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

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ESES T2SUpdate meeting

Innovations in settlement services

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Welcome

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Join the conversation on Twitter#towardsT2S

ESES T2S update meeting

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• Harmonisation• Settlement• What's your view?• Helping you prepare for T2S

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Harmonisation

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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

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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

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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

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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 cycles8

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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

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Main open issues for settlement

• Optional matching fields

• Settlement cycles

• Settlement finality 1

• Settlement discipline

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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

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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

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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

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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

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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

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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)

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SettlementWhat’s new for you?

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Settlement What’s new for you?

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• 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

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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

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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

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Blue: deliveredGreen: on track

ESES CSDs and T2S settlement standards

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Settlement What’s new for you?





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Overview of T2S functionalities Interaction ESES – T2S

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ISO 15022ISO 20022

ISO 20022

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Overview of T2S functionalitiesMatching 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

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Overview of T2S functionalitiesCore messages

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ESES / T2S

Status advice

SecuritiesSettlementTransactionStatusAdvice

Settlement Confirmation

SecuritiesSettlementTransactionConfirmation

Settlement instructionSecuritiesSettlementTransactionInstruction

sese.023

MT540541 542 or543

Validation &Matching

Settlement

sese.024

MT 548

MT 544545546or 547

sese.025

ESES Client

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ESES / T2S

Status advice

SecuritiesSettlementConditionModificationStatusAdvice

AmendmentSecuritiesSettlementConditionModification

Request

sese.030

MT530MT540541, 542 or543

Maintenance

sese.031

MT 548

Status advice

SecuritiesSettlementConditionModificationStatusAdvice

CancellationSecuritiesSettlementConditionModification

Request

sese.020

MT540541, 542 or543

sese.027

MT 548

ESES Client

Overview of T2S functionalitiesCore messages

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Overview of T2S functionalitiesSettlement lifecycle

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Overview of T2S functionalitiesOperational Day

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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

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New T2S functionalities

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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

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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

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Cross-CSD settlement

Cross-CSD SettlementProcessing

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Cross-CSD SettlementProcessing

• 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

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Cross-CSD SettlementHow 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

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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

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Hold & ReleaseProcessing

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•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-collateralisationa reverse collateral is created by T2S with a hold statusT2S

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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 & ReleaseProcessing

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Hold & ReleaseHow 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

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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,….

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LinkingProcessing

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’

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LinkingHow 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

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Prioritisation

Objective: to ensure that certain transactions are

presented for settlement before others

•Examples

► in case of insufficient resources

► to increase settlement efficiency

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PrioritisationProcessing

• CSDs and NCBs1- Reserved

• Trading platforms and CCP2- Top

• All clients3- High

• All clients4- Normal

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PrioritisationProcessing

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

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PrioritisationHow 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

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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

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Partial settlementProcessing

Partial Settlement windowNight-time: sequence X

Real Time: 14:00 - 14:15 & 15:45 -16:00

Partial indicatorBoth settlement instruction contain either:PART: Partial allowedPARC: Partial allowed with cash threshold, PARQ: Partial allowed with quantity threshold

Neither settlement instruction contains:NPAR: Partial not allowed

ThresholdDepending on applicable threshold:QuantityCash : >= €10 000 for equities

>=€100 000 for bonds

No linkSettlement instructions not linked to another

settlement instruction

Conditions for partial settlement

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Partial settlementReporting

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

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Partial settlementHow 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

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Central bank auto-collateralisation

• Triggered when a payment bank lacks cash to process a Settlement Instruction

New auto-collateral features2 kinds of auto-collateralisation in T2S

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Central Bank Payment Bank

Payment Bank Payment BankClient

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

€

€

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New auto-collateral featuresProcessing - 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

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New auto-collateral featuresParameters

Payment bankAs 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

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New auto-collateral featuresParameters (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 bankAs credit provider

• Define eligible collateral & valuation• Define receiving securities account• Define cash account providing the intraday credit• Auto-collateralisation limit

Clientauto-collateralisation

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New auto-collateral featuresLimit management

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CBCMB

CB CollatCMB

Client CollatCMB

NCB

CB auto-collateralisation limit

Client auto-collateralisation limit

External Guarantee

Unsecured credit

Payment Bank

NCB ReceivingSA

NCB RegularSA

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

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New auto-collateral featuresFlagging 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

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ESES T2S DSDMatching 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

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ESES informationOther 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’

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Helping you prepare for T2S

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Agenda

•Introducing the ESES T2S Implementation Committee

•Documentation delivery plan

•Training

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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

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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

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Documentation delivery plan

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• 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’

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Documentation delivery plan

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ESES training

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Domain As from

Settlement 3-4 April 2014Connectivity June 2014Payment Q3 2014Corporate 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

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Conclusion

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Reaching new opportunities

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Stay in contact

•[email protected]

•#towardsT2S

•@EuroclearGroup

•euroclear.com/T2S

•http://www.linkedin.com/company/towards-t2s

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Cocktail

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

Economy & Finance

monitoring settlement

settlement day

settlement services

harmonisation settlement

settlement discipline

t2s csds

calendar settlement

t2s possibility