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Partial Deliveries

Partial Deliveries

Introduction

In 2019 the ISLA CSDR working group published ‘CSDR: Settlement Discipline Impact to Securities Lending (Feb 2019), which investigated areas of improvement required to increase settlement efficiency. This initial paper was followed by second paper of aspirational recommendations, one of which was to investigate the implementation of a best practice that required auto-partial be the default mechanism. This proposal noted public statements by other trade associations and therefore a desire to be as aligned as possible with those statements.

However, the Securities Lending market operates under two distinct models which require a more nuanced approach than a simple default. The following paragraphs therefore split best practice depending on operating model.

Useful links include:
CSDR: Settlement Discipline Impact to Securities Lending - Phase 2: Recommendations, Guidance & Future Practices
Insights on Partial Settlement (Oct 2017)
AFME Recommendations for Partial Settlement (IBP-125)

Between Principal Borrower/Lenders

Where both parties to a transaction act as principal, both parties should default their instruction to allow automatic partial settlement.

Parties may bilaterally agree to a time or quantity limitation to provide reasonable and adequate opportunity to maintain collateral.
(IBP-306)

Loans with Agent Lenders

Where one party to a loan is an agent lender that operates a many-to-one settlement process:
- New loan - The agent will only instruct if sufficient assets area available to lend. If assets are sold by the beneficial owner between loan execution and settlement, the agent may either reallocate to another fund or cancel the loan,
- Partial or full close of loan - If a borrower, after instructing a reduction or full close-out, is no longer able to fulfil that delivery, the closing instruction may be cancelled until asset are available or parties bilateral agree to partial settlement.
- Loan recall - If an agent recalls a loan, due to beneficial owner instruction, parties should bilaterally agree to partial settlement which may include autopartial limited by time or quantity as required. (IBP-307)

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