In a meeting held earlier this week, the VPS unveiled their plans to implement the Pool Lending Scheme for all exchange members from September 2008.
The VPS based their decision on evidence from a market simulation done in December 2007. Mandatory pool lending resulted in additional daily settlement of securities valuing NOK 773 million; 1,268 more trades settled daily; 39.4% fewer failed trades in the second settlement cycle; and 1.4 to 2.2% increase in settlement percentage for brokers.
Based on this findings and pressure from current participants in the Pool Lending Scheme, VPS decided that that in order for the scheme to be effective and fair, all exchange members must participate and that the lending scheme will become mandatory for all exchange members from September 1, 2008.
VPS had promised to review issues regarding operational and technical issues for settlement agents and integrate rules for the pool lending scheme into the VPS Clearing’s rules and procedures by March 1. It also will and provide new business terms and conditions for all participants of the VPS settlement system by summer 2008.
A DnB NOR bank news release suggested surprise in the VPS announcement: “Despite agent bank’s effort and to our surprise, the VPS announced that they had decided that the Pool Lending Scheme will be implemented as planned for all exchange members.” But the bank could not be reached for further comment.
Other measures by VPS will include return of loans possible in both settlement cycles and liquidity of loan returns available in the same settlement cycle. Loan transaction cost is to be reduced to NOK 100 per loan from 1 Sept. Also, extended balance coverage check will be implemented to include numerous accounts from September 1st.