The EU’s proposed Financial Transactions Tax (FTT) could reduce the supply of securities available to market participants to borrow to cure settlement fails, according to the International Securities Lending Association (ISLA).
This, says the association, will increase operational risk in the system and could therefore defeat one of the main objectives of the Central Securities Depository Regulation (CSDR).
The CSDR will implement settlement disciplines for transactions that fail to settle on their intended settlement date. There is concern in the market that the penalties imposed may be disruptive to normal market activity. The CSDR itself assumes that transactions that are due to fail can be remedied by market participants borrowing securities temporarily.
The European Securities Market Association (ESMA), the technical authority responsible for implementing standards, released its financial report on draft technical standards for CSDR this week.
ESMA launched a third consultation focusing only on the operation of the securities buy-in process from 30 June to 6 August 2015.
Following the submission of the draft technical standards to the European Commission, it has three months to decide whether to endorse ESMA’s draft technical standards.
Given the need to analyse the responses received following ESMA’s Consultation Paper on the buy-in process, as well as the need to continue the discussions with the European Commission on the legal feasibility of the options to be considered regarding the entity responsible for the execution of the buy-in the case of transactions not cleared by a CCP, ESMA is delaying the delivery of the RTS on settlement discipline. These measures have been pushed back to November.
ISLA also stated in a paper that a tax on securities lending will reduce returns to institutional investors, including pension funds, by €2 billion.