The drive by the Athens Stock Exchange to reduce the number of failed securities transactions took a further step forward today with news that buy-ins will be imposed on T+3 or T+4 after a trade has failed and been returned to the broker to cover the short position.
“The Athens Exchnage wants to enhance the buy-in procedure so that a trade booked on Settlement Date (SD) or SD+1, to cover the short position, will have the rights of SD-3 or SD-4 respectively, or the Trade Date of the initial trade,” explains a spokesman for BNP Paribas Securities Services in Athens. “In addition, the buy-in method can be applied earlier than T+3, should the investor wish to rectify an error. However, in this case, the rights will always be T-3 – that being the buy-in date – and therefore, should the buy-in be made earlier than SD, the rights will not be on the original Trade Date but earlier, depending on the Trade Date of the buy-in.”
The Athens Exchange is also extending the settlement cycle on T+3 from 16:30 hours local time to 20:00 hours local time. “This will allow the settlement system more time to settle even last minute buy-ins or the Special Type Repurchase Agreements (STRAs),” explains the BNP Paribas spokesman. “This extra time will also provide the brokers with the flexibility of re-assigning trades to the local sub-custodians. This will eliminate those fails due to late instructions.”
In addition, the Athens Exchange is considering whether to allow the CSD to open a special window through which shares can pas to and from brokers and their clients if a trade fails due to late instructions. “If a purchase trade fails on T+3 then the trade is returned to the broker, and the broker can cover this trade by settling in his own books,” says the BNP Paribas spokesman. “He can wait up until T+4 at 10:40 a.m. to transfer the shares to the sub-custodian. If a sale trade fails on T+3 then the broker will initiate a fail coverage (STRA) in order to cover this open position. The client will have up until T+4 at 10:40 local time to return the (original) shares to the broker. Should the trade, which has not been affirmed by the local sub-custodian, be allocated back to the broker and none of the above methods are used, then the brokers will have an additional option, which is to settle the trade in the clients CSD account. This implies that the CSD account that the sub-custodian operates on behalf of the client is given to the broker for a determined amount of time allowing them to settle the trade in the correct account. This is something that today is already being done by the majority of sub-custodians, on the basis of client authorisation, but will now be a recognised method of avoiding failed trades.”