Settlement Disciplines

System Updates for Settlement Information

Status: Under Review, Last Updated: 25/08/2020

Introduction
Many maintenance procedures, such as collateral or loan instruction release, are dependent on timely settlement status updates. Those status updates are in turn dependant on the turnaround of custodial networks, whose response times may vary by location or service provider.

To ensure the smooth operation of markets, it is reasonable to expect that both counterparts will have updated instructions and status within an hour of events. I.e. when settlement occurs, both parties' systems should reflect that status in an hour or less. (IBP-121)

Opposing Settlement Information

Status: Under Review, Last Updated: 07/08/2020

Mismatch Resolution
A counterparty should not directly contact the custodial network of another counterparty. However, in more complex cases, it may be necessary to bring all parties together to resolve any disputes/unreconciled positions. This can only be done with both counterparties agreement. In the event Counterparty A sees a trade unmatched/failing but Counterparty B sees it as matched/settled, then Counterparty B is responsible for providing the market reference for that matched/settled trade typically sourced from their custodian network to Counterparty A. (IBP-122)

Notifying a Counterparty Regarding Amended Status/ Valuations

Status: Under Review, Last Updated: 07/08/2020

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Where a counterparty cancels a loan or return, vendor platforms should be used to advise the counterparty. Where it is not possible to use a vendor platform, there is a requirement to notify the counterparty directly that a transaction has been cancelled. Pre-matching and fails reporting between counterparties is recommended. Timing, frequency and responsibilities are to be agreed on a bilateral basis. (IBP-123)

Best Effort Time Frames for Settlement

Status: Under Review, Last Updated: 20/09/2020

Transactions
Although best practice may recommend guide cut-off times, it is recognised that counterparts to a loan will want to retain a flexible approach. However, should notifications, instructions and settlement occur outside the recommended guide-times, parties should acknowledge that settlement will be on a best efforts basis.

It should also be noted that, to avoid any back-dating of activity, instructions should be processed/instructed on the date they are negotiated.

The guide-times for activity are therefore:

• New Loans - Should be instructed on trade date no later than 1 hour prior to the relevant market cut-off. Collateralisation of new loans will occur at different times relative to the trade and settlement. See the section "Process for Collateral" in this handbook for best practice timing.

• Returns - Notification of a loan return should be processed electronically and where possible via an electronic platform no later than 1 hour prior to the relevant market cut-off. (IBP-124)

Best Effort Time Frames for Settlement

Status: Under Review, Last Updated: 25/08/2020

Back-dated Activity
Back dated trades may only be processed if permitted by each counterparty's internal policies and are agreed bilaterally.

Due to additional approval requirements for back dated trades, and potential for manual intervention, notification times should be agreed bilaterally between parties. (IBP-308)

Partial Loan Close

Status: Under Review, Last Updated: 28/01/2022

Partial Loan Close
A Partial Loan Close is the return of some part of an existing stock loan. The remaining part of the original loan remains with the borrower.

Regarding the notification to partially close, and subsequent settlement instruction(s), both parties should communicate and instruct a delta quantity and value rather than a full close and re-opening of the remaining loan.

This practice aligns with SFTR Best Practices [SFTR-337]

“ Partial returns: should be reported with a MODI (reducing quantity). When the final value is fully returned, this should not be reflected by a MODI reducing the quantity to '0'. “ (IBP-330)

Partial Deliveries

Status: Under Review, Last Updated: 28/01/2022

Auto Partial
Automatic Partial Settlement is a facility to settle incremental quantities of a failing transaction.

Auto-partial facilities should be applied by default for failing securities lending trades where its use does not disadvantage either party.

Parties may bilaterally agree to time or quantity limitations to provide sufficient opportunity to maintain collateral or other controls.

The T2S settlement system also provides Partial Hold Release functionality, and should be used as noted in SMPG Market Practices. (IBP-125)

Partial Deliveries

Status: Under Review, Last Updated: 28/01/2022

Loans with Agent Lenders
Loans with agent lenders that operate pooled lending services for beneficial owners may require an alternative approach in relation to partial deliveries.

The following use cases have been identified through working group discussion.

• New loan - If assets are sold by an underlying beneficial owner between loan execution and settlement, the agent will either reallocate to another beneficial owner/lender or bilaterally cancel the loan with the borrower,

• Loan close - If a borrower, after notifying a partial or full close-out, is no longer able to fulfil that delivery, the closing instruction may either be bilaterally cancelled, until sufficient asset(s) are available, or the parties may agree to manual process incremental settlements of the original instruction. The later is particularly relevant where the agent lender has provided a recall notification. (IBP-307)

Hold and Release

Status: Under Review, Last Updated: 28/01/2022

Hold & Release
As part of CSDR, CSDs offer functionality to hold and release instructions, partially releasing increments of the original instruction. As this relates to securities lending, loan instructions would be input and flagged as 'HOLD' pending the receipt of collateral. This would allow pre-matching of instruction; however, it would bypass or complicate instruction chains that require assets move through complex custody arrangements. In some cases, it could also conflict with some firm's custody product offerings.

As of June 2021, many firms have not yet amended their technology platforms to implement this function. Consequently, this topic has been placed on hold by the Market Practice Steering Group pending future market developments. (IBP-333)