Settlement Failures
If a Settlement Instruction cannot be settled on its Intended Settlement Date (ISD), BME Clearing will initiate the Fails Management Mechanisms.
In this respect, a "fail" refers to a sell instruction that is pending settlement, either totally or partially, at the end of its ISD.
End of Intended Settlement Date (ISD)
BME Clearing receive from the Settlement System the information about the instructions that have not been settled on its ISD in T2S.
Subsequent sessions prior to the start of Buy - In
Any unsettled instruction will remain in recycling and will be attempted to be settled in subsequent sessions until ISD+5 (ISD+8 for ETF and LATIBEX securities).
If a failed sell instruction has not been settled by the end of ISD+5, it is held in the Settlement System and BME Clearing will iniciate the Buy-In procedure.
The deadline for initiating the buy-in procedure for ETFs and LATIBEX securities will be extended to ISD+8. If delivery of the securities is not possible, cash settlement will take place two days later.
Buy–in Procedure and its Settlement
BME Clearing will provide information on how many days late each failed position is.
At the end of the DVP settlement period, BME Clearing will hold the failed instructions that are on its ISD+5 (ISD+8 for ETF and LATIBEX securities).
A previously chosen broker will execute a purchase on the stock exchange for the amount not delivered by the failed member and once the broker´s purchase has been settled on ISD+7 (ISD+10 for ETF and LATIBEX securities), the securities will be delivered to BME CLEARING within a bilateral trade.
In ISD+7 (ISD+10 for ETF and LATIBEX securities) the CCP shall replace the failed seller's instruction with a new cash instruction for the difference between the cash from its initial failed transaction and the cash to be paid for the buy-in. All the instructions will settle during the ISD+8 (ISD+11 for ETF and LATIBEX securities) Night-Time Settlement Cycle.
The failed seller will cover the difference (if it is negative) between the cash position of the buy-in and that of the failed sale instruction, as well as the corresponding administrative costs.
Cash Settlement
BME Clearing will perform Cash settlement if the buy-in is not executed due to the illiquidity of certain assets, or if the broker's purchase is not settled on ISD+7 (ISD+10 for ETF and LATIBEX securities).
Cash settlement will be performed on the next available settlement date to fulfil the outstanding obligations of the failed seller with the CCP and of the CCP with the affected buyer.
The affected buyer will be compensated with an amount of cash calculated using the last available closing price of the security, plus a percentage. The cash settlement price cannot be lower than the price of the failed sale or the affected buy that will be settled in cash.
Cash Settlement Price = Max (last closing price + %; price of the failed sell; price of the affected buy)
