Will fund managers have to pay for failed trades?

Worried man 410Market participants who fail to settle a trade in Europe’s markets within two days (T+2) will be subject to fines under a European Commission proposal today.

As part of its ongoing efforts to create a sounder financial system, the Commission proposed to set up a common regulatory framework in Europe for the institutions responsible for securities settlement: the central securities depositories (CSDs). The proposal is intended to bring more safety and efficiency to securities settlement in Europe.

Today, Germany settles in T+2 whereas the rest of Europe settles in a T+3 cycle.

Tony Freeman, of post-trade risk management firm Omgeo, said wider disparity in settlement regimes causes disruption when securities are settled cross-border.

“Cross-border trades are more costly and result in a higher level of trade fails than domestic trades. The move to a single European market requires a more efficient settlement system, which these set of rules have the potential to achieve,” Freeman said.

But one outstanding issue is whether fund managers themselves will have to pay penalties if trades are not settled in T+2.

“Market participants seem to broadly agree with the penalties for failed trades, but further clarification is needed around who will pay the penalties – the broker/dealer, the investment manager or the end investor?”

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