ICMA’s European Repo and Collateral Council (ERCC) has published an updated version of the ERCC’s Guide to Best Practice in the European Repo Market. The targeted updates published today were prepared jointly by the ERCC Operations Group and the ERCC’s Guide Working Group and specifically aim at improving processes related to intraday liquidity management and settlement efficiency. Over the past months, the ERCC Operations Group has undertaken a detailed analysis of the various drivers and challenges around firms’ intraday liquidity management and, closely related, the implications for settlement efficiency. The recommendations published today are a first tangible outcome of this work.
Today’s updates include the following:
- Existing recommendation for market participants to shape settlement instructions at 50 million nominal value has been clarified and strengthened (paragraph 2.69);
- Recommendations on partial settlement have been significantly extended to explain remaining obstacles and encourage the use of partialling wherever practicable (paragraphs 2.70 – 2.76);
- New paragraph added to acknowledge the importance of auto-partialling facilities offered by (I)CSDs and to encourage their use (paragraph 2.78);
- Additional paragraphs on the use of hold and release facilities offered by CSDs, to discourage any potential misuse of this tool, and to stress the importance of introducing complementary partial release functionality to facilitate auto-partialling (paragraphs 2.60 – 2.66).
Along with the updated Guide itself, the ERCC released a blackline version which highlights all the latest changes.
The updated recommendations published today are an important step towards a more consistent application of the relevant tools, but settlement efficiency remains a major focus for the industry, particularly in view of the upcoming implementation of CSDR settlement discipline measures. The ERCC is currently discussing the scope for additional measures and recommendations to support a further reduction in the level and impact of settlement fails. On 26 February, the ERCC hosted a cross-industry workshop to discuss the issues at stake with a wide range of stakeholders, including sell-side, buy-side, market infrastructures and custodians. Based on those discussions, a number of additional recommendations are currently being finalised and will be communicated in due course. Cross-industry collaboration will continue to be an important element, as we are keen to build a broad market consensus around any recommendations. Another key supporting factor will be data, which is needed to quantify the problem, but also to help develop appropriate measures to monitor progress going forward. The ERCC collaborates closely with the ECB, CSDs and ICSDs on these quantitative elements, which also complement extensive related analysis that is being undertaken by T2S stakeholders.