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Contractual settlement: Difference between revisions
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When would they be different? Surprisingly often. “[[Settlement fail]]s” in the cash equities markets are quite common, and have a domino effect, as often the guy who has sold a stock one one day is relying on someone else delivering it to him the day before. So one settlement fail can bugger up the whole chain. | When would they be different? Surprisingly often. “[[Settlement fail]]s” in the cash equities markets are quite common, and have a domino effect, as often the guy who has sold a stock one one day is relying on someone else delivering it to him the day before. So one settlement fail can bugger up the whole chain. | ||
Now don’t for a minute think the <nowiki>custodian</nowiki> is underwriting any — well, ''much'' — risk associated with that failed settlement. Oh, no: [[Homey don’t play | Now don’t for a minute think the <nowiki>custodian</nowiki> is underwriting any — well, ''much'' — risk associated with that failed settlement. Oh, no: [[Homey don’t play that|Homey don’t ''play'' that]]. It will promptly reverse any settlement if the fail stays outstanding for longer than a day or so. But you could look at contractual settlement as a form of overnight credit facility to save a client’s blushes and allow the rest of the settlement chain to carry on. | ||
===[[CASS shortfalls]]=== | ===[[CASS shortfalls]]=== | ||
This “informal credit facility” isn’t just untrammeled largess on the [[custodian]]’s part. [[Homey don’t play | This “informal credit facility” isn’t just untrammeled largess on the [[custodian]]’s part. [[Homey don’t play that|Homey don’t play ''dat'', either]]. For one thing, it will be girdled around with all manner of amulets, spells, [[indemnities]], wooden stakes, garlic cloves and [[hold harmless]] undertakings to protect the [[custodian]] from all evil. For another, where the [[custodian]] maintains an [[omnibus account]] holding [[fungible]] assets on behalf of lots of clients — and pretty much every one does — it will not usually be the custodian’s ''own'' assets it uses to cover outgoing deliveries unmatched by failing receipts, but ''those of other clients''. | ||
Thus, where in inbound trade fails and a custodian offers [[contractual settlement]], there may be a time where the custody record is a couple of coupons short of a toaster. Should (heaven forbid!) the custodian ''fail'' at this point, you might have some unhappy bunnies among its [[Omnibus account|omnibus custody]] clients.<ref>Though, actually the client to whom the inbound fail was attributed would wind up wearing most of that.</ref> for this reason the [[FCA]] introduced the [[Treatment of shortfalls - CASS Provision|shortfall]] regime under its CASS rules, requiring custodians to fund any pending shortfall with cash or its own assets on any day. For more about that ... | Thus, where in inbound trade fails and a custodian offers [[contractual settlement]], there may be a time where the custody record is a couple of coupons short of a toaster. Should (heaven forbid!) the custodian ''fail'' at this point, you might have some unhappy bunnies among its [[Omnibus account|omnibus custody]] clients.<ref>Though, actually the client to whom the inbound fail was attributed would wind up wearing most of that.</ref> for this reason the [[FCA]] introduced the [[Treatment of shortfalls - CASS Provision|shortfall]] regime under its CASS rules, requiring custodians to fund any pending shortfall with cash or its own assets on any day. For more about that ... | ||
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*[[Treatment of shortfalls - CASS Provision]] | *[[Treatment of shortfalls - CASS Provision]] | ||
*[[Omnibus account]] | *[[Omnibus account]] | ||
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