The Deferred Settlement Service

SRD Documentation
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The Deferred Settlement Service (SRD) is a mechanism that allows French investors to take a long or short leveraged position. The service is mainly used by private investors as an alternative to margin accounts.

Currently, the SRD mechanism only exists on the French market, although NYSE Euronext is working with regulators to expand it to other Euronext countries.

How the Service Works

The investor identifies his order when passing it to his financial intermediary as being SRD. The order is then immediately routed to the Regulated Market, where it is executed and settled in a standard three-day time period.

The intermediary finances his client’s position until the end of the month, when the investor receives the balance of his positions in his account. The leverage is the result of the cover ratio the investor has to put toward his position at the time of execution. The ratio varies from 20 percent to 40 percent, depending on the collateral used.

NYSE Euronext organizes a centralized borrowing and lending market to help brokers carry their clients’ short positions. The service is charged by the intermediary; commissions are fixed freely by the brokers. 

More information on the Cleared Borrowing & Lending Market (CBLM)

Secure Framework

The SRD service allows buy-side investors to engage in leveraged positions on a wide range of equities with the secure framework of a Regulated Market.

The orders passed by investors are all transmitted to the NYSE Euronext’s Central Order Book. Brokers who carry out this service apply strict rules, to avoid overexposure of a client to a particular asset.

Expanding the Service

NYSE Euronext is continuing initiatives in support of the Deferred Settlement Service, as part of its commitment to boost liquidity and transparency in the Regulated Market for less frequently traded equities.

In May 2010, the scope of the SRD service was broadened to include a new segment of 'long-only' securities—adding 93 new equities to the existing list of 140.The 'long-only' concept means these securities are only eligible for purchase. NYSE Euronext does not organize a borrowing and lending facility for these equities, as it does for standard-service securities. Investors can nonetheless benefit from the advantages of the SRD service in accordance with the conditions set by their financial intermediaries.

Eligible Securities

From 01 August 2012, securities eligible for the standard Deferred Settlement Service must satisfy the following criterion:

  • Market capitalization of at least €1 billion.

Securities eligible for the 'long-only' Deferred Settlement Service must satisfy the following criterion:

  • Daily trading amounting to at least €100,000.

These securities cannot be traded on the central securities borrowing-lending market.

'Easy-to-borrow' and 'Long-only' Status

New eligibility criteria for ETFs:

  • Easy-to-borrow: The securities benefit from the presence of a Liquidity Provider on the centralized borrowing and lending market of NYSE Euronext.
  • Long-only: The securities are not tradable on the centralized borrowing and lending market of NYSE Euronext.

All other securities are tradable on the centralized borrowing and lending market of NYSE Euronext; however, they do not necessarily benefit from the presence of a Liquidity Provider.

The Advantages of the Deferred Settlement Service

The Deferred Settlement Service is simple yet secure, and regulated because it benefits from strict risk-mitigation rules. It allows private investors to invest with leverage on securities on a Regulated Market.

Transactions executed via the Deferred Settlement Service are immediately posted on the NYSE Euronext market feed, and they are subject to the MiFID transparency rules.

The positions taken by the investors via the Deferred Settlement Service are always covered by their financial intermediary. For the long positions, the broker funds the purchases; for the short positions, the broker borrows the securities.