T2S How the Italian market is getting How...T2S and harmonisation The latest issue of the T2S Harmonisation Progress Report was published in March 2014 Thank you for your attention!

T2S How the Italian market is getting ready for wave 1 London, 2 February 2015

London Stock Exchange Group Page 1


1. Opening remarks 2. ECB and Banca d’Italia update 3. Monte Titoli: project updates 4. Panel: Agent Banks readiness 5. Panel: Banks and Brokers readiness

T2S How the Italian market is getting ready for wave 1 Xavier Rolet – CEO, London Stock Exchange Group

Page 3 London Stock Exchange Group

T2S How the Italian market is getting ready for wave 1 Marc Bayle – Director General Market Infrastructure and Payments & Chairman of the T2S Board, ECB


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Event: T2S: How the Italian market is getting ready for wave 1 – London, 2 February 2015

Marc Bayle Director General Market Infrastructure and Payments & Chairman of the T2S Board European Central Bank

T2S project status update

Table of Content

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T2S Programme Plan 1

User Testing and Migration 2

3 T2S and harmonisation

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Sept 2014: Eurosystem Acceptance Testing results confirmed that the T2S

platform is stable Oct 2014: CSDs and NCBs

started user testing

Feb 2015: Start of migration phase

June 2015: First migration wave & T2S go-live

Feb 2017: Full migration completed

What has been done?

What lies ahead?

What has been done? What lies ahead? T2S Programme Plan

July 2014: Pilot testing started

Start Mon 17/07/06

Finish Tue

31/07/17

SP17 SP13

SP6 SP5

SP4 SP3 SP2 SP1

Migration Phase (SP14 - 16) User Testing Phase (SP7-12)

EAT Specification Phase

Preparation Phase 2007 2008 2009 2010 2011 2012 2013 2014 2016 2017

T2S Go-Live

2015

Development & Testing Phase

we are here

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SP 6 1 Sept 2014

•Eurosystem ready for user testing

SP 7 1 Aug 2014

•Ready to start connectivity set-up

SP 8 1 Oct 2014

•Start bilateral interoperability testing

SP 9.1 5 Jan 2015

•Start multilateral interoperability testing

SP 10.1 2 Mar 2015

•Start community testing

SP 16.1 19 June 2015

•Ready for T2S go-live on 22 June 2015

• All T2S stakeholders (Eurosystem, central banks, CSDs, users) to be ready in time for testing and migration to T2S

Challenge

Delivery of release with solved cross-CSD settlement

Issue 16 Jan 2015

Key milestones until go-live (wave 1) T2S Programme Plan

http://www.google.de/url?url=http://galleryhip.com/correct-symbol.html&rct=j&frm=1&q=&esrc=s&sa=U&ei=iCc4VIf8F4bgyQPEoIKgCQ&ved=0CDYQ9QEwEA&usg=AFQjCNF4lBDKGUD2T_1W1iJzKwPcEayGTQ




Table of Content

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User testing and migration 2


Bilateral Interoperability

Multilateral Interoperability

Community/Business Day

Purpose U2A and/or A2A connection to

T2S

Test T2S Test adaptation of

legacy system

Test cross-border settlement

Duration (for wave 1)

1 month setup + 1 month

testing

Until 02/01/2015

Actors CSDs, CBs (and DCPs later)

CSDs, CBs and their communities

Connectivity

CSDs, CBs CSDs, CBs

DCPs and ICPs test their adaptation to

T2S

Until 27/02/2015

Until 12/06/2015

User testing plan User testing and migration

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First migration rehearsal User testing and migration

21-23 Nov 2014 - first migration rehearsal with CSDs and central banks of wave 1. Outcome: Overall successful; All migration activities were completed during

the migration weekend; The issues detected during the rehearsal will be

addressed ahead of the actual migration weekend.

Table of Content

12


User testing and migration 2


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EU legislation

T2S Harmonisation

T2S efforts – part of the overall agenda T2S and harmonisation

EU public/private

initiatives

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Why? T2S and harmonisation

One transaction

many post trade

standards

high cost of cross-border

operations

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3 reasons

T2S community asks strongly for this: Harmonisation is the added value of the T2S project.

Harmonisation supports the Lean T2S system specification. Keeps budget and time under control

Part of the EU single market agenda (financial integration)

Why? T2S and harmonisation

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T2S Harmonisation List, July 2014 T2S and harmonisation

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Results per T2S market, July 2014 T2S and harmonisation

T2S Harmonisation Progress Report

The fifth T2S Harmonisation Progress Report is scheduled for April 2015

Follow us on Twitter and stay tuned @T2SECB

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T2S and harmonisation

The latest issue of the T2S Harmonisation Progress Report was published in March 2014

Thank you for your attention!

www.t2s.eu

@T2SECB

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T2S How the Italian market is getting ready for wave 1 Fabrizio Palmisani – Head of Payment Systems Directorate, Banca d’Italia


TARGET2-Securities and the Italian Financial Market

London 2 February 2015

Fabrizio Palmisani Head of Payment Systems Directorate Banca d’Italia

Outline

The main benefits expected from T2S The importance of post-trading harmonization Preparation activities for the go-live The role of Monte Titoli, the banks and Banca d’Italia T2S and the demand for collateral

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1. The main benefits expected from T2S (1)

T2S will guarantee a MORE EFFICIENT AND SAFER securities settlement system in Europe

▪ REDUCTION OF SETTLEMENT FEES

▫ reduction of average settlement transaction fee (economies of scale) ▫ levelling of cross-border and domestic settlement transactions fees (settlement through the same platform) ▫ reduction of costs for CSDs’ customers (promoting competition among CSD and between CSD and global custodians)

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1. The main benefits expected from T2S (2)

STREAMLINING of technical aspects and procedures ▫ settlement of transactions on a single platform both for cash and securities ▫ reduction of the interfacing with different settlement systems ▫ possibility to centralize securities management from a single account ▫ reduction of collateral demand

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2. The importance of post-trading harmonization

Importance of POST-TRADING HARMONIZATION activities to: ▫ eliminate local markets SEGMENTATION

▫ optimize T2S BENEFITS for the operators ▫ promote INTEGRATION of financial markets

HARMONIZATION required: ▫ definition of EUROPEAN “STANDARDS”; work done by market operators coordinated by the Eurosystem ▫ REMOVAL OF NATIONAL SPECIFITIES monitored by T2S National User Groups

Involvement of Italian financial market in the “STANDARD” DEFINITION at European level; important contribution for the definition of the PORTFOLIO TRANSFER STANDARD

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3. Testing activities

MARCH – DEC 2014 Eurosystem Acceptance Testing (EAT) for core and non-core functions completed

JULY – SEPT 2014 Pilot testing MT and BdI successfully completed

FROM OCT 2014 User Testing for CSDs and NCBs, involving 24 CSDs and 19 NCBs; it will carry on until the last migration Wave (Feb17) MID JANUARY 2015 Release of software for production phase

MID FEBRUARY 2015 Connectivity test for DCPs

MARCH 2015 Community test for the first wave financial markets will start

JUNE 2015 GO LIVE for Italy and the other countries in the first migration wave

4. Training activities

Banca d’Italia and Monte Titoli have been and remain deeply involved in training activities BOTH JOINTLY AND SEPARATELY

TRAINING ACTIVITIES carried out during T2S National User Group meetings and specific sessions

CONTINUOS BILATERAL ADVICE to banks on demand

GENERAL TRAINING SESSIONS open to the Italian financial community ▫ 24 September 2014 INTRODUCTORY SEMINAR: OBJECTIVES AND FEATURES OF T2S ▫ 28 October 2014 FUNCTIONAL ASPECTS OF T2S ▫ 26 November 2014 COLLATERAL MANAGEMENT IN T2S ▫ 12 January 2015 TESTING AND MIGRATION PLANNING ▫ 2 February 2015 OPERATIONAL, REGULATORY AND ADMINISTRATIVE ASPECTS

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5. Monitoring activities – the role of the IT NUG On the REMOVAL OF NATIONAL SPECIFITIES in line with the harmonization process to European best practices: the NUG confirmed that the Italian market will be harmonized for the launch of T2S

In Italy main efforts to move towards european standards focussed on: ▫ Matching standards ▫ Corporate actions on stocks ▫ Corporate actions on flows (with the launch of T2S) ▫ FoP transactions (with the launch of T2S) ▫ T+2 (live from 6 Oct 14) On the READINESS of the Italian financial market place: ▪ Banca d’Italia and Monte Titoli deeply involved in supporting migration in T2S ▪ Readiness checked during meetings and with specific questionnaires: ▫ first questionnaire to all operators that have an account in TARGET2 and/or Monte Titoli ▫ quarterly questionnaire to banks that will open an account in T2S

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6. Monte Titoli’s choice

COSTS AND BENEFITS of being in the FIRST MIGRATION WAVE

costs to be the first to test and to implement new procedures benefits to be the first to offer the more efficient and safer settlement system T2S and the new cross-border triparty services in the Eurosystem will INCREASE COMPETITION among CSDs and between CSDs and global custodians. Great importance to value added services offered by CSDs such as CUSTODY SERVICES and COLLATERAL MANAGEMENT

CSDs competitive position will largely depend on their offer of adequate COLLATERAL MANAGEMENT SERVICES

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7. The opportunities for banks

Careful EVALUATION OF CONNECTION choice: DIRECT OR INDIRECT?

Higher costs of direct connection should be balanced by higher revenues coming from a larger range of services offered to customers

Pan-European banks should exploit the benefits of having a SINGLE INTERFACE for the securities settlement in the euro area with possible CENTRALIZATION of information and holdings of securities

All banks should take the opportunity offered by T2S to ENHANCE THEIR COLLATERAL MANAGEMENT SYSTEM

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37 operators are to open both CASH AND SECURITIES accounts in T2S ▫ 11 directly connected to T2S ▫ 26 indirectly connected through TARGET2 services

9 operators will open ONLY SECURITIES accounts (one or more); the cash leg will be settled through a third party

All remaining banks will have NO DIRECT CONNECTION to T2S: securities settlement through third party services

8. Italian banks’ choice

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As Central Bank, Banca d’Italia will perform different operational roles: 1. BANK OF BANKS: responsible for the Dedicated Cash Accounts (DCAs) opened by Italian commercial banks in T2S and used to settle the cash leg of securities transactions; 2. T2 SYSTEM OWNER: responsible for the cash accounts opened by commercial banks in TARGET2, which will be used to transfer liquidity from and to T2S;

9. Banca d’Italia’s role in T2S (1)

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3. COLLATERAL MANAGER: responsible for the collateral pledged by banks for credit operations with the Banca d’Italia. It will also submit the list of ELIGIBLE ASSETS and their valuation coefficients to T2S for the auto-collateralisation facility. During the migration period, the Banca d’Italia will offer a specific service to allow euro area commercial banks to use cross-border auto-collateralisation in Monte Titoli even if their financial community has not yet migrated to T2S. 4. SETTLEMENT AGENT for its own securities transactions in the market (placement, exchange and repurchase of Government bonds on behalf of the Italian Ministry of Economics; custody of Government bonds (coupon payments, redemptions); Monetary policy Outright transactions; Investment of official reserves for the Banca d’Italia and for the ECB; Securities lending).

9. Banca d’Italia’s role in T2S (2)

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GROWING DEMAND FOR COLLATERAL due to: ▫ REGULATION

▫ financial CRISIS effects

Need to INCREASE AVAILABILITY AND MOBILITY OF COLLATERAL overcoming fragmentation across desks, jurisdictions and custodians

«RIGHT COLLATERAL TO THE RIGHT PLACE AT THE RIGHT TIME»

T2S will centralize all participants’ securities and cash accounts on one SINGLE PLATFORM

10. T2S and the demand for collateral

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11. Actions for a more efficient collateral use

EUROSYSTEM: removal of repatriation requirement in the CCBM, introduction of cross-border triparty services, realization of T2S and harmonization of post-trading activities

BANKS: rearrangement of treasury and back-office procedures

CSDs: maximize opportunities stemming from T2S and development of efficient collateral management services (ie triparty) that should ▫ ..be linked to different markets and CCP ▫ ..attract participation from a diversified range of operators ▫ ..be interoperable with services offered by other CSD

T2S How the Italian market is getting ready for wave 1 Monte Titoli/LSEG view Mauro Dognini – General Manager, Monte Titoli


T2S: Monte Titoli effort


50.000 man/days invested since project inception to the end of 2015 between Operations and Information Technology

95 people employed as a peak in one day

3,5 million lines of software written for T2S

20.000 pages of documentation written for manuals, procedures, contracts, and technical specifications

50.000 days

95 head

counts

3,5 million

20.000 pages

Jun 14 Oct 14 Jan 15 Mar 15 May 15

T2S Go-live

Where are we?

Bilateral Testing

Multilateral Testing

Business Day Testing

Community Testing

Pilot Testing

Completed Bilateral Testing

• Completed on December 2014, testing about 80% of planned test cases

• All internal developments are completed at 95%

Obtained T2S Certification

• Successfully certified by the ECB for interacting with T2S at the end of December 2014

Started Multilateral Testing

• Completing the preparation for Multilateral Testing in T2S which implies cross-border settlement with other Wave 1 CSDs (BOGS and SIS)

Main Achievements 22 Jun 15


T2S Status reported to ECB


Risk Status • Major point of attention is represented by the non-regression testing as a consequence of the delayed defects resolution timeline, in particular for those emerging in T2S which are affecting applications in Monte Titoli

• The limited time available to complete the testing phase, could prevent Monte Titoli systems to get a sufficient stability for starting of the Community Testing

• Moreover with the start of Community Testing it is likely that further defects will be raised by Participants with the obvious impact on planning and the additional effort to be managed

Project Status • Most of the activities for T2S go-live are on-track • The ECB late fixing of defects (only partially completed in mid January) has prevented the

execution of all test cases planned in the Bilateral Testing phase • This is causing an overlapping of part of the Bilateral Testing phase with the Multilateral one,

requiring an additional effort to be managed with additional resources and complexity in planning A

A

After 7 months of testing, we do not see any show stopper Attention is high and we continue to manage risks carefully and update our clients

On-going activities


• Revised User Requirements version for Community Testing presented last December and to be published in February 2015

• Revised message specifications published in December (A2A, SWIFT and RNI)

Technical updates

• T2S Contracts will be released at the end of February 2015 • The current settlement discipline adapted to T2S, will remain in place (i.e. penalties)

Contractual updates

• Approved Manual of Procedure for DCP was published by Monte Titoli • T2S static data are in production since mid December • DCP Information Guide released on January 27th

Operational updates

Next Steps


Complete Multilateral Testing phase

Progress end to end testing phase, ensuring systems stability in view of Community testing

Monitor & support readiness of participants ensure constant support to participants: primarily training and technical support (webinars,

events, DCP workshop, etc.) setting up a dedicated task force to support clients during the Community Testing we have planned 3 week end dress rehearsal for migration testing

Within February 2nd 2015 - according to T2S Framework Agreement - CSDs will have to confirm their participants readiness for Community Testing

Monte Titoli and its clients have been carrying out an important process of compliance with the European standards and the full removal of market specificities.

London Stock Exchange Group

Market Harmonisation

• Hold/release functionality, bilateral cancellation • Market practice on the second layer matching (BIC11)

Matching Standard

• Cash Distributions and reorganization • Corporate Action Cash Payments paid in T2 • Suffix removal

CA on Stocks

• Management of claims, compensations and transformations CA on Flows

• Matched FoP instructions • Management of Portfolio Transfer

FoP transactions

• Settlement date shall occur no later than on the 2nd business day after the trading takes place T+2

T2S Go Live

T2S Go Live

Page 42

How will Monte Titoli/LSEG look after T2S?


Monte Titoli is getting ready for T2S go live and ready to adopt the CSDR Monte Titoli is also preparing for “business transformation”

We have launched fiscal services and asset servicing on Italian Securities at the beginning of 2015

We have implemented a “new client facing model” to be able to support international Global Custodians, Broker-Dealers and European CSDs opting for a direct connection to Monte Titoli

We will deploy fiscal services on European (T2S) securities starting from June 2015 to serve our domestic client’s franchise as INVESTOR CSD in Europe

Collateral Management platform will be deployed before the launch of T2S in June 2015

LSEG/Monte Titoli’s investment to access T2S has given us the opportunity to develop a full suite of assets services solutions and value added products that

will allow us to transform the existing Business Model

T2S How the Italian market is getting ready for wave 1 Panels


Panel: Agent Banks readiness


Moderator:

• A. Zignani, Head of Post Trade Sales, LSEG

Panel:

• H. Palmer, Senior Product Manager – T2S Solutions, SGSS

• M. Clarke, Director – Client and Product Solutions, Deutsche Bank

• A. Cameron, Head of RM International Banks and Brokers, BNP Paribas

• P. Ferraroni, Product Manager Local Custody, Intesa Sanpaolo

• R. Scavetta, T2S Programme Director, Citi

Panel: Banks and Brokers readiness


Moderator:

• S. Burton, Post Trade Director, AFME

Panel:

• A. Dockx, Executive Director, JP Morgan

• R. Lamanna, Managing Director, State Street Global Services

• T. Casteleyn, Managing Director, BNY Mellon


Q&A


Thank you for your

attention!

This publication contains text, data, graphics, photographs, illustrations, artwork, names, logos, trade marks, service marks and information (“Information”) connected with Monte Titoli S.p.A. (“Monte Titoli”). Monte Titoli attempts to ensure Information is accurate, however Information is provided “AS IS” and on an “AS AVAILABLE” basis and may not be accurate or up to date. Information in this publication may or may not have been prepared by Monte Titoli but is made available without responsibility on the part of Monte Titoli. Monte Titoli does not guarantee the accuracy, timeliness, completeness, performance or fitness for a particular purpose of the publication or any of the Information. No responsibility is accepted by or on behalf of Monte Titoli for any errors, omissions, or inaccurate Information in this publication. This publication does not represent solicitation, by Monte Titoli, of public saving and is not to be considered as a recommendation by Monte Titoli as to the suitability of the investment, if any, herein described. No action should be taken or omitted to be taken in reliance upon Information in this publication. We accept no liability for the results of any action taken on the basis of the Information. © February 2015 – Monte Titoli S.p.A. – London Stock Exchange Group All rights reserved

T2S How the Italian market is getting How...T2S and harmonisation The latest issue of the T2S Harmonisation Progress Report was published in March 2014 Thank you for your attention!

Documents

T2S How the Italian market is getting How...T2S and harmonisation The latest issue of the T2S Harmonisation Progress Report was published in March 2014 Thank you for your attention!