A. Is it possible for debit positions (overdrafts) in securities accounts at the SSS to arise?
According to Spanish Stock Market rules, debit positions in participants’
securities accounts are not allowed in Spanish Stock Markets.
The rules and procedures that regulate the working of SCLBARNA do not allow participants to maintain a debit position in their securities accounts.
In the case of fixed or variable income securities issued by private entities, if a participant hold debit positions in their security accounts, SCLBARNA is authorised by the norms and procedures to repurchase on the market the securities needed to cover the debit positions.
1. Under what conditions could such debit positions occur?
Under no circumstances will SCLBARNA allow a participant to maintain a debit position.
In the case of selling securities of the Catalonia Public Debt Market the securities must be previously registered in the participant’s account and so in this case, the sale is authorised by the Supervision Department of the Barcelona Stock Exchange and consequently the delivery of securities is always guaranteed.
For other securities, a debit position is only possible when a participant sells securities on the market that have not yet been received. In this case the participant must cover their position before settlement day, which effectively means by T+3, in order to be able to receive the funds pertaining to the sale on that day. If in this period of time the participant has not delivered the securities, it may do so in the following working day, after which SCLBARNA will initiate the process of repurchase. In the event that the securities are not delivered, SCLBARNA will retain the funds from the sale and use them to cover the cost of the repurchase and apply additional penalties to the participant involved.
a) Do these conditions always result in debit positions in securities accounts rather than failed transactions? If not, please explain the basis for differential treatment by the SSS.
As explained above, sales generating debit positions in securities accounts are cancelled by SCLBARNA by means of the repurchase of securities on the market on behalf of the seller.
b) Are these situations covered explicitly by the rules and procedures of the SSS?
These situations are covered in the rules and procedures of SCLBARNA.
2. How long can such debit positions last? How long do they typically last?
For a sale carried out on day T the deadline to cover debit positions is T+4. On T+5 the process of repurchasing securities not delivered is initiated.
3. How are debit positions in securities accounts prevented, rectified or managed?
Participants are provided with a calendar that indicates with respect to each contract date the day on which repurchase is initiated. As previously stated this is day T+5. In addition, participants receive daily a list detailing sales operations pending settlement that will be repurchased by SCLBARNA on the vendor’s behalf if the securities are not delivered in the established time period.
4. What procedures would be followed by the SSS in case the debit cannot be rectified? (e.g. failure by a participants with a debit balance in a securities account or unavailability of the securities in the market)
As previously observed, 95% of the settlement activity of SCLBARNA relates to operations carried out with securities of the Catalonia Public Debt Market and in the case of these securities debit positions in accounts are impossible as sales operations are only authorised if the securities have been previously deposited in the participants’ accounts.
In relation to the remaining 5% of activity corresponding to variable and fixed income securities issued by private entities, we have never had any difficulty in repurchasing on the market the securities required to cover debit positions.
In the event of the existence of debit positions for fixed interest securities at maturity date, SCLBARNA would cancel these debit positions and charge the affected participants the maturity value plus 3.000 Euros as a penalty. If the maturity value were less than the sale price pending settlement, this difference would also be charged to the debiting participant as a penalty. In practice, never SCLBARNA has applied these penalties because this situation hasn’t happened with any participant.
a) Application of loss-sharing provision allocating the loss to participants?
Losses that may result from a debit position are initially assigned exclusively to the participant that has had the debit position. In the event that the participant fails to settle these losses, SCLBARNA would execute the guarantees deposited by the participant. If these guarantees were insufficient, the collective guarantee of the other participants would be executed to the extent that this was necessary.
b) Absorption of the loss by the SSS?
Losses that may arise are never absorbed by SCLBARNA, but always
distributed according to the procedure described in paragraph VII.A.4.a immediately above.
c) Other? Please specify.
N/A
B. Under what circumstances does the SSS provide for the lending of securities to ensure settlements?
SCLBARNA does not offer a securities lending or borrowing programme, though in the main area of activity (Catalonia Public Debt Market) the Supervisory Department of the Barcelona Stock Exchange ensures that there are sufficient securities in the account of every participant before accepting any sale. For this reason it is not possible to have overdrafts in the securities accounts that would have to be covered by lending or borrowing programmes.
As far as other areas of activity are concerned (private bonds, shares, etc.) SCLBARNA has an agreement with IBERCLEAR (Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores S.A.U.) which allows it to automatically receive the software developed by IBERCLEAR including lending and borrowing facilities. At the moment, these facilities are not required by SCLBARNA due to the low settlement volume in these other areas.
However, if the volume of trading and settlement were to increase, SCLBARNA could implement these facilities immediately. In this other areas of activity, as explained above, sales generating debit positions in securities accounts are cancelled by SCLBARNA by means of the repurchase of securities on the market on behalf of the seller.
1. Is the process for lending securities automatic? If not, please describe the procedures used by the SSS to determine whether a securities loan will be made.
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2. At what point are participants notified that securities are being lent to them in order to complete their settlements?
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3. Which securities on deposit at the SSS are eligible for lending? Do participants have the option to make securities available for lending or is it mandatory?
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4. Are lent securities identified by the SSS with specific participants as lenders or only with a common pool of securities available for lending?
Does the participant whose securities are lent become a principal to the
transaction?
N/A
C. How does the SSS settle back-to-back transactions?
At the moment the only back-to-back transactions it is possible to trade on the Barcelona Stock Exchange and settle through SCLBARNA are Catalonia Public Debt Market securities.
In the case of the remaining securities registered with SCLBARNA (variable and fixed income securities issued by private entities) there is no specific procedure for the settlement of back-to-back transactions. These are treated as bilateral transactions between parties.
1. Under what conditions are delivery instructions by participants receiving and redelivering securities on the same day under back-to-back transactions settled for same-day-value?
In the case of Catalonia Public Debt Market securities, SCLBARNA maintains a specific system of securities accounts where the value date at which the securities are available is annotated. Through this system of security accounts SCLBARNA controls all the back-to-back transactions in real time, verifying for each operation that the participants have sufficient securities deposited with SCLBARNA, at least at the value date of the sale.
In the event that, on the value date of the sale or on a previous date, there should be an insufficient balance in the participant’s securities account, SCLBARNA would reject the communication of the operation. In consequence and in the interest of preventing errors and assisting participants in the completion of these operations, SCLBARNA provides participants in real time with a list of balances available to each participant on each value date.
Likewise, for operations with repurchase agreements SCLBARNA fixes a maximum reference price (based on market prices) on a daily basis, that should be applied to the initial sales operation in order to guarantee settlement on the day the repurchase operation falls due. In the case that the participant should fail to liquidate the repurchase operation on the agreed date, SCLBARNA will sell the securities on the market and liquidate the unfulfilled repurchase operation on behalf of this participant.
a) Only if the participant has securities on deposit with the SSS that have been received pursuant to a final securities transfer?
As indicated in VII.C.1 above, back-to-back operations may only be carried out if the securities have been deposited with SCLBARNA. In sales operations with a repurchase agreement, securities acquired by
blocked in the participant’s account with SCLBARNA so as to guarantee their delivery on the due date of the operation.
b) If the participant has securities on deposit with the SSS that have been received pursuant to a provisional securities transfer?
In a similar way, this type of operation is also permitted if the participant holds securities on a provisional basis, provided that the value date of sales operation is the same as or greater than the value date of the provisional deposit comprised of a purchase carried out on the same day or a day previous to the day of sale.
c) Before securities have been received either provisionally or finally, but when a marched receipt instruction exists for the same or greater value? Is such a practice limited to markets where matching is binding?
N/A
d) Before securities have been received either provisionally or finally, but when a third party has promised to deliver to the SSS securities of the same on greater value? Must the provider of the guarantee have itself received the securities through a final transfer? Please describe how the SSS evaluates such promises, and whether they are addressed by the written rules and procedures of the SSS.
N/A
e) Other? Please specify.
N/A
2. Please describe limits or controls in place with respect to any of the above arrangements for the settlement of back-to-back transactions, including limits on amounts involved or related the liquidity of the underlying securities.
There is no limit placed on the volume of these operations. The only control exercised by SCLBARNA is the verification that the participant has sufficient securities at a specific value date to deliver them to the counterparty on the day established for the settlement of the sales operation.
3. Under what conditions are payment instructions by participants in the SSS under back-to-back transactions settled for same-day-value?
Can participants use the proceeds of an on-delivery of securities without the need for an extension of credit?
The settlement of these operations is carried out via the same procedure used for all other operations with the additional application of the controls indicated in section VII.C.1 above.