The 1st of February represents the one-year anniversary of the implementation of the Settlement Discipline Regime (SDR), from the wider Central Securities Depository Regulation (CSDR). The SDR was introduced with the promise of increasing the efficiency of securities settlement within the EU, however its implementation has not been without challenges.

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One of the biggest impacts financial markets participants have faced is the introduction of penalties levied for failed transactions, and these challenges have been particularly felt in the securities lending markets with the Bank of England (BoE) Securities Lending Committee recently commenting that ‘this problem [failed settlement] has existed in the industry for years, and CSDR penalties have not made a large improvement thus far’.

The fact the penalties have yet to yield significant improvements in the fail rate is somewhat surprising when these amounts can be substantial running into hundreds of thousands and often millions of Euros per year. Equally it highlights the opportunities that remain for firms to realise significant savings through efficient solutions. 

To prevent fail issues in the first place, firms have needed to implement proactive risk management tools to improve controls and visibility across the organisation. If a firm can identify and address potential issues early and prioritise and manage the workflow to resolve these more efficiently, they minimize the risk of penalties.  

Along with the immediate financial implications, improving securities lending and repo settlement efficiency will also improve risk management and client service, along with providing broader operational benefits. Given securities finance transactions often link to other transactions such as outright purchases improving the settlement rates in this area will additionally help prevent secondary fails and additional penalties.

Despite the regulation being live for one year as the BoE comments confirm there are still areas that can be improved. Below are a few process efficiencies firms should be looking at many of which are already part of best practice both within the securities lending markets via the International Securities Lending Association (ISLA), and within the Repo markets via the International Capital Markets Association European Repo and Collateral Council (ICMA ERCC):

  • Pre-matching SSIs ahead of settlement date. 
  • Configuring automated returns. 
  • Exploring auto-partial solutions  
  • Ensure timely settlement of pre-paid collateral to ensure loans are released ahead of cash market cut offs. 
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Pirum offers a suite of services covering the above processes and which can support firms with their fails management and manage the impact of the SDR.   

Pirum’s Trade Risk Manager (TRM) solution help our clients prevent fails in the first instance, along with automation to identify and prioritise any remaining risks that occur. The system provides real-time data on pending transactions allowing for early detection of potential failures. It monitors and tracks securities finance trades in real-time and highlights any trades that are at risk of failing to settle on time or have already failed with prioritisation around penalty size and market cut offs for them to resolve. Clients are also supported with workflow automation and the ability to fix breaks direct from the platform.


With our TRM solution and integration to lifecycle event processing such as Loan Release, clients are seeing the number of fails reduced by 31%, with this reduction being in the more costly fails the reduction in penalties stands at 74%. As a result of these lowered failure rates clients using the services are seeing on average a $1 to $4m in penalty prevention per year.

Another example of these services is standard settlement instruction (SSI) enrichment and reconciliation.

By ensuring that SSIs are accurate and up to date, it minimizes the risk of transaction failures due to incorrect data. This feature also benefits the real-time pre-matching process which in turn increases the chances of transaction success.

It is important to check whether your vendor offers any tools which could already be a part of your existing package or subscription, which can help to manage and prevent fails. An example of this is automated, same-day return bookings. This is a key piece of functionality which allows for the immediate re-booking of failed transactions helping to resolve issues in a timely manner - e.g. booking automated same day returns where accepted by the lender.

Another useful feature to mitigate fail costs is partial settlement which allows for the settlement of part of a transaction, rather than requiring the entire trade to be settled at once. This is particularly useful when a trade fails due to a lack of funds or securities. By settling a portion of the trade, it minimizes the risk of further fines, as well as reduces the amount of time and resources spent on resolving the issue.  

Overall, CSDR and the SDR will contribute to a stronger and safer securities settlement infrastructure in the EU, benefiting both market participants and investors. However, the regulation will continue to have a significant impact on market participants, including banks, CSDs, and other intermediaries as they continue to comply with the regulation.  

As the regulation continues to evolve, it is important for companies to continue to adapt their systems and processes to ensure compliance and mitigate costs.  

By utilizing technology and implementing best practices, organizations can effectively navigate the requirements of CSDR and ensure a smooth transition to the new regulatory framework.


Contact us to find out