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Despite the buy-in remedy being widely available, relatively few buy-ins are actually executed relative to number of failed transactions. Also, initiating a buy-in process does not necessarily result in successful execution, particularly where the underlying securities are illiquid. These factors can be attributed to a number of challenges related to the buy-in process. The challenges of implementing CSDR Mandatory Buy-ins identified by the ICMA paper:
Level 1
· The ‘buy-in’ is not defined, nor is the purpose of the buy-in explained.
· The buy-in process seems to apply to CSD participants, which may not be the same as the trading counterparties to the transaction.
· The provision for the payment of the price differential between the buy-in price and the original transaction price is reversed, compared to standard buy-in processes.
The Level 2 Options
· The RTS do not specify how the price differential between the buy-in price and the original transaction price should flow.
· The trading counterparties to the original transaction may not be involved in the buy-in or cash compensation process (Options 2 and 3).
· The buy-in process could require the involvement of a trading venue, which may not have sufficient information to initiate the buy-in process.
· The RTS do not specify how the reference price for cash compensation is to be determined.
· Where the buy-in process only involves the trading counterparties to the original transaction (Option 1), the buy-in, in some circumstances, may not be enforceable.
The deadline for responses to the Consultation Paper is August 6th, and ICMA is currently consulting with its members for input.