Les Rendez Vous ESES T2S - ESES T2S Update meeting 17 March 2014

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Information about Les Rendez Vous ESES T2S - ESES T2S Update meeting 17 March 2014
Finance

Published on March 17, 2014

Author: Euroclear

Source: slideshare.net

Description

ESES T2S Update meeting 17 March 2014:
Innovation dans les services de Règlement/Livraison

1 #towardsT2S Les Rendez Vous ESES T2S ESES T2S Update meeting Innovation dans les services de Règlement/Livraison

2 Welcome Joel Mérère Executive Director Euroclear SA #towardsT2S Join the conversation using Twitter hashtag #towardsT2S

Les Rendez Vous ESES T2S 3 • Harmonisation • Settlement • What's your view? • Helping you prepare for T2S #towardsT2S

4 Les Rendez Vous ESES T2S ESES T2S Update meeting Harmonisation Joel Mérère Executive Director Euroclear SA #towardsT2S

Harmonisation • Global prerequisite for T2S ►no harmonisation => limited benefits • Massive effort by Eurosystem and supported by markets and regulation • Strong methodology in place • Not yet a ‘done deal’ from an implementation viewpoint • Key role of the ‘T2S Harmonisation Steering Group’ and related taskforces #towardsT2S

Highly structured approach • First step – identifying ►have to have’s ►nice to have’s • July 2011 - first harmonisation progress report • First two reports – identifying ►T2S-relevant harmonisation issues ►those needed to act to resolve these issues 6 #towardsT2S

Highly structured approach (cont.) • Third report – focus on monitoring T2S market compliance of first set of (10) post-trade standards • Fourth report – updates on ►definitions ►monitoring processes • Status of 24 activities (priority 1 and 2) as far as definitions, monitoring and compliance processes are concerned • Role of the NUGs / gap analysis for corporate actions on flows 7 #towardsT2S

Harmonisation in settlement • T2S mandatory matching fields • T2S schedule for settlement day and calendar • Settlement Finality I • Settlement Finality II • Settlement Finality III • Settlement discipline regime • Settlement cycles 8 #towardsT2S

CSDR – pivotal role in regulation • Outsourcing of core functions • T+2 • Settlement discipline (CSDR + ESMA standards) • Choice of the place of issuance Some issues postponed to the Securities Law Legislation: e.g. conflict of laws 9 #towardsT2S

Main open issues for settlement • Optional matching fields • Settlement cycles • Settlement finality 1 • Settlement discipline 10 #towardsT2S

Matching fields • Mandatory – have to be used by both parties • Additional – need to be used bilaterally • Optional ►must be identical if both parties use them ►can match with blank #towardsT2S

Optional matching fields • Consultation ►not possible to establish a T2S standard at this stage ►X-MAP to re-asses the issue after the launch of T2S • Types of optional matching fields ►common trade reference ►client of delivering/receiving CSD ►delivering/receiving party’s securities account • Current ESES optional matching field ►client reference / final beneficiary #towardsT2S

Harmonisation of settlement cycles • Migration to T+2 in all T2S markets • Decision already made in most markets ►October 2014 for Belgium, France, the Netherlands • What should be the scope of T+2? ►T+2 is in CSDR (should logically have been in MIFID) • T+2 Task Force ►guidelines to facilitate a common understanding of the T+2 migration scope ►voluntary adoption of guidelines ►not part of the definition of the harmonised standard #towardsT2S

Settlement finality • Distinction SF1 / SF2 / SF3 • Agreement on SF2 and SF3 ►SF2 : no unilateral cancellation after matching ►SF3 : no possibility to unwind a settled transaction in the SSS (but still possible in a court i.e. outside the SSS) • Pending question on SF1 ►who should declare SF1 for a DVP instruction? ►two opposite views –CSDs – declaration for both the seller and the buyer instructions –Eurosystem - SF1 for cash transfer instruction sent by the buyer should not be declared by the CSD #towardsT2S

Settlement discipline • Principle ►same rules across all T2S markets ►avoiding regulatory arbitrage • CSDR article 7 – monitoring ►settlement fails ►penalty mechanism (consultation with trading venues and CCPs) ►buy-in process #towardsT2S

Settlement discipline (cont.) • Exemptions to buy-in rules ►based on asset type and liquidity “for operations composed of several transactions …. where the timeframe of these operations is sufficiently short ….” ►repos or sec lending transactions cannot be identified in T2S • Possibility for the trading venues, CCPs and CSDs to disclose identity of participants that fail consistently and systematically – provided the relevant authorities are informed • No penalties for CCPs • CSDs may monitor execution of buy-ins in case of multiple settlement instructions (i.e. cross-CSD transactions) #towardsT2S

17 Les Rendez Vous ESES T2S ESES T2S Update meeting Settlement What’s new for you? Dan Toledano Mathilde Joannet ESES T2S Product Management Euroclear SA #towardsT2S

Settlement What’s new for you? 18 • Introduction • ESES and T2S settlement standards • Overview of T2S settlement functionalities • New T2S functionalities for ESES clients ► Cross-CSD settlement ► Hold and release ► Linking ► Prioritisation ► Partial settlement ► New auto-collat features – NCB auto-collat – Client auto-collat – Limit management • ESES information #towardsT2S

19 Introduction • T2S main benefits - settlement • ESES - optimal access ► Harmonised settlement rules and lifecycle ► Single liquidity management ► Single connectivity ► Single access to counterparties in T2S CSDs #towardsT2S

20 Settlement What’s new for you? • Introduction • ESES and T2S settlement standards • Overview of T2S settlement functionalities • New T2S functionalities for ESES clients ► Cross-CSD settlement ► Hold and release ► Linking ► Prioritisation ► Partial settlement ► New auto-collat features – NCB auto-collat – Client auto-collat – Limit management • ESES information #towardsT2S

Harmonisation topics - Settlement ESES status T2S mandatory matching fields T2S schedule for the settlement day and calendar Settlement Finality I: moment of entry n/a Settlement Finality II: irrevocability of transfer order Settlement Finality III: irrevocability of transfers Settlement discipline regime n/a Settlement cycles n/a 21 Blue: delivered Green: on track ESES CSDs and T2S settlement standards #towardsT2S

22 Settlement What’s new for you? • Introduction • ESES and T2S settlement standards • Overview of T2S settlement functionalities • New T2S functionalities for ESES clients ► Cross-CSD settlement ► Hold and release ► Linking ► Prioritisation ► Partial settlement ► New auto-collat features – NCB auto-collat – Client auto-collat – Limit management • ESES information #towardsT2S

Overview of T2S functionalities Interaction ESES – T2S 23 ISO 15022 ISO 20022 ISO 20022 #towardsT2S

Overview of T2S functionalities Matching process • Mandatory in T2S • Matching criteria • Allegement messages sent to counterparty for unmatched transactions • Already matched instructions ► do not follow standard T2S matching process ► subject to T2S rules 24 #towardsT2S

Overview of T2S functionalities Core messages 25 ESES / T2S Status advice SecuritiesSettlementTransactionStatusAdvice Settlement Confirmation SecuritiesSettlementTransactionConfirmation Settlement instruction SecuritiesSettlementTransactionInstruction sese.023 MT540 541 542 or 543 Validation & Matching Settlement sese.024 MT 548 MT 544 545 546 or 547 sese.025 ESES Client #towardsT2S

26 ESES / T2S Status advice SecuritiesSettlementConditionModification StatusAdvice Amendment SecuritiesSettlementConditionModification Request sese.030 MT530 MT540 541, 542 or 543 Maintenance sese.031 MT 548 Status advice SecuritiesSettlementConditionModification StatusAdvice Cancellation SecuritiesSettlementConditionModification Request sese.020 MT540 541, 542 or 543 sese.027 MT 548 ESES Client Overview of T2S functionalities Core messages #towardsT2S

Overview of T2S functionalities Settlement lifecycle 27 #towardsT2S

Overview of T2S functionalities Operational Day 28 Deadlines/events Timeline Start-of-day 18:45 - 19:30 Night-time sequence 19:30 - 03:00 Overnight real-time settlement N/A Maintenance window 03:00 - 05:00 Real-time settlement window 05:00 - 16:00 Optional sweep 17:00 - 17:40 Partial settlement windows Three windows: - Overnight batch - 14:00 (with deactivation at 14:15) - 15:45 (with deactivation at 16:00) DVP cut-off 16:00 Additional matched FOP between parties 16:00 - 18:00 Additional CBO (NCBoperations) window 16:00 - 17:40 BATM, intraday FOP trades, securities restriction cut-off 17:30 Mandatory end-of-day sweeps 17:45 - 18:00 End-of-day process 18:00 #towardsT2S

29 • Introduction • ESES and T2S settlement standards • Overview of T2S settlement functionalities • New T2S functionalities for ESES clients ► Cross-CSD settlement ► Hold and release ► Linking ► Prioritisation ► Partial settlement ► New auto-collat features – NCB auto-collat – Client auto-collat – Limit management • ESES information #towardsT2S New T2S functionalities

30 New functionalities • T2S will provide a number of new functionalities to ESES clients ► allowing the use of ESES for a larger scope of markets ► providing increased flexibility to – manage and control your instructions – optimise your settlement #towardsT2S

31 Cross-CSD settlement • Settle transactions with counterparties with accounts in non-ESES T2S CSDs • Cross-CSD DVP settlement available through existing links ► Italy (Monte Titoli) ► Belgium (NBB) ► Bank of Greece (BOGS) ► Germany (CBF) ► Austria (OeKB) ► Spain (Iberclear) • New links and increased securities coverage implemented with ESES single CSD offer • Further extension of Eurobonds admission #towardsT2S

32 Cross-CSD settlement Cross-CSD Settlement Processing #towardsT2S

Cross-CSD Settlement Processing • Cross-CSD instructions - party and counterparty in 2 different CSDs • Upon matching of instructions, T2S identifies the need to create realignment instructions between participant accounts and relevant mirror, omnibus and inter-CSD accounts • Realignment instructions and original settlement instructions are linked internally to settle on an ‘all-or-none’ basis • Realignment is transparent to the client 33 #towardsT2S

34 Cross-CSD Settlement How to proceed • Standard settlement instructions ► Same formats ► Same matching rules ► Same settlement lifecycle – as intra-CSD transactions • Main specificities ► ‘To be matched’ transactions only - no ‘already matched’ ► After matching, transactions are subject to the specific rules set by the CSDs involved, at the time of realignment #towardsT2S

Hold & Release Objective: to prevent an instruction settling before an external condition is met • Use ► Custodians - to ensure underlying internal client has the required securities or cash provision before committing to settle ► CSDs - to implement controls – CSD Hold – CSD validation hold • Release ► Custodian verifies its client has the provision ► CSD has checked settlement instruction consistency with its rules #towardsT2S

Hold & Release Processing 36 •Direct sending of settlement instruction on Party HoldYou •CSD validation hold functionality for checking transactions on French and Belgian Registered shares ► control of account manager for pure registered securities ► compatibility between some account natures ► check the buying/selling power for BRS ESES •Auto-collateralisation a reverse collateral is created by T2S with a hold statusT2S #towardsT2S

37 Main features Hold & Release • Throughout lifecycle • Change indicator until final status of instruction • Option to define ‘hold’ status in the static data • Counterparties informed after 1st settlement attempt • Matching of ‘on hold’ instructions • Continuous recycling of matched ‘on hold’ instructions until ‘released’ Hold & Release Processing #towardsT2S

38 Hold & Release How to proceed Hold options • at account level - default ‘hold’ status for all your transactions • per initial settlement instruction Amend/Release • EuroclearConnect for screen or T2S GUI • STP message ► ISO 15022 – Hold – MT 530 – Release – MT 540, 541, 542 or 543 ► ISO 20022 – Hold & Release – sese.030 SecuritiesSettlementConditionModificationRequest #towardsT2S

39 Linking Objective: to secure and organise settlement of instructions • Examples of situations ► delivery – redelivery ► market intermediation ► baskets of collateral ► securities exchanges ► lending – borrowing • Also used in some ► ESES processes: government bonds stripping ► T2S processes: cross CSD realignment, auto-collateralisation,…. #towardsT2S

40 Linking Processing Settlement instructions linked by: • Processing position code ► BEFO (Before) –to be settled before or at least at the same time as the linked instruction ► AFTE (After) – to be settled after or at least at the same time as the linked instruction ► WITH (All-or-none) – to be settled at the same time as the linked instruction ► INFO (Information) – for information purposes - there is no processing in T2S behind this code • Pool reference - to be settled ‘all-or-none’ #towardsT2S

41 Linking How to proceed Creating a link • send initial settlement instruction including ► processing indicator (BEFO, AFTE, WITH) ► reference of linked instruction • send an amendment instruction with the same information for an existing unlinked transaction Using a pool reference • assign the same collective reference to all instructions • include a pool counter detailing total number of transactions Cancel or modify a link using amendments instructions #towardsT2S

42 Prioritisation Objective: to ensure that certain transactions are presented for settlement before others •Examples ► in case of insufficient resources ► to increase settlement efficiency #towardsT2S

43 Prioritisation Processing •CSDs and NCBs1- Reserved •Trading platforms and CCP2- Top •All clients3- High •All clients4- Normal #towardsT2S

44 Prioritisation Processing Prioritisation in T2S settlement process • Primary in the Night-Time-Settlement • In the Real-Time-Settlement only for pending Instructions Matched instructions • differing priorities - highest level applies • no priority indicated ► default applies - if defined ► normal priority applies – if no default defined Same level of priority • T2S gives the preference to the oldest one based on the intended settlement date #towardsT2S

45 Prioritisation How to proceed • Set priority level in your initial settlement instruction • If no indication, default or normal priority applies • Send amendment to change priority ► Through EuroclearConnect for screen or T2S GUI ► STP message – ISO 15022 MT530 – ISO 20022 sese.030 SecuritiesSettlementConditionModificationRequest #towardsT2S

Partial settlement • Generated by T2S when there are insufficient securities or cash to settle a transaction • Only generated if a certain number of conditions are met • Use NPAR indicator to opt out at instruction level #towardsT2S

47 Partial settlement Processing Partial Settlement window Night-time: sequence X Real Time: 14:00 - 14:15 & 15:45 -16:00 Partial indicator Both settlement instruction contain either: PART: Partial allowed PARC: Partial allowed with cash threshold, PARQ: Partial allowed with quantity threshold Neither settlement instruction contains: NPAR: Partial not allowed Threshold Depending on applicable threshold: Quantity Cash : >= €10 000 for equities >=€100 000 for bonds No link Settlement instructions not linked to another settlement instruction Conditions for partial settlement #towardsT2S

48 Partial settlement Reporting Securities Settlement Transaction Confirmation Sese025 MT 544, 545, 546 or 547 Securities Settlement Status Advice Sese024 MT548 partial settlement status with • quantity/amount settled • quantity/amount settled previously • quantity/amount remaining to settle pending status last partial status when the last remaining part is settled n/a Settled part Unsettled part #towardsT2S

49 Partial settlement How to proceed Indicate ‘Partial settlement indicator’ in initial settlement instruction • PART (partial Settlement allowed) • NPAR (no partial settlement allowed) • PARC (taking CASH threshold into account) • PARQ (taking QUANTITY threshold into account) No indicator = partial by default You can amend the partial indicator before settlement • Through EuroclearConnect for screen or T2S GUI • STP message ► ISO 15022 MT530 ► ISO 20022 sese.030 SecuritiesSettlementConditionModificationRequest #towardsT2S

Central bank auto-collateralisation • Triggered when a payment bank lacks cash to process a Settlement Instruction New auto-collateral features 2 kinds of auto-collateralisation in T2S 50 Central Bank Payment Bank Payment Bank Payment Bank Client Client auto-collateralisation • Payment bank client uses cash account of its payment bank - limit equal to amount guaranteed outside T2S • Client collateralisation - triggered when payment bank client lacks external guarantee headroom € € #towardsT2S

51 New auto-collateral features Processing - main features • Both ‘on-flow’ and ‘on-stock’ • Automatic substitution • Reverse collateral created immediately with a ‘hold’ status • Intra day reimbursement only at the initiative of the Payment Bank • End-of-day reimbursement ► forced for NCBs auto-collateralisation ► at the initiative of the Payment Bank for client auto- collateralisation • End of day procedures ► DCAs rebalancing ► Relocation #towardsT2S

52 New auto-collateral features Parameters Payment bank As credit consumer • Links between securities account for collateral supply and cash account • Identification of securities positions eligible for collateral • Securities accounts pledged for collateral management in PLEDGE procedure Central bank • Define eligible collateral, valuation, close links • Choose management procedure: repo, pledge, sub-pledge • Define receiving securities account (repo) • Define regular securities account for relocation • Cash account providing the intraday credit • Auto-collateralisation limit • Max credit percentage Central bank auto-collateralisation #towardsT2S

53 New auto-collateral features Parameters (cont.) Payment bank Client • Links between securities account for collateral supply and cash account of its payment bank • Identification of securities positions eligible for collateral Payment bank As credit provider • Define eligible collateral & valuation • Define receiving securities account • Define cash account providing the intraday credit • Auto-collateralisation limit Client auto-collateralisation #towardsT2S

New auto-collateral features Limit management 54 CB CMB CB Collat CMB Client Collat CMB NCB CB auto-collateralisation limit Client auto-collateralisation limit External Guarantee Unsecured credit Payment Bank NCB Receiving SA NCB Regular SA Repo Relocation PB SA Receiving collat PB SA providing collat PB SA providing collat PB Client SA Providing collat PB Client SA Providing collat Repo #towardsT2S

55 New auto-collateral features Flagging securities for auto-collateralisation • Send already matched instruction to / from ► Sub position AWAS or ICPG 0 for non-collateralised holdings ► Sub position EXXX or ICPG 3 for holdings eligible for auto- collateralisation • ESES service ► end-of-day rebalancing #towardsT2S

56 • Introduction • ESES and T2S settlement standards • Overview of T2S settlement functionalities • New T2S functionalities for ESES clients ► Cross-CSD settlement ► Hold and release ► Linking ► Prioritisation ► Partial settlement ► New auto-collat features – NCB auto-collat – Client auto-collat – Limit management • ESES information Settlement What’s new for you? #towardsT2S

57 ESES T2S DSD Matching and settlement services ► General principles ► T2S instruction types (settlement & maintenance instructions) ► Other T2S concepts (Intra, cross, external CSD Settlement & already matched) ► Settlement in non-EUR currencies ► Technical & business validation ► Matching fields, matching tolerance, matching period ► Allegement process ► Validation & matching reporting ► Cross-CSD settlement and realignment ► Posting (settlement eligibility & provision checks, booking) ► Optimising (Technical netting, Prioritisation, Partial settlement, Auto-collateralisation ► Other processes related to settlement (Linked instructions, Amendment, Hold/Release, Cancelling unsettled settlement instructions, Recycling pending instructions) ► Pre-settlement processes (CCP instructions, Other pre-settlement services) ► Other ESES-specific processes (Dedicated ESES offer for FOP without matching, Automatic transfer of balances, ISIN conversion, Stripping/Reconstitution) ► Instructions created on the ESES platform ► Operational day generic framework ► Settlement reporting ► Start-of-day ► Night-time settlement process ► Maintenance window ► Real-time settlement process ► End-of-day ► Deadlines • Operational day • ESES-specific services • Validation & matching • Settlement • Overview #towardsT2S

58 ESES information Other deliverables linked to settlement • ESES T2S DSDs ► ‘ESES interaction with Payment systems’ ► ‘International links with CSDs outside T2S’ • ESES T2S Data Dictionnaires ► Settlement & Reconciliation 15022 ► Settlement & Reconciliation 20022 ► Payment 15022 ► Payment 20022 • ESES T2S training ‘Settlement’ #towardsT2S

59 What's your view? #towardsT2S

Sylvie Vernet Gruot Public Affairs Caceis 60 #towardsT2S

61 #towardsT2S Guillaume Héraud Chief Executive Officer SGSS-Parel

62 #towardsT2S

63 #towardsT2S

ESES T2S Update meeting Helping you prepare for T2S Michael Benahim Commercial Support T2S Roll-out 64 #towardsT2S

65 Agenda •Introducing the ESES T2S Implementation Committee •Documentation delivery plan •Training #towardsT2S

ESES T2S Implementation Committee • What is it? ► Help you prepare for testing and migration ► Monitor and communicate on client readiness • Who can attend? ► All ESES clients (SPOC) ► Third party providers • How often? ► 2014: every 3 months ► 2015: every 2 months • Where? ► Paris (in French) ► Brussels and Amsterdam on a rotating basis (in English) ► Ad-hoc per location if required 66 #towardsT2S

ESES T2S Implementation Committee • Scope ► ESES testing and migration: planning and status ► Client documentation: planning and status ► Training schedule and other events related to T2S ► Actions/decisions you need to take in order to be ready: – Account structure and mapping in T2S – Connectivity – Message subscription ► Risks and issues • Topics for first committee meeting ► Main client impacts of T2S ► Clients testing calendar ► Euroclear’s support 67 #towardsT2S

Documentation delivery plan 68 • Published December 2013 • White Paper V3.1 – Adaptation of ESES CSD services to Target2- Securities December 2013 • New! Just published • DSD: ESES matching & settlement services New! •By end March 2014 •Account structure & subscription management •Communications means •First Data Dictionaries •15022 – Settlement & Reconciliation •20022 – Settlement (main messages) March 2014 Where to find info? • A FAQ and much more can be found on euroclear.com • Go to MyEuroclear > Knowledge base and search for T2S • See the page ‘All you need to know about T2S for ESES’ #towardsT2S

Documentation delivery plan 69 #towardsT2S

ESES training 70 Domain As from Settlement 3-4 April 2014 Connectivity June 2014 Payment Q3 2014 Corporate actions Q3 2014 Issuers services Q4 2014 First trainings sessions on settlement are planned: • 3-4 April – Paris • 10-11 April – Amsterdam • 23-24 April – Brussels • 29-30 April – London • 15-16 May – Paris • 22-23 May – Brussels • 5-6 June – Amsterdam • 19-20 June - Paris To register • On euroclear.com go to MyEuroclear > Training app to find a session in your location •In Q3, the training will also be available via our WebEx Training Centre, so you can attend from your desk #towardsT2S

71 Conclusion Dan Toledano ESES T2S Product Management Euroclear SA #towardsT2S

Reaching new opportunities 72 #towardsT2S

Stay in contact •eses.t2s@euroclear.com •#towardsT2S •@EuroclearGroup •euroclear.com/T2S •http://www.linkedin.com/company/towards-t2s 73 #towardsT2S 73

74 Cocktail #towardsT2S

75

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