ESES T2S Update meeting March 2014: Innovations in settlement services

1. 1
#towardsT2S
ESES T2S
Update meeting
Innovations in
settlement services

2. 2
Welcome
#towardsT2S
Join the conversation on Twitter
#towardsT2S

3. ESES T2S update meeting
3
• Harmonisation
• Settlement
• What's your view?
• Helping you prepare for T2S
#towardsT2S

4. 4
ESES T2S update meeting
Harmonisation
#towardsT2S

5. 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

6. 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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#towardsT2S

7. 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

8. 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

9. 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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#towardsT2S

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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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. 17
ESES T2S update meeting
Settlement
What’s new for you?
#towardsT2S

18. 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
#towardsT2S

19. 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. 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

21. 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: delivered
Green: on track
ESES CSDs and T2S settlement standards
#towardsT2S

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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

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

24. 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
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#towardsT2S

25. Overview of T2S functionalities
Core messages
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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

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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

27. Overview of T2S functionalities
Settlement lifecycle
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#towardsT2S

28. Overview of T2S functionalities
Operational 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
#towardsT2S

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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
#towardsT2S
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
#towardsT2S

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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
#towardsT2S

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Cross-CSD settlement
Cross-CSD Settlement
Processing
#towardsT2S

33. 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
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#towardsT2S

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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

35. 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

36. Hold & Release
Processing
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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-collateralisation
a reverse collateral is created by T2S with a hold statusT2S
#towardsT2S

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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 & Release
Processing
#towardsT2S

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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

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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,….
#towardsT2S

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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

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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

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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
#towardsT2S

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

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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

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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

46. 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

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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

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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

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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

50. 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. 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. 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

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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

54. 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. 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. 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. 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. 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. Helping you prepare for T2S
59
#towardsT2S
ESES T2S update meeting

60. 60
Agenda
•Introducing the ESES T2S Implementation Committee
•Documentation delivery plan
•Training
#towardsT2S

61. 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
61
#towardsT2S

62. 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
62
#towardsT2S

63. Documentation delivery plan
63
• 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

64. Documentation delivery plan
64
#towardsT2S

65. ESES training
65
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

66. 66
Conclusion
#towardsT2S

67. Reaching new opportunities
67
#towardsT2S

68. Stay in contact
•eses.t2s@euroclear.com
•#towardsT2S
•@EuroclearGroup
•euroclear.com/T2S
•http://www.linkedin.com/company/towards-t2s
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#towardsT2S
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69. 69
Cocktail
#towardsT2S

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