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21 July 2015

ICMA: Buy-ins, how they work, and the challenge of CSDR


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The ICMA Briefing Note on the buy-in process illustrates how buy-ins work currently, and how they are proposed to work under CSDR. CSDR does not define what a buy-in is, it does provide for who should be responsible for, and be affected by, a buy-in, as well as the related cash-flows.


Despite the buy-in remedy being widely available, relatively few buy-ins are actually executed relative to number of failed transactions. Also, initiating a buy-in process does not necessarily result in successful execution, particularly where the underlying securities are illiquid. These factors can be attributed to a number of challenges related to the buy-in process. The challenges of implementing CSDR Mandatory Buy-ins identified by the ICMA paper:

Level 1

·         The ‘buy-in’ is not defined, nor is the purpose of the buy-in explained.

·         The buy-in process seems to apply to CSD participants, which may not be the same as the trading counterparties to the transaction.

·         The provision for the payment of the price differential between the buy-in price and the original transaction price is reversed, compared to standard buy-in processes.

 

The Level 2 Options

·         The RTS do not specify how the price differential between the buy-in price and the original transaction price should flow.

·         The trading counterparties to the original transaction may not be involved in the buy-in or cash compensation process (Options 2 and 3).

·         The buy-in process could require the involvement of a trading venue, which may not have sufficient information to initiate the buy-in process.

·         The RTS do not specify how the reference price for cash compensation is to be determined.

·         Where the buy-in process only involves the trading counterparties to the original transaction (Option 1), the buy-in, in some circumstances, may not be enforceable.

The deadline for responses to the Consultation Paper is August 6th, and ICMA is currently consulting with its members for input.

Full briefing note

Full press release



© ICMA


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