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EU penalties for financial trades failures face delay to 2022

European Union rules that punish failures to settle bond trades could be delayed again until February 2022 because of the pandemic, the bloc’s securities watchdog said .

The so-called settlement discipline regime includes cash penalties for fails, and the start date had already been pushed back from November to February next year due to market disruption from COVID-19 hampering preparations.

Settlement is a core part of the market’s plumbing, ensuring that cash is swapped for legal ownership and custody of the asset, usually within two or three days.

The European Securities and Markets Authority (ESMA) said it was working on a proposal to possibly delay the entry into force of the settlement discipline regime until February 1, 2022.

“This is due to the impact of the COVID-19 pandemic on the implementation of regulatory projects and IT deliveries by Central Securities Depositories and came as a request from the European Commission,” ESMA said in a statement.

The new regime includes mandatory buy-ins, or the buyer of a security having the right to secure delivery of it from a third party like a settlement house at the going market price, when the original seller has failed to provide it.

It replaces a system when fails were dealt with in private between both sides of a trade.

The International Capital Market Association (ICMA), which represents the fixed income and repurchase agreements or repo sector, has warned that the new rules would mean millions of buy-ins a year, hitting market pricing and liquidity.

Britain’s finance ministry said in June it would not be implementing the new settlement failure rules inherited from the EU, and that market participants should continue to apply an existing industry-led framework.
Source: Reuters (Reporting by Huw Jones, Editing by Iain Withers and Louise Heaven)

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