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T2S: Settling without borders in Europe
London School of Economics
London, March 24 2014
Pierre Beck
Vice-Chairman of the T2S-Board
1
Table of Contents
Project Governance 3
Functioning of T2S 2
Purpose and Benefits of T2S 1
T2S: Settling without borders in Europe
2
Spot on T2S Purpose and Benefits of T2S
Single
IT Platform
T2S Entirely New
Concept
Solution to
Fragmentation
Harmonised
Commoditised DVP
in CeBM
Reversed
integrated model
Multi-currency
dimension
Core-neutral
Borderless
securities settlement
3
Fragmented Infrastructure Purpose and Benefits of T2S
Target2
Nasdaq
OMX
Nordic
MTFs e.g. Chji-x/
TurquoiseLU S.E.
Euronext
PT, BE,
FR, NL
NYSE
MTFs
e.g.
BATS
Nasdaq
EUROPE UNITED STATES
Six
Group
EMCF
VP CSDx
Euro-
CCPLCH Clearnet SA
LCH
Clearnet
Ltd.
Six-x
Clear
Inter
Bolsa
Euroclear
SIS
SNB
BE FI FR NL SE
UK
&
IE
......NCBx...
Clearing
Securities
Settlement &
Asset
servicing
Trading
Cash
Settlement
BME
Group
Iber
clear
Deutsche
Bórse
Eurex
Clearing
Clear
stream
Banking
Frankfurt
Clear
stream
Banking
Luxemb.
London
Stock
Exchange
Borsa
Italiana
Cassa Di
Comp
Monte
Titoli
NSCC FICC
FED
DTCC
4
Current EU Settlement Landscape Purpose and Benefits of T2S
Non-integrated, cross-border settlement
CSD
CSD
CSD
CSD
CSD CSD CSD CSD CSD
Market Participant
Custodian
5
Scope of T2S Purpose and Benefits of T2S
A Service offered to CSDs for Settlement only
Notary
Function
Custody/
asset-servicing
Function Banking
Function
Settlement
Function
Registration of issuer
indebtedness and investor
holdings
e.g. coupon payments,
redemptions, stock
splits
Change of ownership
among investors
e.g. lending and
borrowing only in some
(I)CSDs
6
Future EU Settlement Landscape Purpose and Benefits of T2S
One integrated settlement process
(domestic and cross-border)
CSD
CSD
CSD
CSD
Market Participant M
arke
t Par
tici
pan
t
Market Participant
Marke
t Particip
ant
Cust
odia
n
General Principles of T2S
(published in 2011)
(1) The Eurosystem shall take on the responsibility of developing and
operating T2S by assuming full ownership
…
(3) T2S shall not involve the setting-up and operation of a CSD, but
instead serves only as a technical solution for providing settlement
services to CSDs
…
(5) The respective CSD customers’ securities accounts shall remain legally
attributed to the CSD and the respective central bank customers’ cash
accounts shall remain legally attributed to the central bank.
…
7
(7) Securities account balances shall only be changed in T2S
(8) T2S shall settle exclusively in central bank money
…
(12) CSDs’ participation in T2S shall not be mandatory
(13) All CSDs settling in central bank money and fulfilling the access
criteria shall be eligible to participate in T2S
(14) All CSDs participating in T2S shall have equal access conditions
…
8
9
T2S Benefits Purpose and Benefits of T2S
CSDs Custodians
Investors
Issuers
T2S will benefit all market participants
CSDR
Three streams shaping the new European securities settlement landscape
Market integration A new securities settlement landscape
10
11
T2S harmonisation Dashboard Status: 15 October 2013
ACTIVITIES – PRIORITY 1 DEFINITION MONITOR COMPL.
1
T2S MESSAGES
T2S ISO 20022 messages G G G
2 T2S matching fields G G Y
3 Interaction for registration G G G
4 Interaction for tax info G G G
5 Interaction for CSD ancillary services G G G
6 SCHEDULE OF SETTLEMENT DAY G G Y
7 T2S CORPORATE ACTIONS STANDARDS G G R
8
LEGAL HARMONISATION
Settlement finality I (moment of entry) Y x x
9 Settlement finality II (irrevocability of transfer order) G G G
10 Settlement finality III (irrevocability of transfers) G G G
11 Law applicable/Conflicts of Law R x x
12 Outsourcing IT services R x x
13 SETTLEMENT DISCIPLINE REGIME R x x
14 SETTLEMENT CYCLES R x x
15 CSD ACCOUNT STRUCTURES
Availability of Omnibus Accounts G G B
16 Restrictions on Omnibus Accounts G G G
17 REGISTRATION PROCEDURES Y x x
18 T2S ACCOUNTS NUMBERING
Securities accounts numbering G G G
19 Dedicated cash accounts numbering G G G
ACTIVITIES - PRIORITY 2 DEFINITION MONITOR COMPL.
20 CORPORATE ACTIONS MARKET STANDARDS CA market (CAJWG) standards G G Y
21 PLACE OF ISSUANCE R x x
22 TAX PROCEDURES
Withholding tax procedures G Y x
23 Transaction tax procedures Y x x
24 CROSS-BORDER SHAREHOLDER TRANSPARENCY Y x x
25 MARKET ACCESS R x x
26 SECURITIES AMOUNT DATA G G G
12
Table of Contents
Project Governance 3
Functioning of T2S 2
Purpose and Benefits of T2S 1
T2S: Settling without borders in Europe
13
The Technical Infrastructure
TARGET2
CENTRAL BANK
MONEY
VALIDATION and MATCHING
SECURITIES
OPTIMISATION
of
SETTLEMENT
SETTLEMENT
and
REALIGNMENT
CENTRAL BANK
MONEY
CSD A
CSD B
CSD C
NCB A
NCB B NCB B ACCOUNTS
NCB A ACCOUNTS
NCB C
CENTRAL BANK
MONEY
NCB A ACCOUNTS
Other RTGS
TARGET2 VALIDATION and MATCHING
SECURITIES
OPTIMISATION
of
SETTLEMENT
SETTLEMENT
and
REALIGNMENT
CENTRAL BANK
MONEY SECURITIES
OPTIMISATION
of
SETTLEMENT
SETTLEMENT
and
REALIGNMENT
SECURITIES
OPTIMISATION
of
SETTLEMENT
SETTLEMENT
and
REALIGNMENT
CENTRAL BANK
MONEY
CENTRAL BANK
MONEY
NCB B ACCOUNTS
NCB A ACCOUNTS
CSD A
CSD B
CSD C
CSD A
CSD B
CSD C
CSD A ACCOUNTS
CSD C ACCOUNTS
CSD B ACCOUNTS
NCB A
NCB B
NCB A
NCB B ACCOUNTS
NCB A ACCOUNTS
CENTRAL BANK
MONEY
NCB A ACCOUNTS
Other RTGS
NCB C ACCOUNTS NCB C ACCOUNTS
Other RTGS
CENTRAL BANK
MONEY
CENTRAL BANK
MONEY
CSD A
CSD B
CSD C
CSD A
CSD B
CSD C
NCB A
NCB B
NCB C
14
Main Functionalities of T2S
Settlement
Unmatched instructions
Matched instructions
Eligible instructions
Validation
Static Data
Matching Instructions
Maintenance
Eligibility
Interface
Report
Management
Queries
Management
Sequencing
Provisioning
& Booking Securities
accounts
Dedicated
cash accounts
Recycling &
Optimisation
3 4
5
6
7
8
9
10
1
2
Lifecycle Management and Matching Optimised settlement model
- CSD securities
- CeBM cash
Real-time gross settlement (RTGS),
combined with
- Auto-collateralisation
- Continuous Optimisation
- Recycling mechanisms
In addition, T2S provides i.a.
- Matching services
- Conditional securities delivery
- Automated real-time realignment
of cross-CSD positions
- Single account repository
- Standardised interfaces
- Message subscriptions & reporting
Functioning of T2S
15
Optimisation Features Functioning of T2S
Notary
Function
Banking
Function*
Technical
netting
Partial
settlement
Additional
optimisation
algorithms
Auto-
collateralisation
Reduction of the need
for cash and securities on
transactions to minimize
the use of resources
Splitting of
transactions in the case
of limited availability of
resources
Creation of extra
liquidity for settlement
via collateral on flow
and stock
Consideration of all
transactions with
equivalent ISINs to
identify chains of
transactions, empty
circles, etc.
16
CSD Reshaping to T2S
CSD
Custody
Others…
Reporting Lending
Coll. Mgmt.
T2S
Settlement
Functioning of T2S
CSD infrastructures require adaptations to
integrate with T2S
17
Table of Contents
Project Governance 3
Functioning of T2S 2
Purpose and Benefits of T2S 1
T2S: Settling without borders in Europe
18
T2S Governance since 1 July 2012 Status-quo of T2S
ECB Governing
Council
T2S
Board
Governors’
Forum
Non-euro
Currencies
Steering Group
(NECSG)
CSD Steering
Group (CSG)
National User
Groups (NUGs)
Non-euro
central banks’
governors /
boards
Project
Managers Group
(PMG)
Operations
Managers Group
(OMG)
Change Review
Group (CRG)
ECB
Cen
tral B
an
k
De
cis
ion
-Makin
g
Bo
die
s
Ste
eri
ng
Level
Bo
die
s
Mark
et
ad
vis
ory
bo
die
s
Tech
nic
al G
rou
ps
Reporting
Escalation
CRG reporting to CSG
Technical Groups reporting to T2S Board
Advisory Group
(AG)
T2S Community Status-quo of T2S
Icelandic Securities Depository
24 CSDs signed the T2S Framework Agreement
Euroclear SE
Euroclear UK & IE
HELEX BOGS Monte Titoli
Latvian Central Depository
Depozitarul Central
KDPW
OeKB
NBB-SSS
Euroclear BE VP Securities A/S
Euroclear FI
Euroclear FR
Clearstream Banking
KELER
CSD of Lithuania
LuxCSD VP LUX
Interbolsa
KDD
Iberclear
SIX SIS CDAD
EVK
CDCP
Euroclear NL
BNY Mellon
T2S under development
20
SP17 SP13
SP6 SP5
SP4 SP3 SP2 SP1
T2S Go-Live
Migration Phase
User Testing Phase
• Development & Internal Testing Phase
Specification Phase
Preparation Phase
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