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]
â€œPartial 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'.â€ (IBP-330)
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 the failed-to party.
Parties may bilaterally agree to time or quantity limitations to provide sufficient opportunity to maintain collateral or other controls. (IBP-125)
[Topic under review in Market Practice Steering group further to settlement efficiency topic] (IBP-334)
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 & 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 group pending future market developments. (IBP-333)
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