The requirement to notify or ‘call-in’ transactions to counterparts is a standard market-wide practice which is unique to the securities lending product. The process is often manual or duplicative of systemic processes, and benefits of the process are limited by the lack of standard formats for non-automated solutions.
Non-automated solutions may be required where a counterpart does not currently use the functionality on a vendor platform, or the original transaction went through the automated process and was rejected by the counterpart and their acceptance rules.
It is recommended that that all loan transaction activity, new or close, should be undertaken through automated platforms.
For reference to working group discussion on this topic, please refer to CSDR: Settlement Discipline Impact to Securities Lending (Sep 2019) (IBP-134)
On receipt of a notification, the receiving party should provide an acknowledgement (ACK) within an hour in support of the one-hour timestamp SFTR validation rule.
Where a recall is issued by a lender and the borrower cannot return the full quantity, the response to a notification should advise the shapes that will be returned or partial delivery that is possible to fulfil the recall notice. (IBP-317)
The use of vendor platforms, is recommended where possible for trade notifications and other communications between parties. As such it is recommended that counterparts communicate their platform and functionality preferences on a regular basis. Functionality may included features that support loan or collateral reconciliation, trade notification, regulatory reporting, any restrictions that might apply to a return (e.g. Maturity Date) and other useful communications.
It is further recommended that a reconciliation of counterparty platforms and functionality is kept up-to-date to ensure communications are not disrupted.
It should be noted that restriction functionality may be utilised on vendor platforms which result in a trade notification reject. Counterparts should communicate reject/filters to their counterparts to improve transparency. (IBP-136)
Members recognise potential differences between standard returns initiated by borrowers and loan recalls initiated by lenders, typically in response to asset sale by beneficial owner.
Returns may be instructed for standard settlement with reference to the related market, as noted in the GMSLA, however prevailing market practice allow for returns on T+0.
This provides benefits to both parties and, in relation to settlement efficiency, may support improved settlement rates as it relates to increase certainty of assets being place. Where loan returns are instructed to return on T+0, instructions should be provided at least 90 minutes prior to FOP cut-off to avoid instruction mismatches.
If use of a vendor platform is not available, counterparties should use the standard template detailed on Chapter 4, page 11 of the CSDR: Settlement Discipline Impact to Securities Lending (Sep 2019). (IBP-138)
Partial Close and Claims
Partial settlement can be requested within market deadlines following receipt of shares or notification that the recall recipient is insufficient to deliver. Where this is the case, it is recommended that both parties partially settle wherever possible to reduce exposure to potential claims or fines.
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