ICMA updates repo best practices to support post-trade efficiency
30 March 2021
The targeted updates published today were prepared jointly by the ERCC Operations Group and the ERCC’s Guide Working Group and specifically aim at improving processes related to intraday liquidity management and settlement efficiency.
ICMA’s European Repo and Collateral Council (ERCC) has published an updated version of the ERCC’s Guide to Best Practice in the European Repo Market.
Over the past months, the ERCC Operations Group
has undertaken a detailed analysis of the various drivers and challenges
around firms’ intraday liquidity management and, closely related, the
implications for settlement efficiency. The recommendations published
today are a first tangible outcome of this work.
Today’s updates include the following:
- Existing
recommendation for market participants to shape settlement instructions
at 50 million nominal value has been clarified and strengthened
(paragraph 2.69);
- Recommendations on partial settlement have been significantly
extended to explain remaining obstacles and encourage the use of
partialling wherever practicable (paragraphs 2.70 – 2.76);
- New paragraph added to acknowledge the importance of
auto-partialling facilities offered by (I)CSDs and to encourage their
use (paragraph 2.78);
- Additional paragraphs on the use of hold and release facilities
offered by CSDs, to discourage any potential misuse of this tool, and to
stress the importance of introducing complementary partial release
functionality to facilitate auto-partialling (paragraphs 2.60 – 2.66).
Along with the updated Guide itself, the ERCC released a
blackline version which highlights all the latest changes.
The
updated recommendations published today are an important step towards a
more consistent application of the relevant tools, but settlement
efficiency remains a major focus for the industry, particularly in view
of the upcoming implementation of CSDR settlement discipline measures.
The ERCC is currently discussing the scope for additional measures and
recommendations to support a further reduction in the level and impact
of settlement fails. On 26 February, the ERCC hosted a cross-industry
workshop to discuss the issues at stake with a wide range of
stakeholders, including sell-side, buy-side, market infrastructures and
custodians. Based on those discussions, a number of additional
recommendations are currently being finalised and will be communicated
in due course. Cross-industry collaboration will continue to be an
important element, as we are keen to build a broad market consensus
around any recommendations. Another key supporting factor will be data,
which is needed to quantify the problem, but also to help develop
appropriate measures to monitor progress going forward. The ERCC
collaborates closely with the ECB, CSDs and ICSDs on these quantitative
elements, which also complement extensive related analysis that is being
undertaken by T2S stakeholders.
The challenges around settlement efficiency and the related ERCC recommendations will be discussed in more detail in today’s
ERCC Annual General Meeting with a panel of market experts.
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