FCA Handbook - SSR 3.5 Arrangements with third parties under SSR 3.3.1R(3)

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SSR 3.5 Arrangements with third parties under SSR 3.3.1R(3)

The following arrangements are required to meet the conditions of SSR 3.3.1R(3):

Standard Locate Arrangements

(1) Where the settlement of the short sale is not undertaken on the same day as the proposed short sale, and where (3) does not apply, a third party must, before the short sale is entered into, have given to the person entering into the short sale:
1. (a) a locate confirmation confirming that it considers that it can make the admitted shares available for settlement in due time taking into account the amount of the possible sale and market conditions, indicating the period for which the admitted share is located; and
2. (b) a put on hold confirmation confirming that it has at least put on hold the requested number of admitted shares for that person;
Standard Same Day Locate Arrangements
(2) Where settlement of the short sale is to be undertaken on the same day as the proposed short sale, each of the following is required:
1. (a) subject to SSR 3.5.2R, a request for confirmation must be made by the person entering into the short sale to the third party which states that person’s intention that the short sale will be covered by purchases during the day on which the short sale takes place;
2. (b) the third party must, prior to the short sale being entered into, have given to the person entering into the short sale:
  1. (i) a locate confirmation that confirming that the third party considers that it can make the admitted shares available for settlement in due time taking into account the amount of the possible sale and market conditions, indicating the period for which the admitted shares are located; and
  2. (ii) an easy to borrow or purchase confirmation confirming that either:
    1. (A) the admitted share is easy to borrow or purchase in the relevant quantity taking into account the market conditions and other information available to that third party on the supply of the admitted shares; or
    2. (B) in absence of a confirmation in (A), the third party has at least put on hold the requested number of admitted shares for the person; and
3. (c) the person proposing to enter into the short sale must have given an undertaking to the third party:
  1. (i) to monitor the amount of the short sale not covered by purchases; and
  2. (ii) that, in the event that executed short sales are not covered by purchases in the same day, the person will promptly send an instruction to the third party to procure the admitted shares to cover the short sale so that settlement of the short sale can be effected when it is due.
Easy to borrow or purchase arrangements
(3) Where the person is entering into a short sale of admitted shares that meet the liquidity requirements established in Article 1 of Commission Delegated Regulation (EU) No 1017/567 or successor legislation, or of other admitted shares that are included in the FTSE 100 and are the underlying financial instrument for a derivative contract admitted to trading on a trading venue, the following is required:
1. (a) the third party must have, prior to the short sale being entered into, given to that person:
  1. (i) a locate confirmation confirming that the third party considers that it can make the admitted shares available for settlement in due time taking into account the amount of the possible sale and market conditions, indicating the period for which the admitted share is located; and
  2. (ii) an easy to borrow or purchase confirmation confirming that either:
    1. (A) the admitted share is easy to borrow or purchase in the relevant quantity taking into account the market conditions and other information available to that third party on the supply of the admitted shares; or
    2. (B) in absence of a confirmation in (A), the third party has at least put on hold the requested number of admitted shares for the person; and
2. (b) the person proposing to enter into the short sale must have given an undertaking to the third party that, when executed short sales will not be covered by purchases or borrowing, a prompt instruction will be sent by the person instructing the third party to procure the admitted shares to cover the short sale so that settlement of the short sale can be effected when it is due.

Modification of the requirement in SSR 3.5.1R(2)(a) to make a request for confirmation where a put on hold has been obtained

A request for confirmation under SSR 3.5.1R(2)(a) is not required where a person has obtained from a third party a put on hold confirmation under SSR 3.5.1R(2)(b)(ii)(B).

Guidance on using an easy to borrow or purchase list as an easy to borrow or purchase confirmation

(1) An easy to borrow or purchase list provided by a third party would only be considered an easy to borrow or purchase confirmation under SSR 3.5.1R(2)(b)(ii) or (3)(a)(ii) where, for each admitted share in the list, it provides an assessment of:
1. (a) the amount of the admitted share that is available; and
2. (b) the market conditions at the time of providing the list, including the liquidity of the admitted share concerned, and any other information available on the supply of the admitted share.
(2) For the list referred to in (1) to be used as an easy to borrow or purchase confirmation for subsequent short sales, the assessment in (1) has to be reviewed to consider the relevant quantity and any change in the market conditions.

Third parties should update the market, such as updating the easy to borrow or purchase list referenced in SSR 3.5.3G, if there is a significant change to the availability of shares previously notified, where the changes mean that the third party may be less likely than previously implied to be able to obtain and deliver those shares for the purposes of covering a transaction under SSR 3.3.1R(3).

For the purposes of SSR 3.3.1R(3), the arrangements in SSR 3.5.1R are less appropriate for illiquid shares, given it may not be reasonable to rely on such arrangements for illiquid shares which may be more difficult to obtain.

For the purposes of SSR 3.5.1R(3), the FCA treats the FTSE 100 index as the main national equity index of the UK.

Third parties

For the purpose of SSR 3.3.1R(3), the third party must be one of the following:

(1) an investment firm which meets the requirements set out in SSR 3.5.8R;
(2) a central counterparty which clears the relevant admitted shares;
(3) a securities settlement system as defined under the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 (SI 1999/2979) which settles payments in respect of the relevant admitted shares;
(4) a central bank that accepts the relevant admitted shares as collateral or conducts open market or repurchase transactions in relation to the relevant admitted shares;
(5) any other person who is subject to authorisation or registration requirements in accordance with the Act and meets the requirements set out in SSR 3.5.8R;
(6) a person established in a third country who is authorised or registered and is subject to supervision by an authority in that third country and who meets the requirements set out in SSR 3.5.8R, provided that the third country authority is a party to an appropriate cooperation arrangement concerning exchange of information with the FCA;

For the purposes of SSR 3.5.7R(1), (5) and (6), the third party must be one that:

(1) participates in the management of borrowing or purchasing of relevant admitted shares;
(2) provides evidence of such participation; and
(3) is able, on request, to provide evidence, including statistical evidence, of its ability to deliver, or process the delivery of, admitted shares on the dates it commits to do so to its counterparties.