The upcoming February 2022 implementation deadline of the Central Securities Depositories Regulation’s (CSDR) settlement discipline regime will impact all trades settled on a European Central Securities Depository (CSD).
It means buy-side and sell-side firms may fall within its scope, according to Katia Falina, Buy-Side Head of Post Trade Product, Bloomberg.
Settlement efficiency will be key to meet the requirements of CSDR.
Under the regulation, all European CSDs must complete settlement for on-exchange trades within two days of the transaction date (T+2).
“Firms will face penalties for any settlement fail,” she said.
The new regime imposes a tight schedule between trades and the start of potential penalties.
In fact, Falina said, penalties for a failed trade are imposed on firms from just one business day after the due delivery date.
“This puts pressure on firms to ensure they have systems and controls in place to identify and flag trades at risk of not settling on time,” she said.
She added that such workflows are operationally complex and present a real challenge to firms preparing for CSDR’s official go-live date in February 2022.
“The only way of solving for this challenge is to have an efficient technology-based post trade workflow, which gives firms transparency and scale,” she commented.
In December, Bloomberg launched a new solution in FailStation, its settlement-exception management tool, to support CSDR.
FailStation facilitates customers’ CSDR compliance through a combination of automated settlement exception management tools and Bloomberg CSDR data.
Falina explained that settlement exceptions are trades where prior to the settlement date a data mismatch is identified between the two counterparties to the trade.
“This would result in a settlement failure on settlement date, if not proactively addressed,” she added.
Falina said that clients can prioritize fails based off penalty size, isolate CSDR eligible transactions, and send automatic notifications to internal and external stakeholders and initiate the resolution process, thus augmenting successful settlement rates and minimizing penalties.
Additionally, FailStation is natively integrated with Bloomberg AIM, an order management system, and forms part of a consolidated post-trade operations package that brings transparency to each stop of a customers workflow.
“The processing of buy-ins, cancellations, and custodian communications associated with CSDR can be executed by utilizing AIM’s direct custody connectivity,” Falina said.
She said that FailStation provides a technology solution for an area of operations known for being very manual and human capital-intensive – settlement exception management.
Through a combination of workflow tools and analytics within FailStation, clients can easily identify settlement exceptions, assess their CSDR eligibility based on an integrated indicator, and reach out to their counterparties in a timely manner to ensure a prompt resolution – a vital service in the context of CSDR, when an extra day of delay means an increase in penalty.
“Indeed, 95% of settlement exceptions reported to FailStation end up settling on time, bypassing penalties altogether, while 2% settle within one business day, 1% after two days, and the remaining 2% settle after three days or more,” Falina said.
In 2021, Bloomberg launched its Post Trade Operations package – an offering natively integrated with Bloomberg AIM and available to Bloomberg Buyside Solutions clients.
The offering complements the front office OMS with one centralised post trade workflow, coupled with 70% workflow automation to achieve true STP for low-touch trades and streamlined integration to leading asset servicers.
“2022 will see some of our Machine Learning-based initiatives come to fruition: proactive anomaly detection to front run trade management problems and automated identification of a reconciliation break route cause,” Falina said.
“All of these solutions aim to solve complex operational problems with technology, thus helping our clients manage their operational spend,” she added.
