A new model that ensures buyers only receive the ownership of a security once they’ve paid for it has been adopted by Bahrain Clear.
Aimed at positioning Bahrain’s capital market at the forefront of global financial market standards, the Delivery Versus Payment (DVP) Model (Framework and Procedures for Buyer Cash Compensation) comes after extensive consultations with market participants, global custodians, international investors and regulators.
A fully-owned subsidiary of Bahrain Bourse, Bahrain Clear acts as the Central Securities Depository (CSD) for the exchange.
The new model provides flexibility to the custodians to adopt procedures as per the readiness of their clients.
It will activate the custody model in the market by combining pre-settlement controls through a custodian trade confirmation/rejection practice, with an automated solution to custodian-broker settlement.
Hence, the framework will permit local custodians to reject buy and/or sell trades for settlement where it has not received settlement confirmation from its client or there is a mismatch in the settlement confirmation.
Bahrain Clear chief operating officer Abdulla Abdin commented: “The enhanced DVP model adoption is a major milestone towards the enhancement of the post-trade infrastructure, and also comes in line with international standards and best practices. This initiatives comes as part of Bahrain Clear’s role to enhance capital markets infrastructure, with the overall aim of protecting clients’ securities transactions.”
Mr Abdin added, “The DVP model aims to mitigate one of the main risks countering regional and international investors, and will align Bahrain Clear with its regional peers.”
The enhanced DVP model will be effective March 14, 2024, with a permitted grace period of three months for its implementation.
Prior to the effective date, Bahrain Clear shall ensure to provide custodians and relevant parties with the required documentation to allow for a seamless implementation process.
The settlement of securities will remain T+2, and pre-validation of sell orders will be maintained, while the existing securities and cash settlement timings will be changed to accommodate handling of rejected trades.
The enhancements to the DVP model applies only to settlement of trades by local custodians clients and do not apply to clients settling trades through direct trading accounts.
It is worth noting that a consultation paper on the DVP model was issued in September 2023, and distributed to relevant parties and stakeholders prior to its implementation.
avinash@gdnmedia.bh
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