Commission Delegated Regulation (EU) 2018/1229Show full title

CHAPTER II U.K. Measures to prevent settlement fails

Article 2 U.K. Measures concerning professional clients

1. Investment firms shall require their professional clients to send them written allocations of securities or of cash to the transactions referred to in Article 5(1) of Regulation (EU) No 909/2014, identifying the accounts to be credited or debited. Those written allocations shall specify the following:

(a) one of the following types of transaction:

(i)

purchase or sale of securities;

(ii)

collateral management operations;

(iii)

securities lending/borrowing operations;

(iv)

repurchase transactions;

(v)

other transactions, which can be identified by more granular ISO codes;

(b) the International Securities Identification Number (ISIN) of the financial instrument or where the ISIN is not available, some other identifier of the financial instrument;

(c) the delivery or the receipt of financial instruments or cash;

(d) the nominal value for debt instruments, and the quantity for other financial instruments;

(e) the trade date;

(f) the trade price of the financial instrument;

(g) the currency in which the transaction is expressed;

(h) the intended settlement date of the transaction;

(i) the total amount of cash that is to be delivered or received;

(j) the identifier of the entity where the securities are held;

(k) the identifier of the entity where the cash is held;

(l) the names and numbers of the securities or cash accounts to be credited or debited.

Written allocations shall include all other information required by the investment firm for facilitating the settlement of the transaction.

Investment firms that have received confirmation of the execution of a transaction order placed by a professional client shall ensure through contractual arrangements that the professional client confirms its acceptance of the terms of the transaction in writing, within the timeframes set out in paragraph 2. That written confirmation may also be included in the written allocation.

Investment firms shall provide their professional clients with the option of sending the written allocation and the written confirmation electronically, through the international open communication procedures and standards for messaging and reference data referred to in Article 35 of Regulation (EU) No 909/2014.

2. Professional clients shall ensure that written allocations and written confirmations referred to in paragraph 1 are received by the investment firm by one of the following deadlines:

(a) by close of business on the business day on which the transaction has taken place where the investment firm and the relevant professional client are within the same time zone;

(b) by 12.00 CET on the business day following that on which the transaction has taken place where one of the following occurs:

(i)

there is a difference of more than two hours between the time zone of the investment firm and the time zone of the relevant professional client;

(ii)

the orders have been executed after 16.00 CET of the business day within the time zone of the investment firm.

Investment firms shall confirm receipt of the written allocation and of the written confirmation within two hours of that receipt. Where the written allocation and the written confirmation is received by an investment firm within less than one hour before its close of business, that investment firm shall confirm receipt of the written allocation and of the written confirmation within one hour after the start of business on the next business day.

3. Where investment firms receive the necessary settlement information referred to in paragraph 1 in advance of the timeframes referred to in paragraph 2, they may agree in writing with their professional clients that the relevant written allocations and written confirmations are not to be sent.

4. Paragraphs 1, 2 and 3 shall not apply to professional clients holding, at the same investment firm, the securities and cash relevant for the settlement.

Article 3 U.K. Measures concerning retail clients

Investment firms shall require their retail clients to send them all the relevant settlement information for transactions referred to in Article 5(1) of Regulation (EU) No 909/2014 by 12.00 CET on the business day after that on which the transaction has taken place within the time zone of the investment firm, unless that client holds the relevant financial instruments and cash at the same investment firm.

Article 4 U.K. Settlement facilitation and processing

1. CSDs shall process all the settlement instructions on an automated basis.

2. CSDs that have intervened manually in the automated settlement process in the manner referred to in either point (a) or point (b) of paragraph 3 shall notify the competent authority of the reason for that intervention within 30 days of its occurrence, unless the same reason has already been notified for previous interventions.

3. A manual intervention in the automated settlement process shall occur in the following circumstances:

(a) where the feed of a received settlement instruction into the securities settlement system has been delayed or modified or where that settlement instruction itself has been modified outside of the automated procedures;

(b) where in the processing of received settlement instructions in the settlement engine, an intervention takes place outside of the automated procedures, including the management of IT incidents.

4. Competent authorities may inform CSDs at any time that a particular reason does not justify manual interventions in the automated settlement process. CSDs shall not intervene manually in the automated settlement process thereafter on the basis of that reason.

Article 5 U.K. Matching and population of settlement instructions

1. CSDs shall provide to participants a functionality that supports fully automated, continuous real-time matching of settlement instructions throughout each business day.

2. CSDs shall require participants to match their settlement instructions through the functionality referred to in paragraph 1 prior to their settlement, except in the following circumstances:

(a) where the CSD has accepted that the settlement instructions have already been matched by trading venues, CCPs or other entities;

(b) where the CSD itself has matched the settlement instructions;

(c) in the case of free of payment (‘FoP’) settlement instructions, referred to in point (g)(i) of Article 13(1), which consist of orders for transfers of financial instruments between different accounts opened in the name of the same participant or managed by the same account operator.

Account operators referred to in point (c) shall include entities that have a contractual relationship with a CSD and that operate securities accounts maintained by that CSD by means of recording book entries into those securities accounts.

3. CSDs shall require participants to use the following matching fields in their settlement instructions for the matching of settlement instructions:

(a) the type of settlement instruction, as referred to in point (g) of Article 13(1);

(b) the intended settlement date of the settlement instruction;

(c) the trade date;

(d) the currency, except in the case of FoP settlement instructions;

(e) the settlement amount, except in the case of FoP settlement instructions;

(f) the nominal value for debt instruments, or the quantity for other financial instruments;

(g) the delivery or receipt of the financial instruments or cash;

(h) the ISIN of the financial instrument;

(i) the identifier of the participant that delivers the financial instruments or cash;

(j) the identifier of the participant that receives the financial instruments or cash;

(k) the identifier of the CSD of the participant's counterparty, in the case of CSDs that use a common settlement infrastructure, including in the circumstances referred to in Article 30(5) of Regulation (EU) No 909/2014;

(l) other matching fields required by the CSD for facilitating the settlement of transactions.

4. In addition to the fields referred to in paragraph 3, CSDs shall require their participants to use a field indicating the transaction type in their settlement instructions based on the following taxonomy:

(a) purchase or sale of securities;

(b) collateral management operations;

(c) securities lending/borrowing operations;

(d) repurchase transactions;

(e) other transactions (which can be identified by more granular ISO codes as provided by the CSD).

Article 6 U.K. Tolerance levels

For the purpose of matching, CSDs shall set tolerance levels for settlement amounts.

The tolerance level shall represent the maximum difference between the settlement amounts in two corresponding settlement instructions that would still allow matching.

For settlement instructions in EUR, the tolerance level per settlement instruction shall be EUR 2 for settlement amounts of up to EUR 100 000 and EUR 25 for settlement amounts of more than EUR 100 000. For settlement instructions in other currencies, the tolerance level per settlement instruction shall be of equivalent amounts based on the official exchange rate of the ECB, where available.

Article 7 U.K. Cancellation facility

CSDs shall set up a bilateral cancellation facility that enables participants to bilaterally cancel matched settlement instructions that form part of the same transaction.

Article 8 U.K. Hold and release mechanism

CSDs shall set up a hold and release mechanism that consists of both of the following:

(a)

a hold mechanism that allows pending settlement instructions to be blocked by the instructing participant for the purpose of settlement;

(b)

a release mechanism that allows pending settlement instructions that have been blocked by the instructing participant to be released for the purpose of settlement.

Article 9 U.K. Recycling

CSDs shall recycle settlement instructions that have resulted in a settlement fail until they have been settled or bilaterally cancelled.

Article 10 U.K. Partial settlement

CSDs shall allow for the partial settlement of settlement instructions.

Article 11 U.K. Additional facilities and information

1. CSDs shall offer participants the possibility to be informed about a pending settlement instruction of their counterparties, either within one hour after the first unsuccessful attempt to match that instruction, or immediately after such an unsuccessful attempt where that attempt has been made within the five-hour period before the cut-off of the intended settlement date or after the intended settlement date.

2. CSDs shall provide participants with access to real-time information on the status of their settlement instructions in the securities settlement system, including information on:

(a) pending settlement instructions that can still be settled on the intended settlement date;

(b) failed settlement instructions that can no longer be settled on the intended settlement date;

(c) fully-settled settlement instructions;

(d) partially-settled settlement instructions, including both the settled and unsettled parts of either financial instruments or cash;

(e) cancelled settlement instructions, including information about whether those instructions have been cancelled by the system or by the participant.

3. The real-time information referred to in paragraph 2 shall include the following:

(a) whether the settlement instruction has been matched;

(b) whether the settlement instruction can still be partially settled;

(c) whether the settlement instruction is on hold;

(d) the reasons why instructions are pending or failing.

4. CSDs shall offer participants either real-time gross settlement throughout each business day or a minimum of three settlement batches per business day. The three settlement batches shall be spread across the business day in accordance with market needs, based on a request by the user committee of the CSD.

Article 12 U.K. Derogation from certain measures to prevent settlement fails

1. Articles 8 and 10 shall not apply where the securities settlement system operated by a CSD meets the following conditions:

(a) the value of settlement fails does not exceed EUR 2,5 billion per year;

(b) the rate of settlement fails, based either on the number of settlement instructions or on the value of settlement instructions, is lower than 0,5 % per year.

The rate of settlement fails based on the number of settlement instructions shall be calculated by dividing the number of settlement fails by the number of settlement instructions entered into the securities settlement system during the relevant period.

The rate of settlement fails based on the value of settlement instructions shall be calculated by dividing the value in EUR of settlement fails by the value of settlement instructions entered into the securities settlement system during the relevant period.

2. By 20 January of each year, CSDs shall assess whether the conditions referred to in paragraph 1 are met and shall notify the competent authority of the results of that assessment in accordance with Annex II.

Where the assessment confirms that at least one of the conditions referred to in paragraph 1 no longer applies, CSDs shall apply Article 8 and Article 10 within one year from the date of the notification referred to in the first subparagraph.