Securities finance industry news | BoE Money Markets Committee reflects on settlement inadequacies for sec finance trades

The Bank of England Money Markets Committee has highlighted high rates of settlement failure prevailing for securities finance trades.

Results from an informal market survey conducted across ISLA members for securities lending transactions between 2019 and October 2022 found that for closing leg trades, settlement rates were generally around 85 per cent for both equities and fixed income loans.

The Committee reported that the settlement discipline regime component of the Central Securities Depositories Regulation, implemented in February 2022, has had some positive impact on these settlement fail rates, pushing settlement rates up to 90 per cent for return leg trades for equities loans.

For open leg trades, settlement rates were typically higher, falling in the 95 to 97 per cent range for equities and fixed income transactions.

For equities loans, the survey finds that the primary reason for settlement fails in the return leg was typically lack of access to stock. For fixed income lending, the primary driver was lack of liquidity in the corporate bonds market.

These concerns about settlement efficiency also extended over into the repo marketplace.

Notwithstanding a rise in settlement efficiency between May and September 2022, there was a tangible rise in fail rates over the last fortnight of September and into October linked to the rise…