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Tonic can protect profits and accelerate tailored SDR solutions for your firm, via our modular services.

Settlement Discipline Regime (SDR)

The last but perhaps most significant piece of the CSDR ruleset jigsaw, SDR is designed to address securities settlement failure risk.

The SDR rules went live on 1 February 2022, catching all firms who interact directly or indirectly (i.e. via an agent) with the EU CSDs. Think Euroclear, Clearstream and many more.

Designed to improve efficiencies within the securities settlement process chain, the SDR provisions focus on the prevention and punishment of settlement fails.

Cash penalties and mandatory buy-ins are already eating into Front Office profits, unless firms have significantly upgraded their often-neglected settlement infrastructure.

As such, SDR will trigger long-term transformation at many firms, as profit erosion increases.

Process automation, strong data foundations and near real-time settlement monitoring will all be crucial elements for success.

What are the key SDR rules?

The SDR rules follow the same sequence of activities as the settlement process.

See our visual summary below. In turn these rules drive the need for new and improved IT infrastructure, data, solutions and business processes.

SDR Challenges

No doubt that the SDR regulations introduce a set of heavy new challenges across the end-to-end settlement lifecycle.

See below for some of the key challenges impacting firms today.

Post-trade regulatory bottleneck

A reminder below of some of the key regulations creating a heavy post-trade industry bottleneck across 2021 and 2022. An inevitable consequence of the regulatory bottleneck is the erosion of resource capacity within in-scope firms to successfully lead and deliver all associated change.

In turn, the risk for firms is that they are only able to ‘get over the line’ to compliance, via tactical, ‘sticky plaster’ solutions that are both costly and unscalable in the long run.


At Tonic we are genuinely expertise-led across transformation in settlement and all post-trade domains, across both the sell-side and buy-side.

But what does that mean for SDR?

We already come armed with the expertise and toolkits to accelerate the right SDR strategy, solution and delivery decisions for our clients, in order to protect their future profits.

Bearing in mind the time and capacity constraints in-scope firms will experience, the speed of effective decision-making will be a critical success factor for all firms.

We leverage our expertise to deliver fit-for-purpose solutions that minimise the risk of settlement fails and deliver controls to accelerate the resolution of any exceptions. Our expertise also enables us to specialise in the definition of bespoke strategy, target operating models and vendor solutions for our clients. Our specialists have been here many times before, quickly able to share all available options on the table.

Finally, we open up our full post-trade industry network to our clients, including vendors, market participants and industry bodies. This allows our clients to further accelerate both the right SDR decisions and their delivery.

TONIC SDR Approach

At Tonic we provide a flexible set of modular SDR services, tailored to our clients’ needs. Our specialists can accelerate your firm’s SDR readiness through the delivery of specific modules, leading the full end-to-end delivery or taking on specific needs as they arise.

Our key SDR service modules are shown below.

TONIC Health Check

An early SDR priority for all firms will be identifying any weaknesses within the current securities settlement process, as a necessary step to deliver adequate preventative measures.  

The Tonic Health Check delivers an SDR impact assessment for firms, producing a consolidated view of all areas requiring SDR-driven change. We do this via accelerated front-to-back current state analysis of existing settlement infrastructure and future change.

Within the Health Check we cover areas such as IT systems, data, operational processes, governance models and locational differences.

The Health Check also includes a deep-dive settlement fails analysis, to show the financial impact of SDR based on current settlement scope and fails. This includes:

• Full scope of securities and products settled at CSDs
• Fail volumes, rates and causes per product/market
• Identification of ‘red flag’ manual processes
• Historical penalty simulation* for cash penalties and mandatory buy-ins

*The simulation of penalties on historic settlement fails can also be performed as a stand-alone service.

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