ICMA Members:      Click here to download the Secondary Market Rules & Recommendations

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ICMA has updated its Secondary Market Rules & Recommendations to consolidate a number of updates over recent years in a single document.

The Secondary Market Rules & Recommendations (“The Rules”) apply to all transactions conducted by members as buyer or seller, in either a principal or agency capacity in international securities.[1]

The Rules cover a range of secondary market practices, including calculating coupon accruals, trading defaulted securities, interest claims for settlement fails, and, perhaps most famously, the process for issuing and executing buy-ins.

The latest version of the Rules includes the recently approved best practice recommendations to support settlement efficiency, which provides guidelines for shaping bond transactions into maximum lot sizes, partialing trades, and using CSD auto-borrow and lending programmes. It also incorporates the 2017 revisions to the Buy-in and Sell-out Rules.

With the Rules automatically applying between ICMA members, it is one of the benefits of membership. Non-member firms can also elect to apply the Rules with their counterparts by incorporation through reference in their general terms of business.

The Secondary Market Practices Committee (SMPC) is tasked with reviewing the ICMA Secondary Market Rules & Recommendations in light of new regulation, evolving market structure, and market best practice. The SMPC looks to make revisions, or propose new rules and best practices, where appropriate. This covers all aspects of the ICMA Rules, including the Buy-in Rules. SMPC members propose and advise on the SMR&Rs in consultation with their firm’s relevant fixed income traders, as well as operations experts and legal, compliance, and regulatory policy representatives.

The ICMA Buy-in Rules

The ICMA Buy-in Rules are a longstanding and integral risk management tool used in the international bond markets in the event of settlement fails.

At the discretion of the non-failing purchaser, it is possible to issue a buy-in notice anytime following the intended settlement date of the failing transaction. Important features of the buy-in include:

  • flexibility in the buy-in notice period (between four and ten business days)
  • symmetrical settlement of the buy-in price differential (ensuring economic restoration of the original trade contract)
  • no requirement to appoint a buy-in agent (subject to certain best execution criteria)
  • completion on execution of the buy-in for guaranteed delivery (allowing the selling party to manage their market risk)
  • a pass-on mechanism that allows a single buy-in to settle an entire failing transaction chain[2]

In the event that a buy-in cannot successfully be executed, the parties have the ability to negotiate cash settlement. The reason why this is negotiated, rather than automatic, is due to the fact that it would otherwise be difficult, if not impossible, to establish a reference price independently.

Note that a pass-on mechanism is contingent on symmetrical payments of the buy-in price differential (ie all parties remain economically whole with respect to the original contractual terms of the transactions entered into).

The Buy-in Rules apply purely to trading parties that are principal to the transaction. They are mirrored with equivalent Sell-out Rules in the event that the settlement fail is the fault of the purchasing party.

The ICMA Buy-in Rules are continuously reviewed and regularly updated to reflect the structure and dynamics of the international bond markets, and to serve the risk management requirements of investors, market makers, and other trading entities.

Read more on how ICMA buy-in rules make bond markets more efficient.

How do the ICMA Buy-in Rules fit in with the CSDR Refit?

Regulators rightly acknowledged that applying a mandatory buy-in regime in the EU would be extremely problematic both from an implementation and market impact perspective. It was further recognised that designing a one-size-fits-all buy-in framework for all underlying markets is unrealistic. Accordingly, regulatory buy-ins look set to be subject to a ‘two-step approach’, which in reality means that they may never be applied. However, ICMA buy-in rules are a proportionate, effective, and well-calibrated alternative, that are designed to operate as a discretionary risk management and are readily available to all trading parties operating in the secondary bond markets.

Who reviews and updates the ICMA Secondary Market Rules & Recommendations

The Secondary Market Practices Committee (SMPC) is tasked with reviewing the ICMA Secondary Market Rules & Recommendations in light of new regulation, evolving market structure, and market best practice. The SMPC looks to make revisions, or propose new rules and best practices, where appropriate. This covers all aspects of the ICMA Rules, including the Buy-in Rules. SMPC members propose and advise on the SMR&Rs in consultation with their firm’s relevant fixed income traders, as well as operations experts and legal, compliance, and regulatory policy representatives.


[1] An international security is defined as a security intended to be traded on an international, cross-border basis (i.e. between parties in different countries) and capable of settlement through an international central securities depository or equivalent. All transactions between members of the Association involving international securities (as defined within the rules) are subject to the Association’s rules and recommendations, unless specifically agreed otherwise by the parties at the time of concluding a transaction. The Rules do not apply in the case of the syndication or allotment process in primary markets, repurchase agreements under the Global Master Repurchase Agreement or similar master agreements, transactions subject to the rules of an exchange. Nothing contained in the Rules shall discharge a member.

[2] It is important to note that a pass-on mechanism is contingent on symmetrical payments of the buy-in price differential (ie all parties remain economically whole with respect to the original contractual terms of the transactions entered into).


Best practice recommendations to support settlement efficiency in the secondary bond markets

In June 2022, ICMA’s SMPC endorsed a number of best practice recommendations to support settlement efficiency in the secondary bond markets. These align with best practice recommendations adopted by the ERCC with respect to the repo market.

Best practice recommendations to support KYC

In June 2022, ICMA’s SMPC endorsed a best practice recommendation to support the KYC process.

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