The Trade: banks hit with up to €5mn/mo in CSDR penalties as settlement rates deteriorate

Penalties for the sell-side are racking up across Europe as settlement fail rates continue to rise, and one expert on the matter believes that as a result, the buy-side should be receiving more credits from these counterparties.

Through the Settlement Discipline Regime – launched on 1 February – the organisation deemed to have caused a late match or a failed trade pays a penalty while the counterparty on the other side of the trade – the “wounded” party – receives that same penalty amount as a credit.

Pardeep Cassells, financial products at AccessFintech, believe that due to a lack of preparedness and the complexity of the regime, many buy-sides firms aren’t seeing all of the penalty data that relates to them, both in terms of credits and debits.

The penalties range from 0.5 bps to 1 bps depending on the nature of the financial instrument involved and apply to securities which are either traded on an EEA exchange or cleared in an EEA central counterparty clearing house.

Cassells has noted a deterioration in settlement rates over the past six weeks in Europe which has seen banks landed with between €3-5 million in penalties related to CSDR rules per month.

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