DTCC to offer CSDR penalty calculation service for failed trades

New service will also flag transactions that are in scope for CSDR, providing users with the ability to identify priority work prior to Settlement Date.

Exception Manager, the Depository Trust & Clearing Corporation (DTCC) platform to publish, manage and communicate trade exceptions, will now offer an optional Central Securities Depositories Regulation (CSDR) service to calculate predicted fail penalties.

The calculation will prioritise exceptions by size of predicted penalty. A new linkage between Exception Manager and Central Trade Manager (CTM), DTCC’s central matching service for cross-border and domestic transactions, will also provide clients with direct access to golden source trade information to help prevent settlement fails. 

“Access to accurate, authoritative trade data and the ability to quickly capture, prioritise and resolve exceptions is critical to preventing trade fails that could lead to penalties under the forthcoming CSDR’s Settlement Discipline Regime (SDR),” said Matthew Stauffer, managing director, head of institutional trade processing at DTCC. “The new features will have a tremendously positive impact on our clients’ ability to effectively address exceptions, resulting in greater risk mitigation and cost reduction for the industry.”

The CSDR Settlement Discipline Regime (SDR), expected to take effect in February 2022, introduces measures to mitigate settlement delays and requires firms to maintain high settlement rates. For eligible trades that do fail, the SDR is likely to impose daily penalties or charges.

Exception Manager will now flag transactions that are in scope for CSDR, providing users with the ability to easily identify priority work before Settlement Date. The module will include predicted penalty calculation, customisable exception prioritisation and claim email creation to initiate the claim process with counterparties.

“The SDR will impact all firms that trade in securities that ultimately settle at an EU-domiciled central securities depository (CSD),” said Matt Johnson, DTCC director, ITP digital strategy and platform management & industry relations. “With less than four months before the SDR is anticipated to go live, now is the time for firms to make preparations. Buy-side firms that leverage Exception Manager’s new capabilities could see a significant reduction in trade fails, helping them avoid associated penalties imposed by the SDR.” 

The DTCC follows the likes of Euroclear, Clearstream and a range of custody banks in offering either predictive or calculating services around SDR as the industry gears up for penalties under the regulation next year. While the mandatory buy-in aspect of the rules remains in limbo, it is expected that the penalties will come into force on the February 2022 date.