static data set-up for settlement and auto-collateralisation in t2s t2s programme office european...

Static data set-up for Settlement and Auto-collateralisation in T2S

T2S Programme OfficeEuropean Central Bank

WorkshopFrankfurt, 29 November 2013

ECB-PUBLIC

Table of Contents

Parties static data setup2

Introduction1

Management of securities settlement process3

T2S Auto-collateralisation5

Management of liquidity and collateral pools4

Implementation models6

2

3

Organisation’s BIC structure in T2SVarying usages

BIC structur

e

Management of securities settlement process

Management of collateral and liquidity pools

4

Set-up for Settlement and Auto-collateralisationConstraints

For covering all scenarios efficiently in T2S, we need flexibility

Some constraints are hindering flexibility

1.Legacy BIC structures Mergers, acquisitions, policies, laws & business strategy/services have

led to different BIC set-up in different countries for different organisations

2.Technical constrains in T2S: The BIC 8 of the owners of the dedicated cash account and securities

account:• Must be the same for offering Central Bank auto-collateralisation• Must not be the same for offering client collateralisation The same link is used for the definition of securities account for

collateral provision and settlement purposes

5

Organisation’s BIC structure in T2SHow do we find the optimal target BIC structure in T2S?

Target BIC structure in

T2S

Efficient securities settlement process

Optimised pools of liquidity and collateral

Legacy BIC structure

Flexible management of clients for client

collateralisation

6

Table of Contents


Introduction1





Static data configuration

7

Party Hierarchical Model

Level 1

Level 2

Level 3

Level 4

Party BICParent BIC

Securities Account 1

T2S Dedicated

Cash Account n

Static data configuration

8

T2S Party concept

A T2S Party is a legal entity or individual that has a contractual relationship with a CSD/NCB in T2S for the processing of its settlement related activities in T2S

Static data configurationParty identification

An institution can establish multiple business relationships with different CSDs and/or NCBs in T2S while using the same 11-digit Party BIC

Party BIC

Parent BIC

T2S hierarchical party model

An institution may be defined as different participants within the same CSD, e.g. to segregate securities settlement activities related to different departments of the same legal entity, provided different 11-digit BICs are assigned for each different participant

9

Static data configurationEntity and BIC Relationship

A T2S actor, e.g. a Custodian bank, can be defined as a T2S Party using its own BIC, or its clients BIC

Although BICs in T2S are validated against the SWIFT BIC directory, T2S does not verify that the BIC actually belongs to the party

T2S Actor CSD

CSD BIC: CSDADEFFXXX

T2S Party identification


Party BIC:

CSD Participant

CSD Participant’s clients

CSD

CSDADEFFXXX

T2S

PBAADEFF123

PBCLDEFF456

could also be used as Party BIC

PBAADEFF123

PBCLDEFF456Note:

10

Table of Contents


Introduction1





11

Management of securities settlement process

12

Instructing Party and Securities Account owner

Securities Account owner: Party BIC 11 linked to the Securities Account in T2S. A CSD Participant may link a Securities Account defined in T2S with its own Party BIC 11 and operate as the securities account owner. In this set-up the CSD Participant can instruct on the securities account as de-facto account owner without the need of third party privilege.

Instructing Party: Originator of the settlement instruction in T2S, either on its own behalf or on behalf of its clients. It may or may not be defined as the Securities Account owner in T2S. In the latter case, privileges must be setup in T2S to be able to instruct and query on the account

13

Segregation of proprietary and clients businesses can be done at the level of the accounts without setting up a specific party for the CSD participant’s client

Securities Account: 1234 5678

T2S Party Identification:


Party BIC:

CSD Participant

BIC11:

Customer name: CSD PART


T2SCSD

Account on behalf of CSD part.’s client having own BIC:

Customer: CSD PART CL

Securities Account: 87654321

PBAADEFF123


PBCLDEFF456

PBAADEFF123

Management of securities settlement processParty and Account structure

CSD Participant defines Securities Account 87654321 with its own

Party BIC 11

Segregation of proprietary and clients businesses can be done at the level of the party when a specific party is created in T2S for the CSD participant’s client




Party BIC:

CSD Participant

BIC11:

Customer name: CSD PART


T2SCSD

Account on behalf of CSD part’s client having own BIC:

Customer: CSD PART CL


PBAADEFF123

PBCLDEFF456

PBCLDEFF456

Management of securities settlement processParty and Account structure




Party BIC: PBAADEFF123

CSD Participant defines Securities Account 87654321 with the BIC 11

of the client

14

Management of securities settlement processParty and Account operational models

“Account operator model”




Party BIC:




Instructing Party Account owner

Sese.023

Privilege to send Settlement Instruction on SAC 87654321 must be granted to Instructing Party PBAADEFF123

“Account owner model”

No third-party privilege must be granted to Instructing Party PBAADEFF123 to send Settlement Instruction on SAC 87654321




Party BIC:




PBAADEFF123

Instructing Party Account owner

Sese.023

SecuritiesSettlement

TransactionInstruction



PBCLDEFF456

T2S

15

Management of securities settlement processMatching Concept – Mandatory and Optional matching fields

Mandatory Matching Fields

Additional Matching Fields

Optional Matching Fields

T2S Matching fields

Mandatory matching fields:

Delivering and Receiving CSD, Delivering Party and Receiving Party BIC (11-digit, Party1 block)

Optional matching fields:

Delivering and Receiving CSD participant’s client (11-digit, Party2 block). If inputted by both parties, the fields need to match 16

Management of securities settlement processMatching – Account Owner model

DELI RECE

Delivering CSD

Delivering Party

Receiving CSD

Receiving Party

(PBAADEFF123)

(87654321)

(CSDADEFFXXX)

CSDADEFFXXX

PBAADEFF123

CSDADEFFXXX

PBABDEFF111

(PBABDEFF111)

(CSDADEFFXXX)

(PBCLDEFF456)

(PBCLDEFF111)

(PBCLDEFF456)

(PBCLDEFF111)

“Account owner model” Mandatory fieldsOptional fields

17

CSD Participant BIC e.g. PBAADEFF123 used for mandatory matching

Management of securities settlement processMatching – Account Operator model

DELI RECE

Delivering CSD

Delivering Party

Receiving CSD

Receiving Party

(PBCLDEFF456)

(87654321)

(CSDADEFFXXX)

CSDADEFFXXX

PBCLDEFF456

CSDADEFFXXX

PBABDEFF111

(PBABDEFF111)

(CSDADEFFXXX)

“Account operator model” Mandatory fieldsOptional fields

18

Mandatory matching performed with the BIC of the client e.g. PBCLDEFF456

Management of securities settlement processAllegement

The Allegement process sends a message* to advise an account owner that another T2S Actor has instructed against it, whereas the account owner has no corresponding instruction.

Business Validation

Sese.023



Matching

X

T2S Party


PBAADEFF123

“Account owner model”

The Instructing Party (SAC owner) will receive the allegement

T2S Party C

PBCLDEFF456

“Account operator model”

The Instructing Party will NOT receive the allegement

*It is not possible for a third-party to receive a copy of the message

T2S Party

PBABDEFF111

19

Management of securities settlement processMessage Subscription and Routing Configuration

20

Table of Contents


Introduction1





21

Multiple Securities Accounts may be linked to the same Dedicated Cash Account independently of the underlying T2S Party in order to centralise liquidity

T2S Party PBAADEFF12

3

T2S Party

SAC 1234567

8

SAC 8765432

1

Dedicated Cash Account (DCA)

77777777

PBCLDEFF456

Management of liquidity and collateral poolsLiquidity pool - Centralised into a single Dedicated Cash Account


3

SAC 1234567

8

SAC 8765432

1


77777777

A liquidity pool in T2S is a collection of Dedicated Cash Accounts that can be used for settlement of transactions involving a cash component

22

Each Securities Account may be linked to one or several Dedicated Cash Accounts for the purpose of splitting liquidity independently of the underlying T2S party


3

T2S Party

SAC 1234567

8

SAC 8765432

1

PBCLDEFF456

Management of liquidity and collateral poolsLiquidity pool - Split on several Dedicated Cash Accounts


3

SAC 1234567

8

SAC 8765432

1

DCA8888888

DCA99999999

DCA77777777

DCA8888888

DCA77777777

23

Management of liquidity and collateral poolsCollateral pool

A Collateral pool in T2S is a collection of Securities Accounts that can be used for the provision and/or receipt of collateral against intraday credit in the context of auto-collateralisation

Same linking configurations are possible between Securities and Cash Accounts as for liquidity pools

24

T2S Party APBAADEFF12

3

T2S Party B

SAC 1234567

8

SAC 4567891

2

SAC 8765432

1


777777777

PBCLDEFF456

T2S Party B

SAC 8765432

1

PBCLDEFF456

DedicatedCash

AccountDCA

77777777

DedicatedCash

AccountDCA

88888888

Table of Contents


Introduction1





25

T2S Auto-collateralisation

Party setup, Account structure, configuration of Liquidity and Collateral Pools are key components of the auto-collateralisation process in T2S

Static data, liquidity and collateral pool setup

26

T2S Auto-collateralisationBIC structure - Entity Relationship

The BIC structure governs the flexibility and control in the settlement and auto-collateralisation processes

PBAADEFF789

PBC2FRAA111

PBCLCLFF456

Client1 of PBPBCLDEFF456

Client2 of PBPBC2FRAA001

Client3 of PBPBC3NLYY220

PBPBAADEFF123

CB Auto-collateralisation (Primary CMB)

Client collateralisation (Secondary CMB*)

CSD Participant with same BIC8 as the PB

PB authorises BIC4* (PBCL*) of client for the use of DCA

PB authorises BIC8* (PBC2FRAA*) of client for the use of DCA

PB authorises BIC11 of client for the use of DCA

CSD Participants with different BIC8 as the PB

CB links BIC8* (PBAADEFF*) of the PB to primary CMB

CB links PB DCA to CB

cash account

PBPBAADEFF123

CBNCBAXXYYAAA

and/or

and/or

(*)Securities account of different clients can be linked via one CMB or several CMBs.

Cash AccountsSecurities Accounts

27

Table of Contents


Introduction1





28

Implementation ModelsOptimal target BIC structure in T2S

Institutions must assess their needs for securities settlement, management of cash flows and auto/client collateralisation processes

Institutions must consider the impact of the implementation of the BIC structure on the management of settlement flows, liquidity and collateral pools, in conjunction with the T2S Party identification

Following (non-exhaustive) models/alternatives can be assessed with regards to BIC implementation choice:

Decentralise liquidity pools in T2S

Centralise liquidity and collateral pools without client collateralisation

Centralise liquidity and collateral pools with use of client collateralisation

29

Management of liquidity via different pools for segregating client and proprietary business

Management of liquidity via different pools, according to their business and organisational needs

Implementation ModelsDecentralise liquidity pools in T2S – No auto-collateralisation

DCA1

PBAADEFF123

DCA2

PBAAGHI1XXX

Proprietary A/C 1PBAADEFF123

Main Branch A/C 2PBAADEFF789

Proprietary A/C 3PBAAGHI1XXX

CB Cash Account

NCBAXXYYAAA

Branch A/C 4PBAAGHI12AA

Primary CMB 1

Primary CMB 2

Securities Accounts

30

Aim of centralising of liquidity and collateral pools is met Implement/assigning institution’s own BIC codes to the

securities account of their clients in T2S Less flexibility in implementing the management of settlement

flows like matching and allegement, e.g. greater risk of implications such as cross-matching.

Potentially easier to set up with regards to the set-up of privileges and routing configurations

Implementation ModelsCentralise liquidity and collateral pools without client

collateralisation

DCAPBAADEFF123


Client 1 A/C 1PBAADEFF789

CB Cash Account

NCBAXXYYAAA

Client 2 A/C 1PBAADEFF201

Primary CMB

Securities Accounts

31

Implementation ModelsCentralise liquidity and collateral pools with use of client

collateralisation Aim of centralising of liquidity and collateral pools is met Model requires multiple BICs to associate multiple clients More flexibility in implementing the management of settlement

flows More complex with regards to the set-up of privileges and

routing configurations

DCAPBAADEFF123


Main Branch A/C 2PBAADEFF789

Proprietary A/C 3PBC2FRAA001

CB Cash Account

NCBAXXYYAAA

Primary CMB

Secondary CMB 1

Client 1 A/C 1PBCLDEFF456

Client 1 A/C 2PBCLCLFF456

Secondary CMB 2

Securities Accounts

32

Set-up for Settlement and Auto-collateralisationConclusion

Institutions should carefully consider the trade-off between the management of settlement flows and management of liquidity and collateral pools

Is there an appropriate trade off within these current constraints? The BIC 8 of the owners of the dedicated cash account and

securities account:• Must be the same for offering Central Bank auto-collateralisation• Must not be the same for offering client collateralisation The same link is used for the definition of securities account

for collateral provision and settlement purposes

33

34

Thank you for your attention

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static data set-up for settlement and auto-collateralisation in t2s t2s programme office european...

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