Monte Titoli. Rules of X-COM COLLATERAL MANAGEMENT Service. 26 September 2016

Transcription

1 Monte Titoli Rules of X-COM COLLATERAL MANAGEMENT Service 26 September 2016 T h e I t a l i a n t e x t s h a l l p r e v a i l o v e r t h e E n g l i s h v e r s i o n 1

2 Contents PART I - GENERAL PROVISIONS... 4 TITLE I - LEGAL BASIS AND ORGANIZATIONAL PRINCIPLES... 4 Article 1 - Definitions... 4 Article 2 - Legal basis... 6 Article 3 - Organization principles and control risks... 7 Article 4 - Subject of the Rules... 7 Article 5 - Service communications... 8 TITLE II - PARTICIPATION IN THE SERVICE... 9 Article 6 - Eligible persons... 9 Article 7 - Participation requirements... 9 Article 8 - Relations between Participant and Settlement Agent Article 9 - Application for the X-COM Service Article 10 - Permanence of the conditions of participation Article 11 - Rules of conduct for Participants Article 12 - Suspension of Participants Article 13 - Exclusion of Participants Article 14 - Assessment activities PART II X-COM SERVICE TITLE I - THE OPERATION OF THE SYSTEM Article 15 - Structure of the Service

3 Article 16 - Financial instruments eligible for the Service Article 17 - Structure of the accounts Article 18 - Activity in the Service Article 19 - Operational phases TITLE II - THE ACQUISITION AND MATCHING OF TRANSACTIONS Article 20 - Eligible Transactions Article 21 - The acquiring and matching of Transactions Article 22 - Cancellation of Transactions TITLE III - THE SETTLEMENT OF TRANSACTIONS Article 23 - Settlement Article 24 - Settlement of Transactions with the Bank of Italy TITLE IV - THE MANAGEMENT OF COLLATERAL Article 25 - Selection of Collateral Article 26 - Valuation, top-up and return of Collateral Article 27 - Substitution of Collateral Article 28 - Financial instruments subject to corporate actions Article 29 - Re-use of collateral Note 1) The provisions of articles: 23.1 letter b) (highlighted part); (highlighted part); 27.2 letters b) and d), shall come into force on a date that will be the subject of subsequent communication. 3

4 PART I GENERAL PROVISIONS TITLE I LEGAL BASIS AND ORGANIZATIONAL PRINCIPLES 1. In these Rules: Article 1 Definitions «Settlement Agent»: shall mean the person who participates in the Settlement Service on behalf of the Participant to the X-COM; «Operating Sections»: shall mean the area of the Service in which the Participant is authorized to operate; «Pool Account»: shall mean the account of a Participant in Collateral Pooling Management System of Bank of Italy in which are recorded the eligible assets provided as collateral for Eurosystem credit operations; «General Conditions for the Provision of Services»: means the General Conditions Part I that apply to all services provided by companies belonging to the Borsa Italiana Group, including Monte Titoli and the General Conditions Part II applicable to the specific aspects of the services provided by Monte Titoli. «CSDR»: the EU Regulation. 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and central securities depositories and amending Directives 98/26 / EC and 2014/65 / EU and Regulation (EU) 236/2012, the following modifications and integrations and documentation of implementation; «Central Counterparties»: the persons specified in Article 2, paragraph 1, of the EU Regulation. 648/2012 (Regulation EMIR) on OTC derivatives, central counterparties and trade repositories; «Giver»: shall mean Participant who has undertaken the obligation to transfer the financial instruments as a collateral to another Participant in the System or to Bank of Italy in its capacity as a Receiver of collateral with reference to Collateral Transactions with Bank of Italy; «Bilateral Exposure»: shall mean the amount of the exposure between two Participants, calculated with reference to the Transactions, other than Collateral 4

5 Management Transactions, regulated by the Collateral Management System under the terms defined in the Instructions. «Collateral»: shall mean the financial instruments being transferred as collateral by registration in the special accounts used in the X-COM Service, from Participants or from Bank of Italy in its capacity of Receiver with reference to Transactions with Bank of Italy; «Instructions»: shall mean the implementing provisions of these Rules; «Settlement Instructions»: transfer orders relating to Transactions to be settled as part of the Settlement Service; «Markets»: shall mean the regulated markets referred to in Articles 63(2) and 67(1) of the Consolidated Law on Finance (CLF), the wholesale government securities markets referred to in Article 66 of the CLF, and the multilateral trading facilities referred to in Articles 77-bis and 79 of the CLF; «Transactions»: shall mean Transactions between Participants and Transactions with Bank of Italy and Collateral Management Transactions; «Collateral Management Transactions»: shall mean replacement, top-up and return Transactions of the X-COM Service entered into the X-COM Service by Participants and/or automatically generated by the X-COM Service, referred to in Title IV of these Rules; «Transactions between Participants»: shall mean DVP or FOP transactions, other than Collateral Transactions with the Bank of Italy and Collateral Management Transactions entered into the X-COM Service by Participants, by Markets, or by the Central Counterparties X-COM Service; «Transactions with the Bank of Italy»: shall mean FOP transactions related to the Bank of Italy Collateral Pooling Management System, providing the transfer of financial instruments by means of free-of-payments transactions between a Participant account and Bank of Italy account and entered by a Participant and/or automatically generated by the X-COM Service; «Participants»: shall mean persons who are members of the X-COM Service, other than Bank of Italy in its capacity of Receiver in Transactions with the Bank of Italy; «Receivers»: shall mean Participants who receive Collateral from another Participant in the Service or Bank of Italy in reference to Transactions with the Bank of Italy; «Bank of Italy Consob Regulation»: shall mean the Regulation of 22 February 2008 issued jointly by the Bank of Italy and Consob in implementation of the Consolidated Law on Finance; 5

6 «CSD Rules» shall mean the Rules pursuant to Article 81, paragraphs 2 and 2- bis of CLF, governing the Central Securities Depository Services and related and instrumental activities performed by Monte Titoli; «Operational Rules of the Settlement Service» shall mean the Rules governing the organization and operation of the Settlement Service and related and instrumental activities performed by Monte Titoli, pursuant to Article 69 of the Consolidated Law on Finance; «Request for Services»: shall mean the contract proposal signed by the Participant and containing the request for provision of the Service; «X-COM Service Collateral Management or the Service X-COM»: shall mean the Service governed by these Rules in which Monte Titoli processes the transactions, forwards the instructions to the Settlement Service and manages the securities provided as Collateral; «Settlement Service» shall means the settlement service managed by Monte Titoli and operated through the T2S platform, of operations on derivative financial instruments not admitted to the Central Securities Depository Services and providing the cash settlement in euro or in other currencies accepted in T2S; «Collateral Pooling Management System» shall mean the system that allows for the management of collateral eligible for Eurosystem credit operations as provided by Contratto quadro sulle garanzie per le operazioni di finanziamento (Pooling Framework Agreement) underwritten by Participants and Bank of Italy and also governed by Il sistema di gestione delle garanzie in pooling e dei depositi in titoli Guida per gli operatori (Membership Guide); «TARGET2»: shall mean the Trans-European Automated Real-time Gross settlement Express Transfer system governed by the guideline of the European Central Bank published on 5 December 2012 (ECB/2012/27); «Market Management Companies»: shall mean the companies that organize and manage the Markets; «Equivalent Securities»: shall mean financial instruments of the same issuer or debtor, forming part of the same issue or class and of the same nominal amount, currency and description; Article 2 Legal basis 1. Monte Titoli shall perform the activity of managing Collateral pursuant to Articles 80 of the Consolidated Law on Finance and 9(1)(e) of the Bank of Italy Consob Regulation in a non-discriminatory manner and in accordance with procedures established on a general basis. 6

7 2. The provisions of these Rules shall supplement and complete the Rules governing the Central Depository Service and the Operational Rules of the Settlement Service. Article 3 Organization principles and control risks 1. Monte Titoli shall use IT and organizational structures, included internal control system, able to safeguard the data concerning the X-COM Service and ensure their physical and logical security, as well as the continuity and accuracy of their processing. 2. Monte Titoli shall adopt recovery procedures for its data processing aimed at permitting the continuity of the Service, in accordance with the current provisions. 3. Monte Titoli shall retain the data related to the operation of the X-COM Service for ten years. 4. In order to ensure the orderly and continuous performance of the X-COM settlement Services, Monte Titoli provides for an ongoing protection of the processes and a support service for Participants for any information needs. Article 4 Subject of the Rules 1. These Rules shall govern the operation of the X-COM Service and, in particular: a) the procedures for participating; b) the acquisition, matching, of Transactions entered into the X-COM Service; c) the forwarding to the Settlement Service d) the management of the Collateral. 2. The Instructions shall supplement the Rules by specifying the X-COM Service s operational procedures. 3. The Rules, the Instructions and the Service Manuals, together with the General Conditions for Provision of the Service, shall regulate the relations between Monte Titoli and Participants. 4. Monte Titoli shall not enter into any obligation deriving from the financial collateral arrangements concluded between the parties that use the X-COM Service. 7

8 Matters relating to such arrangements shall have no effect on the operation of the X-COM Service. 5. The provisions of these Rules and the Instructions shall always prevail over any incompatible clauses in the contracts underlying the Transactions between Participants entered in the X-COM Service. Article 5 Service communications 1. Monte Titoli shall provide, with a periodicity related to the nature of the data, information in electronic form on, among other things: a) Participants admitted to, suspended or excluded from the Service; b) Market Management Companies for which the Service is available; c) operating hours of the Service, including the cut-offs for insertion of Transactions; d) types of financial instruments admitted to the Service; e) the eligibility criteria, the valuation principles and those procedures for partial settlement and the management of Collateral in the event of corporate actions applicable in the absence of specific indications given by Participants; f) sources of information used for the management of Collateral. 8

9 TITLE II PARTICIPATION IN THE SERVICE Article 6 Eligible persons 1. The following may participate in the X-COM Service: a) Banks authorized in Italy and other EU banks, as defined in Article 1(2) of the Consolidated Law on Banking; b) investment firms entered in the register and/or in the attached list referred to in Article 20(1) of the CLF; c) insurance companies; d) UCITS; e) asset management companies; f) companies with shares admitted to trading on regulated markets; g) Central Counterparties; h) Poste Italiane S.p.A.; i) Cassa Depositi e Prestiti. 2. Central Banks may also participate in the Service. 3. For Transactions with the Bank of Italy, the latter participates in the Service as expressly provided by this Rules as integrated by agreement to this end signed with Monte Titoli. Article 7 Participation requirements 1. In order to participate in the Service, it is necessary: a) participate, directly or indirectly, to the Settlement Service; b) to use the technical protocols and standards required by Monte Titoli in order to access the X-COM Service; 9

10 c) to have an organizational structure and technological and IT systems able to guarantee orderly, continuous and efficient management of the dealings and activity deriving from membership of the X-COM Service To this end, the Participants employ staff with appropriate qualifications and competence and communicate to Monte Titoli the name of the person responsible for the proper functioning of the internal systems; 2. In addition to the provisions referred to in paragraph 1, for the Transactions with Bank of Italy, the Participants shall be holders of a Pool Account at Bank of Italy. 3. For the requirements referred to in paragraphs 1, Participants may use a Settlement Agent. There must be only one Settlement Agent for each Operating Section. the Settlement Agent must request Monte Titoli to open accounts in its name and dedicated to each Participant on whose behalf it operates. 4. For the Transactions with Bank of Italy, the Settlement Agent shall coincide with the bank in charge of handling the Collateral of the Pool Account of the Participant to the Collateral Pooling Management System. Article 8 Relations between Participant and Settlement Agent 1. When either the Settlement Agent or the Participant decide to withdraw from their bilateral agreement signed for the purpose of the Service participation, he must notify his decision to the counterparty and to Monte Titoli, in the manner and within the time limits indicated in the Instructions. This notification must specify the date from which the withdrawal takes effect. 2. For Transactions with the Bank of Italy, the Settlement Agent and the Participant must communicate, also to the Bank of Italy, the withdrawal of the agreement in the manner specified in Contratto quadro sulle garanzie per le operazioni di Finanziamento (Pooling Framework Agreement). 3. The Settlement Agent must keep the accounts available to the Participant until the settlement date of of the Transactions, which are deemed irrevocable up to the date on which the withdrawal becomes effective. 4. From the date on which the withdrawal is effective, the Participant cannot enter new Transactions, and before of the date on which withdrawal becomes effective: a. is required to enter the closing Transactions for open FOP Transactions already entered in the X-COM Service in the manners specified in the Instructions; where the Participant does not act as required, the closing Transactions are automatically generated by the X-COM Service; b. can issue requests for cancellation of Transactions, as provided under Article From the effective date of withdrawal: 10

11 a. Transactions which are not irrevocable and the unmatched cancellation instructions shall be cancelled by the X-COM Service, except otherwise communicated by the Participant and confirmed by the Settlement Agent; b. Transactions which are not settled at the intended settlement date shall not be resubmitted to settlement and by derogation of the provisions under in Article 23, paragraph 2, shall be automatically cancelled. 6. the Participant notifies to Monte Titoli that a new agreement with another Settlement Agent is taking effect, the Transactions attributable to him will be modified by Monte Titoli as referred in to the Instructions. Article 9 Application for the X-COM Service 1. Persons intending to participate to the X-COM Service must send Monte Titoli a duly signed Request for Services and the related documentation, specifying which Operating Section they intend to join. 2. The Participants can request to be admitted to one or more of the Operating Sections referred to in Article After verifying that the participation requirements are satisfied and that the documents sent are complete and in order, Monte Titoli shall inform the applicant of its admission to the Service and the start date of operations or the reasons for the rejection of its application, taking into account as provided by Article 33 of the CSDR. 4. In view of the services provided, Participants are required to pay fees in so far, with the timing and terms established by Monte Titoli, on the basis of of transparency and non-discrimination criteria, published on Monte Titoli website. Controversy with the subject the above fees are subject to the exclusive jurisdiction of the Italian courts and are the exclusive competence of the Court of Milan. 5. With regard to the credits gradually accrued from Participants for the provision of the X-COM Service, Monte Titoli may exercise the right of retention on the securities in the account of the Participant's employer and their values, up to the amount of credit matured. The procedures for exercising the right of retention are specified in the Instructions. Article 10 Permanence of the conditions of participation 1. Participants ensure the permanence of subjective and objective requirements continuously, referred to in Articles 6 and 7 and immediately communicate any 11

12 circumstance likely to affect the participation requirements which may descend the suspension or exclusion from the Service. 2. Participants communicate with the forms and within the time specified in the Instructions, any changes intervening in the operating conditions referred to in the information provided when submitting the Request for Services. Article 11 Rules of conduct for Participants 1. Participants shall comply with these Rules, the Instructions and the Service Manuals, as well as the General Conditions for Provision of the Service. 2. Participants shall ensure that their conduct is correct, diligent and professional in dealing with each other and with the Settlement Agents, in fulfilling their obligations towards Monte Titoli and in using the various technological Systems. 3. Participants perform in tests organized or requested by Monte Titoli and report their results. 4. Participants shall promptly inform Monte Titoli of any circumstance of which they are aware, including any technical malfunctioning of their Systems, that prejudices or could prejudice the regular operation of the Collateral Management Service. 5. Participants input promptly Transactions they concluded. 6. Participants shall refrain from performing acts that could prejudice the regular operation of the X-COM Service. 7. Participants shall be liable to Monte Titoli for the behavior of their employees and collaborators. 8. To foster the regular operation of the X-COM Service, Participants must monitor the quantities on their securities accounts and cash. Article 12 Suspension of Participants 1. Monte Titoli may suspend Participants from the Service: a) that momentarily do not satisfy one or more requirements referred to in Article 7, including the case of lack of fulfillment of the contractual relationship with the Settlement Agent, for whatever cause; b) that does not adhere to the rules of conduct and/or operating procedures provided in these Regulations and Instructions or otherwise engage in conduct incompatible with the proper operation of X-COM Service. 12

13 c) that are suspended or are subject to similar procedures for limitation of their operations in reference to Markets or Central Counterparties from which the Service acquires Transactions; d) that are subject to an administrative measure adopted by the competent regulatory authorities capable of affecting their operations in the context of the X-COM Service and, in particular, their ability to fulfill their obligations towards other Participants in the X-COM Service; 2. In the case of letters a) and c), the suspension may be limited to operations in the area of a specific Operating Section. 3. Suspended Participants may not enter new Transactions into the X-COM Service or in the area of the Operating Section where they have been suspended. 4. Suspension measures shall be notified to the Bank of Italy, Consob and to the Participants by Monte Titoli, as well as to the Markets and the Central Counterparties concerned, and shall be effective until time mentioned in the measure itself or until Monte Titoli notifies that the circumstances that led to their adoption has ceased to exist. 5. During the period of suspension, Participants are still responsible for fulfilling the obligations related to participation in the Service. Monte Titoli may adopt the measures needed for the management of suspended Participants Transactions and Bilateral Exposures. It shall specify any operational procedures for the management of their accounts in the suspension measures in order to protect the regular operation of the Service and Participants interests. 6. In relation to the procedures for top-up, release or return Collateral, if Participants fail to fulfill their own obligations in the manner and within the time limits specified in the Instructions, the counterparty may ask Monte Titoli to carry out, on its own responsibility, the operations needed to manage the Bilateral Exposures in the manner specified in the Instructions. Monte Titoli notifies the adopted operations to Bank of Italy and Consob. 7. This article shall not apply to Central Banks or Central Counterparties. Article 13 Exclusion of Participants 1. Monte Titoli shall exclude Participants from the Service: a) that no longer belong to one of the categories referred to in Article 6(1); b) for which there has been a suspension measure under Article 12, in the case that the reasons for the adoption of the measure have not been resolved before the end of the period of suspension; 13

14 c) that are subject to insolvency proceedings as defined by legislative decree. n. 210/2001, have been declared insolvent with provision issued by Consob in agreement with the Bank of Italy pursuant to Article 72 of the Consolidated Law on Finance or are subject to an other administrative measure adopted by the competent regulatory authorities that definitively prejudices their operations in the context of the X-COM Service; d) that does not comply repeatedly with the rules of conduct and / or the operating procedures provided in these Regulations and in the Instructions or otherwise engage in behaviors incompatible with the smooth operation of the X-COM Service. 2. In cases pursuant to letter b), the exclusion regards the Service or the single Operation Sections for which the suspension measure has been taken. 3. Monte Titoli communicates the exclusion measure to the Bank of Italy and Consob, as well as to the Participants, the Markets and the Central Counterparties concerned. 4. Monte Titoli may adopt the measures needed for the management of excluded Participants Transactions and Bilateral Exposures. It shall specify any operational procedures for the management of their accounts in the exclusion measures in order to protect the regular operation of the Service and Participants interests. 5. This article shall not apply to Central Banks or Central Counterparties. Article 14 Assessment activities 1. In order to monitor the compliance with the Rules and Instructions and more generally to ensure the performance of its management functions of the X-COM Service, Monte Titoli can: a) require to Participants all necessary information and documents on their activity in X-COM Service; b) convene the representatives of the Participants in order to gain clarification of specific conduct or situations; c) carry out checks at the Participants premises. 14

15 PART II X-COM SERVICE TITLE I THE OPERATION OF THE SERVICE Article 15 Structure of the Service 1. The X-COM Service provides the following Operating Sections: a) sections for Transactions guaranteed by Central Counterparty; b) sections for Transactions negotiated on no-guaranteed Markets or their segments; c) a section for over-the-counter Transactions completed between Service Participants; d) a section for Transactions with the Bank of Italy. Article 16 Financial instruments eligible for the Service Monte Titoli makes available the list of the financial instruments admitted to the X- COM Service, in the manner indicated in the Instructions Article 17 Structure of the accounts 1. The X-COM Service uses the following types of accounts: a. giver-accounts: accounts on which to record the financial instruments that are made available for the purposes of the X-COM Service; b. receiver-accounts: accounts on which to record financial instruments that have been received as Collateral. 2. The giver-account can be an account dedicated to operations in the area of the X- COM Service (dedicated giver-account account) or an ordinary account of the Central Securities Depository Service (ordinary giver-account). 15

16 3. The financial instruments are entered on the dedicated giver-account by transfer from the CSD accounts. In the case of an ordinary giver-account, the financial instruments are made available to the X-COM Service by means of identification in the manner specified in the Instructions. In the latter case the financial instruments are simultaneously available for the settlement of instructions entered into the Settlement Service in relation to operation non resulting from the X-COM. 4. The receiver-account is exclusively dedicated to operations in the area of the X- COM Service. Participants may ask to open more than one receiver-account in order to segregate their transactions in the context of the X-COM Service as indicated in the Instructions. For each receiver account Participants may ask that such accounts permit re-use within the Service of the financial instruments recorded thereon, on the condition that these also hold a giver-account. 5. Financial instruments may be transferred to Central Depository accounts other than those dedicated to the X-COM Service only by those Participants that have entered the financial instruments in the giver-accounts. 6. In Transactions with the Bank of Italy, Bank of Italy acts as a Receiver of Collateral. The financial instruments transferred as Collateral are registered in the Bank of Italy account of the Central Securities Depository System. 7. To operate in the Section for Transactions guaranteed by Central Counterparty, the Participants must request the opening of separate giver-accounts and receiver-accounts dedicated to the operations of the subjects for which they take on the relative obligations concerning the Central Counterparty and in the area of the X-COM Service. Article 18 Activity in the Service 1. To operate as Givers of Collateral, Participants may use financial instruments entered in their giver-accounts or in their receiver-accounts set up to permit re-use. 2. To operate as Receivers in the Section for over-the-counter Transactions between Participants, Participants must specify the criteria for selection and valuation of Collateral. If they do not, the X-COM Service shall apply the general criteria notified in accordance with Article 5 (1) (e). 3. For Transactions with the Bank of Italy, the X-COM Service shall apply collateral eligibility and assessment criteria as provided by the Contratto quadro sulle garanzie per le operazioni di finanziamento (Pooling Framework Agreement) excluding the financial instruments according to what signaled by the Participants as referred to in Article 25, paragraph 2. 16

17 4. In the Sections for Transactions guaranteed by Central Counterparty, the X-COM Service applies the criteria for selection and valuation of Collateral as defined by each Central Counterparty. 5. In the area of Sections for Transactions negotiated on no guaranteed Markets, the X-COM Service applies the criteria for selection and valuation of Collateral as defined by each Market. Article 19 Operational phases 1. The X-COM Service shall be divided into the following operational phases: a) acquisition and matching of Transactions; b) forwarding to the Settlement System; c) management of Collateral. 17

18 Title II THE ACQUISITION AND MATCHING OF TRANSACTIONS Article 20 Eligible Transactions 1. The X-COM Service acquires Transactions: a) from Participants other than Central Counterparties; b) from Markets and Central Counterparties; 2. The Service shall allow the acquisition of DVP Transactions with an indication of the spot and forward settlement dates and of FOP Transactions with an indication of the opening date and with or without an indication of the closing date. If the Participants have simultaneously indicated the opening and closing dates, the closing FOP Transaction shall be generated directly by the X-COM Service. If, instead, the closing date was not indicated, the closing FOP Transaction must be entered by the Participants. 3. For the settlement of a forward or closing Transactions, the X-COM Service shall select Equivalent Securities to those transferred as Collateral. Article 21 The acquiring and matching of Transactions 1. Transactions shall be entered into the X-COM Service by Participants in the manner specified in the Instructions and subsequently pass through the following phases: a) Acquisition, which is divided into the following steps: - validation, specific to the type of Transaction entered, shall consist in formal, logical and consistency checks on the elementary data of individual Transactions; - enrichment, carried out only if no errors were found in the validation phase, shall proceed to the calculation of the missing accounting values according to the type of Transaction entered and the integration of information for the settlement of the Transaction; b) Matching, for Transactions, other than Collateral Management Transactions, that have passed the acquiring phase, shall verify the correspondence of the 18

19 declarations relating to a given contract, on the basis of checking criteria specific to each type of Transaction. 2. Transactions acquired from Markets and Central Counterparties and Collateral Transactions with the Bank of Italy shall be deemed automatically matched. 3. Matched Transactions may not be altered by Participants. If mistakes were made in the entry phase, Participants must apply for Transactions to be cancelled under Article The X-COM Service shall provide Participants with complete information on the results of the process of acquisition and matching of Transactions in which they are involved. Article 22 Cancellation of Transactions 1. Individual Participants may request the cancellation of Transactions until they are matched, when required. 2. Matched Transactions may be cancelled by the X-COM Service at the request of both the Participants involved. In such cases, the requests for cancellation, sent by the Participants in the manner and within the time limits specified in the Instructions, shall be subjected to the acquiring and matching phases. 3. The X-COM Service shall confirm the cancellation of Transactions to the Participants that are the counterparties thereto. 4. Transactions acquired from Markets and Central Counterparties shall be cancelled in the manner and within the time limits established by the operational rules applying to these systems. 5. Settled Transactions may not be cancelled. 6. The unsettled portion of partially settled Transactions may be cancelled only by Monte Titoli at the request of the Participants in the manner specified in the Instructions. 7. The Transactions that are not matched within the indicated settlement date are automatically cancelled from the X-COM Service. 19

20 TITLE III THE SETTLEMENT OF TRANSACTIONS Article 23 Settlement 1. The X-COM Service on the day of the acquisition or following, on the basis of the intended settlement date: a. performs the Transactions through a process that, in the case where the settlement of more than one transaction requires the use of the securities available on the same securities account, is based on the priorities set according to the type of Transaction, the source and the type of counterparty, as laid down in the Instructions; b. [can proceed to the matching of opposite DVP Transactions to be settled between the same Participants and to the calculation on net basis of the securities balance and the cash balance, provided that the same section (Note 1) and evaluation criteria of Collateral shall apply to these transactions] c. performs each Transaction according to the following procedure: c.1 checks the availability, on the security account referred to in Article 17, of the financial instruments that, in the event of Collateral allocation operations, meet the Collateral selection criteria referred to in Article 25 and, in the event of return of Collateral, are Equivalent Securities to those allocated as Collateral; and generates the instructions for settlement of securities and, in the case of DVP transactions, the instruction of cash settlement. c.2 forwards to the Settlement Service the instructions that provide the regulation of the same together (linked instructions). The settlement instructions entered by the X-COM Service in the Settlement Service are entered as non-modifiable and noncancellable by the Participants. Settlement Instructions are processed in the manner provided by the Settlement Service. They apply the rules of finality and irrevocability provided in the Rules of the Settlement Service c.3 in case of non-settlement of settlement instructions to the X- COM Service forwards to the Settlement Service on behalf of the Participants the request for cancellation of settlement instructions and process again the Transaction in the same day in accordance with the Instructions 20

21 c.4 if the check at point c.1 gives a negative result the X-COM Service processes again the Transaction on the same day in accordance with the Instructions; 2. Transactions, other than Collateral Managements Transactions, that are unsettled at the end of the day, shall be processed again from the X-COM Service in the subsequent settlement days, unless the Participants request their cancellation pursuant to Article 22. This provision shall not apply to the Transactions acquired by Central Counterparties if the functioning rules established for these systems provide otherwise. 3. At the settlement date of forward or closing Transactions, spot Transactions that have not been settled or, if partially settled, the unsettled portion of spot Transactions shall be automatically cancelled by the X-COM Service. This provision shall not apply to Transactions acquired from Central Counterparties if their operational rules provide otherwise. 4. Participants may ask for the partial settlement of Transactions within the limit of the available securities. This request is submitted on general basis according to the procedure laid down in the Instructions. For Transactions acquired from Central Counterparty the possibility of providing for partial settlement is regulated by the Central Counterparty concerned 5. The X-COM Service provides to Participants and Settlement Agents the provisional and the settlement information in the manners and with in the time limits provided by the Instructions. Article 24 Settlement of Transactions with the Bank of Italy 1. Transactions with the Bank of Italy are managed under the procedure pursuant to Article 23 and shall not entail settlement of the cash component. 2. Bank of Italy having received the notification of registration of securities in its account at Monte Titoli, carries out checks and valuations of the Collateral and, in case of positive outcome, records it in the Pool Account of the Participant, and in the negative case sends Monte Titoli instructions for refusal of the credit carried out on the Bank of Italy account. Bank of Italy maintains separate evidence of Collateral transferred by means of the X-COM Service and permits return only. 3. For the release of Collateral established at Bank of Italy, the X-COM Service shall select the securities to be returned and send a return request to Bank of Italy; the latter, having verified the compliance of the conditions for the return of the Collateral from the pool account of the Participant, send to Monte Titoli the instructions for the entry into the Settlement Service of the settlement instructions for the return of the Collateral from its account in Central Securities Depository Services to the Giver s account. 21

22 TITLE IV THE MANAGEMENT OF COLLATERAL Article 25 Selection of Collateral 1. The X-COM Service shall select and valuate the financial instruments for the settlement of a management of a Collateral Transaction following the order of priority specified in the Instructions for the selection of the financial instruments to allocate as Collateral or to return, applying the following criteria for selection and valuation: a) eligibility rules b) valuation principles; c) concentration limits; 2. For Transactions with Bank of Italy, Participants are required to provide Monte Titoli with the information necessary for the purposes of excluding from the allocation process those financial instruments that do not satisfy the rules of Contratto quadro sulle garanzie per le operazioni di finanziamento related to the Collateral Pooling Management System. Such information, as well as the entry into effect of potential changes, is communicated in the manner and within the times indicated in the Instructions. 3. On a daily basis the X-COM Service checks that the Collateral allocated respects the applicable eligibility rules. Whenever the check gives a negative outcome the X-COM Service automatically proceeds to return the financial instruments to the Giver and, where provided, to the substitution of the Collateral, in the manner indicated in the Instructions. 4. [On a daily basis, the X-COM Service checks that the Collateral allocated respects the applicable limits on concentration. When the check gives a negative outcome the X-COM Service attempts, within the limits of the available financial instruments, the automatic substitution of the Collateral allocated for the purposes of returning within the limits of concentration] (Note 1). The lack of conformity to the limits of concentration does not determine the ineligibility of the Collateral allocated in excess of such limits. 5. The modification of selection criteria can be enacted at any time by the bodies as indicated under Article 18 paragraphs 2, 4 and 5. Such changes shall be applied according to the time limits indicated in the Instructions. 22

23 Article 26 Valuation, top-up and return of Collateral 1. With the frequency and the methods as specified in the Instructions, the X-COM Service shall valuate the Collateral allocated and notify the values to Participants. 2. Collateral shall be valuate with reference to each Bilateral Exposure 3. If the value of the Collateral transferred is found to be insufficient to cover a Bilateral Exposure, the X-COM Service shall automatically select and top-up the Collateral in the manner and within the time limits specified in the Instructions and inform the interested Participants accordingly. If there are not enough securities to top-up the Collateral fully, the X-COM Service shall top it up partially. 4. If the Collateral cannot be topped up fully or partially, the X-COM Service shall send the Participant-Giver a request to place new Collateral in their giver-accounts in the amount needed to top up the collateral fully. 5. If the value of the Collateral allocated exceeds the Bilateral Exposure, the X-COM Service shall automatically return the excess Collateral in the manner specified in the Instructions. 6. If it is not possible to return all or part of the Collateral following Transactions for Collateral re-use, as provided under Article 29, the Participant-Receiver shall make available, within the limits of the countervalue of the excess Collateral, the financial instruments to be returned to the Participant-Giver. 7. Collateral shall be topped-up or returned if the difference of the Bilateral Exposure to the value of the Collateral exceeds a percentage of the Bilateral Exposure established by each Operating Section and notified to the Participants in the Service. 8. The processes for top-up and return shall not apply to Collateral allocated for the purposes of Transactions with Bank of Italy, for which the X-COM Service shall provide daily revaluation of the Bilateral Exposure in the manner and within the time limits indicated by the Instructions. 9. In the event of no not fulfillment of the obligation for return of excess Collateral, the provisions of Article 12 paragraph 6 shall be applied. 23

24 Article 27 Substitution of Collateral 1. The Collateral allocated in the receiver-accounts or in the Bank of Italy account can be substituted with other financial instruments that satisfy the eligibility rules and the applicable concentration limits and the value at least equal to the financial instruments to be substituted. 2. The substitution can take place at the request of the Participant-Giver that has inserted the financial instruments in the X-COM Service, or automatically in the following cases: a. pursuant to Article 28, paragraph 2, in relation to corporate actions that concern the Collateral; b. [whenever a Participant takes the option of recall with simultaneous substitution of the allocated Collateral, for purposes of making available such financial instruments for settlement in the Settlement Service. Such option is available if the giver-account and the security account used in the (Note 1) Settlement Service are held by the same subject] c. pursuant to Article 25, paragraph 3, where the Collateral allocated does not respect the applicable eligibility rules; d. [pursuant to Article 25, paragraph 4, where the Collateral allocated (Note 1) exceeds the applicable concentration limits] e. where for the settlement of a Transaction it is necessary to return Collateral allocated by means of re-use Transactions. 3. The substitution of the Collateral allocated shall in any case take place within the limits of the financial instruments available in the Receiver Participant s accounts (partial substitution). 4. The technical manner and the time limits for the process of substitution of Collateral are specified in the Instructions. Article 28 Financial instruments subject to corporate actions 1. Beginning from the third day before the Record date and until the day before the payment date, the X-COM Service shall prevent the allocation of the financial instruments interested. 2. The Participants, the Central Counterparties and the Bank of Italy can submit a general request for the automatic substitution of the allocated financial instruments that are the object of corporate action. The option of automatic substitution requested by the Central Counterparty or the Bank of Italy shall in any case prevail over the contrary option requested by the Participants. The X-COM Service, in the manner specified in the Instructions, shall try to substitute such financial 24

25 instruments, beginning from the third day prior to the Record date and until the day prior to the payment date. 3. If the substitution of financial instruments involved in a corporate action is not successful, the cash proceeds deriving from the financial instruments provided as Collateral shall be credited to the Receiver [and may be remitted to the Giver by the X-COM Service in the manner specified in the Instructions] (Note 1) and, limited to operations for capital reimbursement, on the condition that the remaining Collateral shall be sufficient to cover the amount of the Bilateral Exposure. 4. The cash proceeds deriving from the financial instruments registered in the Bank of Italy account in the Central Securities Depository System shall be received by the Bank of Italy and remitted to the counterparty as regulated by Contratto quadro sulle garanzie per le operazioni di finanziamento (Pooling Framework Agreement) and by Bank of Italy s document Il sistema di gestione delle garanzie in pooling e dei depositi in titoli Guida per gli operatori (Membership Guide). 5. During the period in which financial instruments are allocated, the exercise of the other property and administrative rights attached thereto shall be governed by the applicable law except where Participants agree otherwise. 6. In the case of corporate actions on financial instruments transferred to the Bank of Italy account through re-use, the X-COM Service provides for the debit to the Participant that has re-used the Collateral in the amount of the monetary yields matured and for the corresponding credit to the original Giver Article 29 Re-use of collateral 1. The Collateral allocated may be re-used in the context of the X-COM Service for Transactions with Bank of Italy, subject to the provisions of Article 24, paragraph For such purposes the Participants shall open a receiver account suitable for reuse, as provided under Article 17, paragraph In order to provide for the settlement of Transactions that are the responsibility of the Participant-Receiver that has requested the option of Collateral re-use, the X- COM Service can also select Equivalent Securities present in the giver-account. 25

26 Monte Titoli S.p.A. Piazza degli Affari, Milano