Centrálny depozitár cenných papierov SR, a.s. (CDCP) introduced the possibility of partial settlement for securities transaction settlement instructions within its settlement system as of 9 September 2024, thus joining the majority of CSDs that have previously allowed the partial settlement.
The obligation for CDCP to implement partial settlement arose from the European Union Regulation on Central Securities Depositories. This regulation stipulates conditions to be met if a central depository does not allow partial settlement. These conditions include ensuring that the value of settlement failures does not exceed EUR 2.5 billion per year and/or that the settlement failure rate, whether based on the number or value of settlement instructions, is less than 0.5% per year. Since CDCP did not meet these conditions for the year 2022, it was required to introduce partial settlement in its settlement system in 2024.
Partial settlement means that, when processing settlement instructions, CDCP will only allow portions of the quantity and/or monetary value of the underlying settlement instruction, subject to defined conditions, when full settlement is not possible due to a shortage of securities or cash.
By defined conditions as a precondition for the implementation of partial settlement, are meant the conditions set for partial settlement in the T2S and the conditions that are additionally set by CDCP. T2S conditions may include those that determine implementation of partial settlement as such. These include: ongoing partial settlement window; authorisation of partial settlement by both parties to the transaction; type of instruction (delivery versus payment, delivery without payment, delivery with payment); absence of a link between the instruction and another settlement instruction; fulfilment of the partial settlement threshold criteria (values for the amount of securities transferred and/or the monetary value below which the partial settlement cannot be executed). Additional CDCP conditions may include, in particular: type of account allowed (holder account and/or participant’s owner account); impossibility of partial settlement of instructions subject to securities held in joint ownership or securities with a registered restriction (right of suspension, pledge).
In preparation for introduction of the partial settlement, CDCP made several necessary changes to its information system. These included adjustments to A2A and U2A interfaces, particularly for inbound and outbound messages related to settlement and their proper interpretation and display. CDCP also implemented a participant-requested feature to set an account-level flag that specifies their default preference for enabling or disabling partial settlement in the settlement instruction.
In view of the above-mentioned conditions, the failure of which triggered the obligation for CDCP to introduce partial settlement, it is part of a set of measures to improve settlement discipline. The primary objective is to reduce the number of failed settlement instructions and potentially lower penalties associated with settlement failures. Achieving this goal, however, requires active utilization of the partial settlement by the participants. Nevertheless, given the CDCP environment, where most settlement failures are caused by late matching of instructions, it is questionable whether partial settlement – without the adoption of additional measures by participants – will significantly enhance the settlement efficiency.
Author: Peter Nagy
