United Kingdom and Ireland: Domestic bilateral securities lending and borrowing in CREST
Effective
25 April 2016
Clearstream Banking1 will offer UK and Irish domestic bilateral lending for CREST eligible securities for which movements are done via a free of payment settlement instruction.
The new service includes:
- Standard SWIFT coding;
- Identification and client reporting throughout the life of the loan; and
- Settlement of bilateral loans with a free of payment settlement movement to/from Clearstream Banking.
Impact on customers
The service of UK and Irish domestic lending is offered by Clearstream Banking for CREST eligible securities and free of payment settlement instructions.2
Customers entering into bilateral securities lending and borrowing arrangements in the UK market are fully responsible and liable to incur SDRT charges or fines linked to such transactions executed via Clearstream Banking.
Customers are, and remain, fully responsible for managing their lending trades and considering any custody/income events that may affect their entitlements and/or lending transactions.
Domestic stock lending trades are applicable for SDRT in CREST unless the ISIN is an exempted stock.
Irish loans are exempted as long as the return leg is processed within 12 months (or less than 365 days) of the settlement of the opening leg.
For UK chargeable securities, SDRT can be exempted up front and has no time limit but only when certain criteria are met:
- One of the members must be recognised as an intermediary on the London Stock Exchange (LSE), or a Markets in Financial Instruments Directive (MiFID) exempted intermediary for stock lending relief; and
- The security lent, must be on the LSE list of regularly traded securities; and
- The SLO must be reported to the LSE with the correct Trade system of Origin (TSO).
If one of the above criteria is not met, then SDRT is charged on the new loan and the loan return in the same manner as a standard settlement trade, that is, Citi will pass a debit on the related cash account which will be evident on the MT940 cash statement for that day.
Note: Loans on a 1.5% SDRT Clearstream Banking account are not exempted and arising SDRT is not reclaimable under any circumstance.
Instruction specifications
In order to identify the instructions as lending/borrowing in CREST the following fields must be populated:
Identification as lender or borrower
Identification of every instruction as lending or borrowing throughout the life of the transaction:
- SWIFT :22F:: SETR//SECL if lender; or
- SWIFT :22F:: SETR//SECB if borrower
This field must be populated in all related instructions and must be the same as the opening leg. Failure to do so will result in the instruction being treated as a standard OTC trade.
The original loan reference must always be unique. In the event of a duplicate reference, Clearstream Banking will reject the instruction and you will receive an instruction status message with narrative:
- Domestic loan with same reference already exists
In CREST the related Stock Loan Return (SLR) will be set up automatically and will remain in the system until the borrower returns the securities to the lender. The customer has to input the SLR with the trade date under which the loan opening settled in CREST.
Linking the opening and closing leg
In addition to the above, in order to be able to link the opening and closing leg(s), the previous opening leg reference must always be included in the closing leg(s) as follows:
- SWIFT :20C:: PREV//(original loan instruction reference); or
In the event that the original loan reference is not included as per above, no opening leg will be identified. Then, the instruction will not be released to the market and you will receive an instruction status message with narrative: - Waiting settlement of opening leg
Once the loan has been confirmed in CREST the following interim status update may be reported prior to the receipt of the MT542 settlement confirmation:
:25D::SETT//PEND
:16R:REAS
:24B::PEND//LALO
In the event that the counterpart sends partial deliveries it may occur that they are short and you may receive the following message:
- Counterparty Insufficient Securities
If you are due to receive the securities from the counterparty:
- It is the counterpart’s responsibility to raise the priority in the market to allow the trade to settle.
- If no closing leg is instructed on the day that the counterpart has returned the securities, Clearstream Banking will manually book them into your account with a fee of 30 EUR for each booking.
Partial settlement
The standard CREST rules and Clearstream Banking services apply.
Further information
The Creation Link Guide (United Kingdom or Ireland) will be updated in due course.
For further information, please contact the Clearstream Banking Client Services or your Relationship Officer.
---------------------------------------
1.Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for CBF customers using CreationOnline), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.
2. This service is only available through Creation via SWIFT and CreationDirect.