The International Market Capital Market Association (ICMA) has updated its European repo market guide to reflect the latest advice from regulators and mitigate known market inefficiencies and pain points.
The changes include a clarification of an existing recommendation for market participants to shape settlement instructions at €50 million nominal value.
Other established 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).
Additionally, a new paragraph has been added to acknowledge the importance of auto-partialling facilities offered by international central securities depositories (ICSD), which ICMA says has been included to encourage their use (paragraph 2.78).
Finally, an explanatory section was added 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).
The guide was created and is maintained by ICMA’s European Repo and Collateral Council (ERCC), and the latest changes were prepared jointly by the ERCC’s operations group and guide working group.
The operations group says it 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 updates to the repo guide are a consequence of this initiative.
ICMA says the updates represent 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 the Central Securities Depositories Regulation settlement discipline measures”, due in February 2022.
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, the council says.
“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 states.
