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Freshfields Transactions

| 4 minutes read

Forthcoming changes to the ICSDs model for syndicated closings

We wanted to highlight forthcoming changes to the model for syndicated closings in Euroclear and Clearstream (the ICSDs). Whilst the implementation date of 14 March 2022 is still a while away, it is something to have on your radar – especially as we approach the 2022 MTN “update season”.

The key point is that, for trades closing on and following 14 March 2022, tweaks will need to be made to settlement documentation to avoid issues at closing. Whilst settlement mechanics are a dry subject, getting them wrong can be hugely problematic and in extreme scenarios, even prevent transactions closing.


The ICSDs announced in April 2021 their intention to implement a new model for syndicated closings that settle using the delivery vs payment model (DvP). The ultimate aim is to reduce the number of intermediaries in payment flows for bond issues, thus building efficiency and reducing the need for ICSDs to block the cash and/or credit capacity of settlement banks.

The following transaction types are out of scope of this new model: syndicated issues settling free of payment; non-syndicated distributions that settle through the issuing and paying agent; and the distribution of domestic securities that settle through a domestic central securities depositary.

To translate: if you are doing a typical bond transaction with multiple banks, the changes described in this blog are likely relevant to you!

The existing syndicated closings model

Under the existing model for syndicated closings:

  • on the day of closing, the settlement manager’s account with the ICSDs has cash (and/or credit capacity) blocked in an amount equal to the net proceeds. This is to ensure the funds are available for the closing process; and
  • payment to the issuer on the day of closing is typically made by the designated common depositary (CD) or common safekeeper (CSK) directly to the Issuer, on behalf of the settlement manager. The CD / CSK (as applicable) is then put back in funds by the settlement manager (with the CD / CSK having already received certain comfort earlier in the day that the settlement manager has sufficient funds (and/or credit capacity) to do this).

The new syndicated closings model

The new syndicated closing model eliminates the CD/CSP from the payment flow. Under the new model, the ICSDs will leverage a "commissionaire" legal structure which is compliant with Belgian and Luxembourg law.

A new commissionaire account will be opened by the ICSDs in the name of each settlement manager and this will become their distribution account for each new syndicated deal. A commissionaire account is an account opened in the name of the selected ICSD, acting in its own name but for the account of the settlement manager. The ICSDs will receive and distribute the new issue on behalf of the settlement manager. Instead of running payments through the CD/CSP, payment will be direct from the commissionaire account of the settlement manager to the issuer.

From the settlement manager’s perspective, a benefit of the new structure is that it will reduce the amount of time that the settlement manager needs to put up funding requirements (cash / collateral) for the deal.

From the issuer’s perspective, a benefit of the new structure is that the bonds (i.e, the issuer’s debt obligation) cannot be transferred out of the settlement manager’s commissionaire account until sufficient funds (i.e, an amount equal to the net proceeds the issuer is expecting to receive) are in the commissionaire account and the payment instruction to the issuer from the settlement manager has been received by the CD / CSP. To enhance the issuer’s rights in this respect, the issuer will be granted certain Belgian / Luxembourg law rights in relation to the settlement manager’s commissionaire account.

After close of business on 11 March 2022, it will no longer be possible to close a syndicated transaction under the current model, even if the transaction has already priced.  Both issuers and settlement banks therefore need to be alive to the required changes to avoid issues with settlement.

Changes to new issue documentation

Some limited technical drafting amendments will need to be made to issuance documentation. In the context of MTN programmes, these changes can be made via MTN programme drawdown documentation:

Subscription agreement – inclusion of a new clause to govern the position between the issuer and the settlement bank in relation to the commissaire account, and a description of the terms of that account;

Issuer’s instruction letter to the agent – instruction to the agent to deliver the global bonds to the CD/CSP, and for the CD/CSP to instruct the relevant ICSD to credit the bonds free of payment to the commissionaire account of the settlement manager;

Settlement manager’s instruction letter to the CD/CSP – inclusion of an instruction to credit free of payment the commissionaire account with the bonds, and a description of the terms of that account;

Issuer’s payment instruction to the settlement manager – inclusion of some additional details, for example including reference to the commissionaire account;

Signing and closing memorandum – inclusion of wording to the effect that the steps necessary for creation of the bonds and the execution of payment instructions to the issuer are deemed to take place simultaneously.

The ICMA has published a paper which explains the new model, and sets out in further detail how transaction documentation can be modified for a vanilla Reg S bond as well as the legal rationale for the changes.


Firstly, congratulations if you got to this point: we promised the subject was a dry one! Joking aside, the key takeaway from this post is that banks and issuers (and their counsel) should start considering changes to transaction documentation (for example the pro forma subscription agreement) in upcoming MTN updates and be ready for the structural changeover for trades closing on and following 14 March 2022. 

Whilst the hard work of paying agents, CDs, CSPs and ICSDs means settlement mechanics are rarely a major subject on transactions, it is important to get them right to ensure transactions don’t fail at that final hurdle!

Please reach out to your usual Freshfields contact if you would like to discuss this development in more detail.


financing and capital markets