securities depositories.
ESMA also wants to gather stakeholders’ views on additional measures that could potentially enhance settlement efficiency, for which there are no specific policy proposals yet.
Among those that impact securities lending and repo, ESMA referenced International Capital Market Association best practices in support of settlement efficiency, particularly that international central securities depositories (I)CSDs and some CSDs operate auto-borrowing or automatic pool lending facilities made available for lending by participants to fill complete or partial shortfalls where sellers have insufficient securities to meet their delivery obligations.
“Auto-borrowing plays a key role in reducing settlement failures, but its efficacy depends on participants signing up to these facilities as both lenders and borrowers. It is desirable for all CSDs to offer auto-borrowing facilities. It is best practice for all participants to sign up as borrowers to such facilities and, where practicable, for participants to sign up as lenders. As full use as possible should be made of these facilities.”