Italian Repo Fails Due to “Plumbing” Problems

Long-standing concerns over obstacles to interconnectivity between the Italian CSD and the ICSDs were accentuated by a dramatic increase in delivery failures on transactions (mainly repos) cleared through the international CCP, LCH.Clearnet, during 2009-10, but not those cleared through the domestic CCP, CC&G. The problem appeared to coincide with the start of same-day transactions in CCP-guaranteed repos in November 2009 and was widely attributed to this initiative, although other commentators argued that the surge in fails reflected market turbulence and short-selling by international investors, who mainly clear through LCH.Clearnet. The latter argument highlights an institutional fault line across the Italian securities market caused by the lack of securities lending by domestic institutions, who are the predominant holders of Italian government securities, to international investors, who are frequently the most active users.

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