Settlement rates for securities lending as at 2018 were estimated to be between 80 and 90% with the majority of failed settlements occurring on the return leg of loan transactions. The securities lending market will be impacted by the enforcement of settlement fail cash penalties and buy-in regimes contained within the Central Securities Depository Regulation (CSDR) expected to go-live September 2020.
At the same time, the timing challenges (T+1) inherent in the reporting obligations of SFTR mean that accurate records, reconciled with counterparties, will be key to its success and fails will significantly impact reporting accuracy.
It is clear from the findings of ISLA’s research that a number of issues exist which prevent settlement rates improving. Some of these are not resolvable by the industry and will require changes by regulators and infrastructure providers in policy or approach. However, some issues can be resolved by adoption of automated solutions and best practices to improve current practice.
The second phase of work undertaken by ISLA’s CSDR working group will be to identify the possible solutions and where necessary engage with automated vendor solutions and market practitioners to provide recommendations to the market either as guidance or best practice. One of the key findings is that available automated vendor solutions may not meet market needs and are not consistently used by firms. And the report noted that when it comes to vendor pre-matching, the “chat” facilities in automated solutions are not being used by members users.