Clearstream supports ICMA's "Aged-Fails Auction Initiative"

Note: This Marketflash, originally published on 1 July 2015, has been updated to reflect latest developments. Changes have been highlighted.

Customers are informed that Clearstream Banking S.A.¹, Luxembourg (CBL), is actively supporting efforts of the International Capital Market Association (ICMA) to develop a a buy-in auction mechanism, facilitated by CBL's automated corporate actions notifications messaging flows.

Background

In context of CSD-Regulation², upcoming settlement discipline measures will significantly increase the urgency for market participants to cover failing positions.

According to ICMA, the auction which would improve efficiency and transparency for the buy-in process of fixed income instruments, as well as supporting the provisions for buy-ins under CSDR shall provide sell-side firms with a means to bid to cover difficult short positions.

The auctions shall take place at scheduled dates/times, supported by interested multilateral trading facilities (MTFs) or electronic trading platforms.

As key part of the process, CBL will be informed of the auction schedules in order to notify holders of the relevant securities of the upcoming auction through its fully automated corporate actions notifications messaging systems (the usage of MT564 “INFO” notifications is currently under discussion).

This notification flow will allow holders of relevant bonds to tender their bonds into the auction, either directly, or through a nominated member broker-dealer.

Next steps

At this stage the auction mechanism is a purely ”voluntary” auction, that would be initiated by the failing seller, and is intended to serve as a prototype for the development of an eventual buy-in auction. The eventual projected buy-in auction mechanism is intended to be supported by a revision to the ICMA buy-in rules, and could also be consistent with CSDR mandatory buy-ins, when the regulation is implemented.

ICMA has formed a dedicated Working Group with all interested parties to further develop this market driven initiative, including a member survey to determine the commercial viability for potential supporters of the initiative. A presentation detailing the foreseen model and survey results can be found on the ICMA website.

CBL will continue to actively support the development of this “auction initiative”.

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1. Clearstream Banking refers to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).

2. REGULATION (EU) No 909/2014 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories (CSDR) forms an important part of the European Commission’s agenda to enhance the safety and soundness of the financial system