New Spanish market reform: all you need to know on the measures and upgrades

The market reform:

At the end of H1 2023, SGSS Madrid would like to share its update on the progress so far on the Spanish Market Reform 3 which is under development. Migration weekend is set for 26-27/10/2024 with the go live on Monday 28/10/2024.

Iberclear have already shared procedural documents, although a further Royal Decree with implementing details has yet to be published, meaning that the Central Securities Depository Regulation (CSDR) cannot be issued yet. Delay in the Royal Decree (RD) is a result of the snap General Election, which was called after local and regional elections in May. Until the General Election takes place on 23rd July, with Parliament suspended meanwhile, no progress will be made.

Now, the expectation is for the RD to be published in August 2023 and Iberclear’s Regulation in Q1 2024.  Also already published is a migration procedure plan and draft test plan. Iberclear expects that publication of the Royal Decree will not require any changes to the aforementioned procedural documents.

Iberclear’s internal testing phase is now planned for Q4 2023 through to Q2 2024. There will follow “community” testing by all the participants, from Q2 2024 up to migration date.

The focus of these tests will be on content of the Party 2 field. It will be an opportunity to maximise harmonisation across the market members on the level of beneficiary being instructed, to avoid matching discrepancies between counterparties, and to avoid cross-matched trade settlement.

Regarding the migration procedure, the market has started to discuss how to resolve unmatched trades pending at migration date, and it is clear that during the weeks leading up to 26th October 2024, all counterparties, together with their clients, will work on these trades to settle or cancel. The spotlight will be on old unmatched trades in the market in order to optimise the migration as much as possible. Foreseeably, all the pre-migration unmatched trades will be cancelled and will need to be re-input post-migration. These will generate a CSDR penalty for late matching and settlement, so in the run up, in the case of unavoidable unsettled trades, clients should be cautious and consider agreeing with their counterparts on the payment or compensation of these penalties.

In connection with these measures to avoid migration-driven penalties, the European Securities and Markets Authority (ESMA) has pronounced that since the migration is a move towards greater harmonisation, there should be no negative impacts on post-migration settlements, and it has no plans to put in place a grace period for penalties.

Concerning account changes, with the main impact being on Special Financial intermediary (SFI) accounts - which are eliminated, Iberclear’s idea is to transform SFI accounts into Individual accounts by default, unless we (members of Iberclear) request otherwise.

This September, Iberclear will survey its participants about the extent to which the Reform is driving a change in account structure, and about the level of beneficiary which will be instructed in Party 2. This survey will be repeated in Spring 2024 by which time it is expected that these aspects will be more clearly defined across all the participants.

SGSS Madrid’s system upgrade:

SGSS Madrid is focused on preparing for the Reform which will coincide with the final stage of our own core system upgrade to the Java language platform J2E. This is the moment for us to innovate our technological capabilities and be well prepared for the future configuration of our market, as well as to be future-proofed for subsequent developments. The planning of our own upgrade has been adjusted to take into account the Market Reform’s timing.

The implementation of our project will be structured in two phases, with the first planned for an October 2023 go-live. This phase 1 encompasses our Annual General Meeting processing - allowing us to communicate using swift ISO2022; our Cash processing - also to incorporate ISO2022; and our Static Data module.

SGSS Madrid will be ready to face the Market Reform with an updated, agile, flexible system to continue to provide seamlessly reliable and innovative services to our clients.

Read our previous article on this reform.

Sally Matthews, Relationship Manager, Societe Generale Securities Services Spain