Penalty Mechanism. T2S CSDR Task Force. January 2017

Transcription

1 ECB-PUBLIC DRAFT Penalty Mechanism T2S CSDR Task Frce January 2017 Executive summary: This dcument aims at gathering the clarificatins and/r wrking assumptins that are deemed necessary fr the definitin f the Penalty Mechanism in the T2S platfrm and related User Requirements accrding t the discussins held in the ad-hc CSDR Task Frce established by the T2S Steering level.

2 1. Intrductin Out f scpe 3 2. Definitins 4 3. General Principles Use f T2S calendar (C-1) Timing fr cmputatin and reprting f penalties (C-2) Reference prices f the relevant business day (C-3) Instructins subject t cmputatin f penalties (C-4) Harmnise principles fr cmputatin f penalties (C-5) Cmputatin f Settlement Fail Penalties (SEFP) Examples f the cmputatin f SEFP Cmputatin f Late Matching Fail Penalties (LMFP) Reference data Reprting f penalties Daily Penalty List Availability - query - f penalties in U2A Mdificatin f existing penalties Remval f existing penalties by a CSD Autmatic update f existing penalties by T2S List f Mdified Penalties Vlumetrics and pen questins n reference data Annex Additinal clarificatin fr external CSD settlement Additinal clarificatin n statuses and reasns fr SEFP 59 Page 2 f 60

3 1. Intrductin The T2S CSDR Task Frce was established by the T2S Steering level, in rder t identify the necessary changes t the T2S platfrm, with the bjective t facilitate T2S CSDs timely cmpliance t the CSD Regulatin (CSDR). Based n the Article 19 f the Draft RTS n Settlement Discipline, accrding t which CSDs that use a cmmn settlement infrastructure shall jintly manage the calculatin, applicatin, cllectin and redistributin f cash penalties, it was decided at T2S Steering Level that T2S wuld ffer a settlement penalty calculatin mechanism. This dcument aims at gathering the clarificatins and/r wrking assumptins that are deemed necessary fr the definitin f the penalty mechanism and related T2S User Requirements accrding t the discussins held in the CSDR Task Frce. All the clarificatins and/r wrking assumptins described will have t be analysed in detail during the CR assessment in rder t see whether they are technically feasible r they require a significant impact in the T2S platfrm that wuld justify a different apprach. Each f the clarificatins and/r wrking assumptins is listed as C-X (fr example C-3 is the clarificatin abut the use f the T2S calendar in the Penalty mechanism). When these wrking assumptins are linked t questins pending clarificatin frm Regulatrs, the reference t thse questins has been added Out f scpe This dcument is nt intended t cver all aspects f the settlement penalty regime nr t prvide CSDs and market participants with an exhaustive view f their bligatins vis-à-vis CSDR in this cntext; it fcusses n the clarificatins and/r wrking assumptins that are deemed necessary fr the definitin f the T2S penalty mechanism. In particular, the fllwing prcesses are nt cvered in substance: - Derivatin f the list f financial instruments subject t penalties and feed f a glden data surce - Recnciliatin mechanisms and principles when 2 penalty systems calculate a different cash penalty fr a transactin (e.g. in case f transactin with an External CSD subject t CSDR) - Mnthly recnciliatin, billing, cllectin and redistributin f cash penalties - Interactin with the buy-in prcess - Reprting t cmpetent authrities 1 Dcument: List f CSDR Items fr Clarificatin Page 3 f 60

4 2. Definitins In line with the principles f the CSDR, we can cnsider tw types f Cash Penalties: Settlement Fail Penalties: Fr settlement instructins that i) are matched befre the relevant cut-ff f a given business day and that ii) having reached their Intended Settlement Date (ISD), fail t settle n that business day. These penalties are calculated each business day the settlement fails in T2S (i.e. fr each and every business day an instructin keeps failing in T2S a new penalty will be cmputed). Late Matching Fail Penalties: Fr settlement instructins that are matched in T2S after the relevant cut-ff f their Intended Settlement Date (ISD). These penalties are calculated nly nce (i.e. n the business day when they are matched) but d cnsider all the previus days where the instructin failed t settle due t the late matching i.e. due t the late sending f the instructin. Nte that a settlement instructin may be subject t Settlement Fail Penalties, t Late Matching Fail Penalties, r t bth. The latter case will ccur when, fr example, a settlement instructin is sent and matched in T2S after its ISD (e.g. at the Start f Day f ISD+1 ) and then fails t settle n that day (i.e. n ISD+1 ) because f lack f securities. The fllwing examples illustrate different scenaris and the cash penalties applying in each f them: Example 1: A settlement instructin enters and is matched in T2S n its ISD and befre the relevant cut-ff. N Late Matching Fail Penalty applies. In case the instructin fails t settle n ISD, then a Settlement Fail Penalty will apply. New Settlement Fail Penalties will apply fr each further business day the instructin fails t settle in T2S. E.g.: in case the instructin fails again n ISD+1, then a new Settlement Fail Penalty will be cmputed fr ISD+1. Example 2: A settlement instructin enters and is matched in T2S n its ISD but after the relevant cut-ff (i.e. it wn t be pssible t settle it n ISD). A Late Matching Fail Penalty applies because the instructin was matched after the ISD s cut-ff and hence culd nt settle n its ISD due t the late matching. In case the instructin fails t settle n the fllwing business day, ISD+1, then a Settlement Fail Penalty will apply. New Settlement Fail Penalties will apply fr each further business day the instructin fails t settle in T2S. E.g.: in case the instructin fails again n ISD+2, then a new Settlement Fail Penalty will be cmputed fr ISD+2. Page 4 f 60

5 Example 3: A settlement instructin enters and is matched in T2S tw business days after its ISD (i.e. n Day= ISD+2 ) but befre the relevant cut-ff fr ISD+2 (i.e. it wuld be still pssible t settle it n ISD+2 ). A Late Matching Fail Penalty applies because the instructin was matched after the ISD s cut-ff and hence culd nt settle n its ISD due t the late matching. The Late Matching Fail Penalty has t cnsider that the instructin did nt settled n ISD and n ISD+1 (the Late Matching Fail Penalty des nt have t cnsider ISD+2 because it can still settle n ISD+2 ). In case the instructin fails t settle n ISD+2, then a Settlement Fail Penalty will apply in additin t the Late Matching Fail Penalty. New Settlement Fail Penalties will apply fr each further business day the instructin fails t settle in T2S. E.g.: in case the instructin fails again n ISD+3, then a new Settlement Fail Penalty will be cmputed fr ISD+3. Example 4: A settlement instructin enters and is matched in T2S tw business days after its ISD (i.e. n Day= ISD+2 ) and after the relevant cut-ff fr ISD+2 (i.e. it wn t be pssible t settle it n ISD+2 ). A Late Matching Fail Penalty applies because the instructin was matched after the ISD s cut-ff and hence culd nt settle n its ISD due t the late matching. The Late Matching Fail Penalty will have t cnsider that the instructin did nt settled n ISD, n ISD+1 and n ISD+2. In case the instructin fails t settle n the fllwing business day, ISD+3, then a Settlement Fail Penalty will apply. New Settlement Fail Penalties will apply fr each further business day the instructin fails t settle in T2S. E.g.: in case the instructin fails again n ISD+4, then a new Settlement Fail Penalty will be cmputed fr ISD+4. Page 5 f 60

6 3. General Principles 3.1 Use f T2S calendar (C-1) See als List f CSDR Items fr Clarificatin, Item 15 Calendar t be applied t identify business days fr penalty calculatin. Business days fr the purpse f cash penalties shall be understd as T2S Settlement Days, i.e. days fr which an instructin can settle in T2S. In case f against payment instructins, T2S Settlement Days are business days that are nt clsing days fr the relevant currency f the cash cntained in an instructin t be settled in T2S. In case f Free f Payment instructins, T2S Settlement Days relate t thse business days that are nt cmmn T2S clsing days fr all currencies (i.e. as described in the T2S UDFS: All Saturdays, Sundays and ther specific days such as 25, 26 December and 1 January are cmmn clsing days fr all currencies). In case f a transactin invlving settlement utside T2S, the cmmn pening days f the respective calendars must be used, i.e. a penalty shall nt be calculated fr the days where a transactin cannt settle. As a cnsequence, manual crrectins f the penalties cmputed by T2S (i.e. reduce the amunt t zer f the penalty calculated by T2S) may need t be applied ex-pst in case a transactin des nt settle due t clsing f the external settlement system (e.g. Issuer CSD r payment system). The manual crrectin will be perfrmed in T2S thrugh the functin Remval f an existing Penalty by a CSD described in sectin Timing fr cmputatin and reprting f penalties (C-2) The calculatin and the reprting f the penalties have t be perfrmed n daily basis. Nevertheless, these tw activities d nt have t be dne in a perid f high traffic in T2S (e.g. n need t perfrm them neither at End f Day nr at the Start f Day f the fllwing business day). The calculatin and the reprting f the penalties fr a business day can be perfrmed after the end f this business day (fr example at the end f the T2S Night-time settlement f the fllwing business day 2 ). This apprach is als beneficial fr the entities respnsible fr prviding each business day the reference prices used in the calculatin f the penalties, which cnsequently have mre time t prvide the reference data cmpared with the situatin where the prices will have t be prvided by the start f T2S end f day prcedures (18:00). Nte: The detailed schedule f the reprting as well as the deadline fr prvisin f the reference data will be elabrated in a secnd step at technical grup level. 2 Midnight (0:00) is the indicative time fr cmpletin f the NTS in T2S (duratin is dependent n settlement vlumes) Page 6 f 60

7 3.3 Reference prices f the relevant business day (C-3) The reference price used fr calculating the Settlement Fails Penalties as well as the Late Matching Fail Penalties is the ne f each business day (see sectin 3.1) where the settlement instructin is cnsidered subject t penalty (i.e. using histrical prices when relevant), independently n when the calculatin is perfrmed. I.e. The reference price fr the calculatin f each penalty is the ne f the relevant day. Fr further infrmatin abut the definitin, prvisin and maintenance f the reference prices please see sectin 6 Reference Data, the clarificatin C-22 related t Daily Price. In rder t illustrate the abve principle, the same examples prvided in the previus sectin 2- Definitins are prvided hereafter shwing the reference price used in the calculatin f each penalty. Example 1: A settlement instructin enters and is matched in T2S n its ISD and befre the relevant cut-ff. At the time f cmputatin f penalties fr the day equal t the ISD, the reference price f the ISIN fr that day is already knwn and stred in T2S and it is 8 Eurs. I.e. P (ISD) =8 N Late Matching Fail Penalty applies. In case the instructin wuld have failed t settle n ISD, then a Settlement Fail Penalty will apply. The Settlement Fail Penalty will be calculated using the price set fr this day i.e. P (ISD) =8 New Settlement Fail Penalties will apply fr each further business day the instructin fails t settle in T2S. E.g.: in case the instructin fails again n ISD+1, then a new Settlement Fail Penalty will be cmputed fr ISD+1 and it will be calculated using the new price that will be set fr this day i.e. P (ISD+1). Example 2: A settlement instructin enters and is matched in T2S n its ISD but after the relevant cut-ff (i.e. it wn t be pssible t settle it n ISD). At the time f cmputatin f penalties fr the day equal t the ISD, the reference price f the ISIN fr that day is already knwn and stred in T2S and it is 8 Eurs. I.e. P (ISD) =8. A Late Matching Fail Penalty applies because the instructin was matched after the ISD s cut-ff and hence culd nt settle n its ISD due t the late matching. Fr the calculatin f the Late Matching Fail Penalty the price t be used is P (ISD) =8 In case the instructin fails t settle n the fllwing business day, ISD+1, then a Settlement Fail Penalty will apply. The Settlement Fail Penalty will be calculated using the new price that will be set fr this day i.e. P (ISD+1). New Settlement Fail Penalties will apply fr each further business day the instructin fails t settle in T2S. E.g.: in case the instructin fails again n ISD+2, then a new Settlement Fail Penalty will be cmputed fr ISD+2 and it will be calculated using the new price that will be set fr this day i.e. P (ISD+2). Page 7 f 60

8 Example 3: A settlement instructin enters and is matched in T2S tw days after its ISD (i.e. n Day= ISD+2 ) but befre the relevant cut-ff fr ISD+2 (i.e. it wuld be still pssible t settle it n ISD+2 ). At the time f cmputatin f penalties fr the day equal t ISD+2, the reference price f the ISIN fr that day is already knwn and stred in T2S and it is 12 Eurs. I.e. P (ISD+2) =12. The histrical prices f previus days are: P (ISD) =8; P (ISD+1) =9. I.e. Relevant reference prices: P (ISD) =8; P (ISD+1) =9; P (ISD+2) =12 A Late Matching Fail Penalty applies because the instructin was matched after the ISD s cut-ff and hence culd nt settle n its ISD due t the late matching. The Late Matching Fail Penalty has t cnsider that the instructin did nt settled n ISD and n ISD+1. The Late Matching Fail Penalty des nt have t cnsider ISD+2 because it was matched befre the cut-ff fr ISD+2 and hence it can still settle n ISD+2. Fr the calculatin f the Late Match Fail Penalty the prices t be used are: Fr the failure n ISD, the price used shall be P (ISD) =8 Fr the failure n ISD+1, the price used shall be P (ISD+1) =9 In case the instructin wuld have failed t settle n ISD+2, then a Settlement Fail Penalty will apply in additin t the Late Matching Fail Penalty (i.e. bth are calculated in the cmputatin f penalties fr the day equal t ISD+2 ). The Settlement Fail Penalty will be calculated using the price set fr this day i.e. P (ISD+2) =12. New Settlement Fail Penalties will apply fr each further business day the instructin fails t settle in T2S. E.g.: in case the instructin fails again n ISD+3, then a new Settlement Fail Penalty will be cmputed fr ISD+3 and it will be calculated using the new price that will be set fr this day i.e. P (ISD+3). Example 4: A settlement instructin enters and is matched in T2S tw days after its ISD (i.e. n Day= ISD+2 ) and after the relevant cut-ff fr ISD+2 (i.e. it wn t be pssible t settle it n ISD+2 ). At the time f cmputatin f penalties fr the day equal t ISD+2, the reference price f the ISIN fr that day is already knwn and stred in T2S and it is 12 Eurs. I.e. P (ISD+2) =12. The histrical prices f previus days are: P (ISD) =8; P (ISD+1) =9. I.e. Relevant reference prices: P (ISD) =8; P (ISD+1) =9; P (ISD+2) =12 A Late Matching Fail Penalty applies because the instructin was matched after the ISD s cut-ff and hence culd nt settle n its ISD due t the late matching. The Late Matching Fail Penalty has t cnsider that the instructin did nt settled n ISD, n ISD+1 and n ISD+2. Fr the calculatin f the Late Match Fail Penalty the prices t be used are: Fr the failure n ISD, the price used shall be P (ISD) =8 Page 8 f 60

9 Fr the failure n ISD+1, the price used shall be P (ISD+1) =9 Fr the failure n ISD+2, the price used shall be P (ISD+2) =12 In case the instructin fails t settle n the fllwing business day, ISD+3, then a Settlement Fail Penalty will apply. The Settlement Fail Penalty will be calculated using the new price that will be set fr this day i.e. P (ISD+3). New Settlement Fail Penalties will apply fr each further business day the instructin fails t settle in T2S. E.g.: in case the instructin fails again n ISD+4, then a new Settlement Fail Penalty will be cmputed fr ISD+4 and it will be calculated using the new price that will be set fr this day i.e. P (ISD+4). 3.4 Instructins subject t cmputatin f penalties (C-4) See als List f CSDR Items fr Clarificatin, Item 11 Scpe f instructins subject t penalties. Only instructins sent by T2S Actrs will be subject t cmputatin f penalties. In line with the understanding f the regulatin that penalties are nly applied t settlement instructins which are transfer rders as defined in the Settlement Finality Directive, T2S internally generated instructins (e.g. realignment instructins and aut-cllateralisatin instructins) will nt be subject t penalties. Based n the same principle, settlement restrictins are excluded frm penalties. Frm the instructins sent by the T2S Actrs, thse instructins with specific transactin type related t Crprate Actins n stcks (i.e. thse with ISO Transactin Cde equal t CORP) will be exempted frm the cmputatin. N further exemptin will apply e.g.: instructins with ISO Transactin Cde equal t ISSU (Issuance), REDM (Redemptins) r CLAI (Market Claims) will be subject t cmputatin f penalties. Frm all the instructins subject t cmputatin f penalties, T2S will cmpute penalties when the ISIN f the relevant instructin is in scpe. T2S will cnsider in scpe thse ISINs defined in the list f Securities subject t penalties part f the T2S reference data (see sectin 6- Reference Data ). In this regard, it is wrth clarifying that External CSD settlement instructins may als be subject t penalties. In the cntext f T2S, external CSD settlement can be defined as settlement which invlves a CSD nt participating in T2S. In case penalties are impsed in the cntext f T2S external CSD settlement because the instructin and its ISIN are in scpe, the prcess will invlve a chain f transactins and therefre a clarificatin fr the settlement penalty mechanism was deemed necessary. Please refer t the Annex sectin Additinal clarificatin fr external CSD settlement fr further descriptin and analysis. Page 9 f 60

10 3.5 Harmnise principles fr cmputatin f penalties (C-5) In line with requirements in the CSDR 3, in case a T2S Actr that fresees its instructin failing t settle in T2S due t the lack f the relevant resurces, decides t send the instructin late, a penalty shuld be cmputed due t the late matching (Late Matching Fail Penalty) as if the instructin wuld have been sent n time but failed t settle in T2S (Settlement Fail Penalty). I.e.: Settlement Fail Penalties and Late Matching Fail Penalties shall fllw the same principles fr their cmputatin. As a cnsequence, cnsidering the same instructin, the penalty impsed shuld be fr the same amunt in the fllwing tw scenaris: The instructin fails t settle in T2S n its ISD, i.e. ne day, because fr example the instructin was put n hld r in lack f securities (Settlement Fail Penalty). The instructin was sent t T2S ne day late (Late Matching Fail Penalty). This principle is enfrced by the previus principle f using the prices f the relevant business day. By using the reference price f the relevant day, it is ensured that the amunt that wuld be impsed by the Settlement Fail Penalty and by the Late Matching Fail Penalty is the same in bth scenaris. 3 Article 16.3 f RTS n Settlement Discipline Page 10 f 60

11 4. Cmputatin f Settlement Fail Penalties (SEFP) Any settlement instructin sent by a T2S Actr, being in scpe f the penalties calculatin as described in chapter 3.4, that: i) is matched befre the relevant cut-ff f a given business day and ii) has reached its ISD, fails t settle n that business day, will be subject t cmputatin f Settlement Fail Penalties (SEFP) fr this business day. In this regard, it is wrth clarifying that: C-6: A settlement instructin that fails t settle n that business day must be understd as: Settlement instructins in T2S that are nt cancelled and remaining t be settled, fully r partially, by the time f the end f prcessing f the relevant cut-ff 4. The end f prcessing f the relevant cut-ff f each settlement instructin is the key pint in time t take a snapsht f the status and reasns f a settlement instructin and determine its eligibility fr a penalty. See als List f CSDR Items fr Clarificatin : Item 5 Failing settlement instructin (PENF). T2S will nt take int accunt: Neither previus statuses nr reasns befre the relevant cut-ff: Previus statuses r reasns befre the status/reasn at the end f prcessing f the relevant cut-ff are nt cnsidered by the penalty mechanism. Fr example, in case an instructin is nt settled during the Night Time Settlement because it is n hld, and such instructin is released during the Real Time Settlement, but it then fails because the cunterparty has lack f securities, which remains until the end f the prcessing f the cut-ff (i.e. status and reasn fr the cut-ff is unsettled because the cunterpart has lack f securities). In this case, T2S will cnsider fr the cmputatin f the SEFP the cunterpart s Lack f securities and will nt take int accunt that the instructin was n hld befre the cut-ff. Neither statuses nr reasns after the relevant cut-ff: New status r reasns after the end f prcessing f the relevant cut-ff are nt cnsidered by the penalty mechanism. As a cnsequence, it is nt relevant fr the cmputatin f SEFPs the status and/r reasns at the End f Day, nly the nes at the end f prcessing f cut-ff will be cnsidered. As discussed in the CSDR TF, after the cut-ff, an instructin may change its status and/r reasn. Changes f status and/r reasn after the cut-ff shuld nt affect the calculatin f the penalty. Fr example, the cancellatin f an instructin by the T2S Actr during the End f Day shuld nt have any impact n the calculatin f the penalties. E.g. In case f sme CCPs, 4 I.e.: Cut-ffs are planned at 16:00 fr DVP instructins, 17:40 fr BATM/CBO related instructins, and 18:00 fr FOP instructins. In additin t CR-0635, there will be a need fr new T2S events f the settlement day indicating the end f prcessing f each and every cut-ff t indicate the latest time when an instructin culd be settled. Page 11 f 60

12 which cancel failed instructins at End f Day and reinstruct, after netting the failed instructins with the new nes fr the fllwing day, the failed instructins will be cnsidered. Once a given settlement instructin has been identified as subject t cmputatin f SEFP accrding t rules defined abve (i.e. nt cancelled instructin that was matched befre the relevant cut-ff and having reached its ISD, fails t settle in T2S n a business day), the status and reasns stred in T2S by the time f the relevant cut-ff, have t be analysed t determine if the penalty is t be impsed r nt. C-7: A penalty will be impsed if the settlement instructin, initially identified as subject t cmputatin f SEFP fr a given business day, fulfills at the time f the end f prcessing f the relevant cut-ff, any f the belw cnditins: The instructin is n hld (any type f hld). The instructin is unsettled because it failed the eligibility/prvisin check with any reasn assciated t this instructin and nt t the cunterpart s instructin (fr mre infrmatin see Annex sectin Additinal clarificatin n statuses and reasns fr SEFP ). See als List f CSDR Items fr Clarificatin : Item 16 Status f instructins in scpe f penalties. Given that the analysis is perfrmed per settlement instructin individually, it is wrth clarifying that it is pssible that the tw cunterparts f a transactin are impsed with a SEFP. This scenari will ccur, fr example, when the tw matched instructins are n hld (i.e. bth f them). In such scenari bth parties will be impsed with a SEFP (examples are prvided in sectin 4.1- Examples f the cmputatin f SEFP ). Once it has been determined that the penalty has t be impsed, there is a need fr calculating its exact amunt. C-8: The amunt impsed by the penalty shall be calculated depending n the type f transactin frmed by the tw matched settlement instructins, i.e. n the basis f the financial instrument(s) exchanged by the transactin and its/their directin. See als List f CSDR Items fr Clarificatin : Item 17 Frmula used fr calculatin f cash penalties. Accrding t COMMISSION DELEGATED REGULATION (EU) C(2016) 7154 f supplementing Regulatin (EU) N 909/2014, Article 3.2 Reference price f the transactin: The reference price referred t in paragraph 1 shall be used t calculate the level f cash penalties fr all settlement fails, irrespective f whether the settlement fail is due t a lack f securities r cash. Cnsequently, CSDR TF agreed that, in rder t use the reference price irrespectively n the reasn fr settlement failure, in case f transactins with exchange f securities versus cash (a DVP settlement instructin matched with a RVP settlement instructin): The amunt fr the penalty shall be calculated based n the quantity f securities failed t be delivered (instead f the cash amunt failed t be delivered) even when fail is due t a lack f securities r cash. Page 12 f 60

13 The fllwing table summarizes the basis fr calculating the amunt impsed by the penalty fr each type f transactin. Each case is further detailed afterwards in C-9: Type f transactin SEFP i) Transactins with exchange f securities versus cash - Delivering versus Payment (DVP) - Receiving versus Payment (RVP) ii) Transactins with exchange f securities nly - Delivering Free f Payment (DFP) - Receiving Free f Payment (RFP) iii) Transactins with exchange f cash nly 5 - Debiting Payment Free f Delivery (DPFOD) - Crediting Payment Free f Delivery (CPFOD) iv) Transactins with exchange f securities and cash (i.e. same directin) 6 - Delivery with Payment (DWP) - Receiving with Payment (RWP) Penalty based n the quantity f securities failed t be delivered and penalty rate f the ISIN, unless the reasn fr failing is Lack f cash, in which case the penalty rate will be the discunt rate f the relevant currency Penalty based n the quantity f securities failed t be delivered and penalty rate f the ISIN Penalty based n the amunt f cash failed t be delivered and the penalty rate will be the discunt rate f the relevant currency Penalty will be the sum f: - The penalty based n the quantity f securities failed t be delivered and penalty rate f the ISIN (case ii); and - The penalty based n the amunt f cash failed t be delivered and the discunt rate f the currency (case iii) It is wrth mentining that fr case iv, transactins with exchange f securities and cash i.e. same directin (DWP settlement instructin matched with RWP settlement instructin), tw alternatives were analysed by the TF: Penalty will be the sum f: - The penalty based n the quantity f securities failed t be delivered and penalty rate f the ISIN (case ii); and - The penalty based n the amunt f cash failed t be delivered and the discunt rate f the currency (case iii) Tw times the penalty f case i (tw times the penalty based n the quantity f securities failed t be delivered and penalty rate f the ISIN, unless the reasn fr failing is Lack f cash, in which case the penalty rate will be the discunt rate f the relevant currency). I.e.: 2* Rate* Reference Price* Quantity The majrity f the TF expressed a preference fr the first alternative, which is the ne described in this dcument. 5 Thse transactins are mstly used in the cntext f CA n stck fr payment f cash prceeds, but can als result frm CA n flws (market claims) and CCP netted transactins 6 Thse transactins are mstly the result frm CCP netted transactins Page 13 f 60

14 C-9: The frmulas t calculate the amunt impsed by a Settlement Fail Penalty (SEFP) are the fllwing: See als List f CSDR Items fr Clarificatin : Item 17 Frmula used fr calculatin f cash penalties. i. Fr DVP and RVP Settlement Instructins: Where: - Rate is: SEFP = Rate* Reference Price* Quantity Either the flat penalty rate stred in Static Data fr the asset type f the ISIN f the failed instructin (accrding t ESMA s classificatins) and the business day fr which the penalty is calculated; Or, in the specific case where the reasn fr unsettled f the failed instructin is Lack f cash (i.e. nly pssible in RVPs), the rate is the discunt rate f the relevant currency stred in Static Data (accrding t ESMA definitins) and the business day fr which the penalty is calculated. - Reference Price is the price stred in Static Data fr the ISIN f the instructin and the business day fr which the penalty is calculated. - Quantity is the quantity f securities failed t be delivered, which is the quantity f the instructin remaining t be settled at the time f end f prcessing f the relevant cut-ff. ii. Fr DFP and RFP Settlement Instructins: SEFP = Rate* Reference Price* Quantity Where: - Rate is the flat penalty rate stred in Static Data fr the asset type f the ISIN f the failed instructin (accrding t ESMA s classificatins) and the business day fr which the penalty is calculated. - Reference Price is the price stred in Static Data fr the ISIN f the instructin and the business day fr which the penalty is calculated. - Quantity is the quantity f securities failed t be delivered, which is the quantity f the instructin remaining t be settled at the time f end f prcessing f the relevant cut-ff. iii. Fr DPFOD and CPFOD Settlement Instructins: SEFP = Rate* Amunt Where: Page 14 f 60

15 - Rate is the discunt rate f the relevant currency stred in Static Data (accrding t ESMA definitins) and the business day fr which the penalty is calculated. - Amunt is the cash amunt failed t be delivered, which is the amunt f the instructin remaining t be settled at the time f end f prcessing f the relevant cut-ff. Ratinale: Althugh the CSDR prescribes t use the security quantity and reference price fr the calculatin f all settlement fail penalties, fr DPFOD and CPFOD settlement instructins where the ISIN quantity is 0, the CSDR TF s wrking assumptin is t use the cash amunt t cmpute the penalty. iv. Fr DWP and RWP Settlement Instructins: SEFP = SEFP fr the securities side + SEFP fr the cash side Where: - SEFP fr the securities side is the ne calculated fllwing the frmula f case ii. - SEFP fr the cash side is the ne calculated fllwing the frmula f case iii. T simplify the abve definitins, it has been cnsidered in all the frmulas that the price f the security and the cash amunt f the settlement instructin is denminated in the same currency than the currency f the amunt t be impsed by the penalty. C-10: Shall the price r the amunt be in a different currency, the exchange rate will be used in rder t calculate the amunt f the penalty in the relevant currency (e.g. Eur). Pending pint: Given that T2S is a multi-currency settlement platfrm, T2S prvides cash settlement in central bank mney in any T2S settlement currency, it has t be further discussed in the CSDR TF hw t define the relevant currency f the amunt impsed by a penalty. Fr the time being an initial prpsal culd be: Fr settlement instructins against payment (cash settlement in a T2S settlement currency), the amunt impsed by the penalty shall be denminated in the currency f the cash leg f the settlement instructin. Fr settlement instructins free f payment (n cash is settled in T2S), the amunt impsed by the penalty shall be denminated in the currency defined fr the penalties by the CSD f the nn-failing participant. The currency defined must be a T2S settlement currency. Page 15 f 60

16 4.1 Examples f the cmputatin f SEFP In rder t illustrate the cmputatin f SEFP, several examples are prvided hereafter. All f the examples have, as starting pint, a pair f matched settlement instructins that were: i) nt cancelled, ii) matched befre the relevant cut-ff and, that having reached its ISD, fail t settle in T2S. The examples are prvided within 4 cases, ne fr each type f transactin that failed t settle. I.e.: Case i: Delivery versus Payment transactin (i.e. cmpsed by a DVP and an RVP matched settlement instructins) Case ii: Free f Payment transactin (i.e. cmpsed by a DFP and an RFP matched settlement instructins) Case iii: Payment Free f Delivery transactin (i.e. cmpsed by a DPFOD and an CPFOD matched settlement instructins) Case iv: Delivery with Payment transactin (i.e. cmpsed by a DWP and an RWP matched settlement instructins) Fr each case, the examples prvided differ n the status and reasns assciated, at the end f prcessing f the relevant cut-ff, t the matched settlement instructins that frm the transactin. Case i: Delivery versus Payment transactin Example 1: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DVP instructin: Party hld RVP instructin: Cunterpart s instructin is n hld In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party A is impsed with a Penalty t be paid t Party B. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity Page 16 f 60

17 Example 2: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DVP instructin: Cunterpart s instructin is n hld RVP instructin: Party hld In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party B is impsed with a Penalty t be paid t Party A. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity Example 3: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DVP instructin: Party hld (and cunterpart s instructin is n hld) RVP instructin: Party hld (and cunterpart s instructin is n hld) In this example, the result f the cmputatin will be the cmputatin f tw penalties: - Party A is impsed with a Penalty t be paid t Party B. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity - Party B is impsed with a Penalty t be paid t Party A. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity Example 4: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DVP instructin: Lack f securities RVP instructin: Cunterparty has lack f securities In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party A is impsed with a Penalty t be paid t Party B. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity Example 5: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DVP instructin: Lack f securities RVP instructin: Lack f cash This scenari is nt pssible given that (accrding t Change Request 621) in the T2S prvisin checks, T2S stps when lack f securities is fund (i.e. T2S des nt check the availability f cash in this situatin). Hence, this example is the same as previus Example 4 (i.e. lack f securities in a DVP). I.e.: DVP instructin: Lack f securities RVP instructin: Cunterparty has lack f securities Page 17 f 60

18 Example 6: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DVP instructin: Cunterparty has lack f cash RVP instructin: Lack f cash In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party B is impsed with a Penalty t be paid t Party A. Amunt f the penalty: SEFP = Discunt Rate* Reference Price* Quantity Example 7: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DVP instructin: Settlement Instructin is unsettled because ne f its linked settlement instructins is missing RVP instructin: Settlement Instructin is unsettled because ne f the cunterpart s linked settlement instructins is missing In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party A is impsed with a Penalty t be paid t Party B. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity Example 8: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DVP instructin: Settlement Instructin is unsettled because ne f the cunterpart s linked settlement instructins is missing RVP instructin: Settlement Instructin is unsettled because ne f its linked settlement instructins is missing In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party B is impsed with a Penalty t be paid t Party A. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity Example 9: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DVP instructin: Settlement Instructin is unsettled because ne f its linked settlement instructins is missing RVP instructin: Settlement Instructin is unsettled because ne f its linked settlement instructins is missing In this example, the result f the cmputatin will be the cmputatin f tw penalties: - Party A is impsed with a Penalty t be paid t Party B. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity - Party B is impsed with a Penalty t be paid t Party A. Amunt f the penalty: SEFP = Rate fr the ISIN * Reference Price* Quantity Page 18 f 60

19 Case ii: Free f Payment transactin Example 1: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DFP instructin: Party hld RFP instructin: Cunterpart s instructin is n hld In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party A is impsed with a Penalty t be paid t Party B. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity Example 2: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DFP instructin: Cunterpart s instructin is n hld RFP instructin: Party hld In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party B is impsed with a Penalty t be paid t Party A. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity Example 3: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DFP instructin: Party hld (and cunterpart s instructin is n hld) RFP instructin: Party hld (and cunterpart s instructin is n hld) In this example, the result f the cmputatin will be the cmputatin f tw penalties: - Party A is impsed with a Penalty t be paid t Party B. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity - Party B is impsed with a Penalty t be paid t Party A. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity Page 19 f 60

20 Example 4: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DFP instructin: Lack f securities RFP instructin: Cunterparty has lack f securities In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party A is impsed with a Penalty t be paid t Party B. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity Example 5: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DFP instructin: Settlement Instructin is unsettled because ne f its linked settlement instructins is missing RFP instructin: Settlement Instructin is unsettled because ne f the cunterpart s linked settlement instructins is missing In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party A is impsed with a Penalty t be paid t Party B. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity Example 6: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DFP instructin: Settlement Instructin is unsettled because ne f the cunterpart s linked settlement instructins is missing RFP instructin: Settlement Instructin is unsettled because ne f its linked settlement instructins is missing In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party B is impsed with a Penalty t be paid t Party A. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity Example 7: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DFP instructin: Settlement Instructin is unsettled because ne f its linked settlement instructins is missing RFP instructin: Settlement Instructin is unsettled because ne f its linked settlement instructins is missing In this example, the result f the cmputatin will be the cmputatin f tw penalties: - Party A is impsed with a Penalty t be paid t Party B. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity - Party B is impsed with a Penalty t be paid t Party A. Amunt f the penalty: SEFP = Rate fr the ISIN* Reference Price* Quantity Page 20 f 60

21 Case iii: Payment Free f Delivery transactin Example 1: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DPFOD instructin: Party hld CPFOP instructin: Cunterpart s instructin is n hld In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party A is impsed with a Penalty t be paid t Party B. Amunt f the penalty: SEFP = Discunt Rate* Amunt Example 2: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DPFOD instructin: Cunterpart s instructin is n hld CPFOD instructin: Party hld In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party B is impsed with a Penalty t be paid t Party A. Amunt f the penalty: SEFP = Discunt Rate* Amunt Example 3: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DPFOD instructin: Lack f cash CPFOD instructin: Cunterparty has lack f cash In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party A is impsed with a Penalty t be paid t Party B. Amunt f the penalty: SEFP = Discunt Rate* Amunt Page 21 f 60

22 Case iv: Delivery with Payment transactin Example 1: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DWP instructin: Party hld RWP instructin: Cunterpart s instructin is n hld In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party A is impsed with a Penalty t be paid t Party B. Amunt f the penalty: SEFP = SEFP fr securities + SEFP fr cash = Rate fr the ISIN* Reference Price* Quantity + Discunt Rate* Amunt Example 2: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DWP instructin: Cunterpart s instructin is n hld RWP instructin: Party hld In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party B is impsed with a Penalty t be paid t Party A. Amunt f the penalty: SEFP = SEFP fr securities + SEFP fr cash = Rate fr the ISIN* Reference Price* Quantity + Discunt Rate* Amunt Example 3: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DWP instructin: Party hld (and cunterpart s instructin is n hld) RWP instructin: Party hld (and cunterpart s instructin is n hld) In this example, the result f the cmputatin will be the cmputatin f tw penalties: - Party A is impsed with a Penalty t be paid t Party B. Amunt f the penalty: SEFP = SEFP fr securities + SEFP fr cash = Rate fr the ISIN* Reference Price* Quantity + Discunt Rate* Amunt - Party B is impsed with a Penalty t be paid t Party A. Amunt f the penalty: SEFP = SEFP fr securities + SEFP fr cash = Rate fr the ISIN* Reference Price* Quantity + Discunt Rate* Amunt Page 22 f 60

23 Example 4: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DWP instructin: Lack f securities RWP instructin: Cunterparty has lack f securities In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party A is impsed with a Penalty t be paid t Party B. Amunt f the penalty: SEFP = SEFP fr securities + SEFP fr cash = Rate fr the ISIN* Reference Price* Quantity + Discunt Rate* Amunt Example 5: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DWP instructin: Lack f securities and lack f cash RWP instructin: Cunterparty has lack f securities and lack f cash This scenari is nt pssible given that (accrding t Change Request 621) in the T2S prvisin checks, T2S stps when lack f securities is fund (i.e. T2S des nt check the availability f cash in this situatin). Hence, this example is the same as previus Example 4 (i.e. lack f securities in a DWP). I.e.: DWP instructin: Lack f securities RWP instructin: Cunterparty has lack f securities Example 6: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DWP instructin: Lack f cash RWP instructin: Cunterparty has lack f cash In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party A is impsed with a Penalty t be paid t Party B. Amunt f the penalty: SEFP = SEFP fr securities + SEFP fr cash = Rate fr the ISIN* Reference Price* Quantity + Discunt Rate* Amunt Example 7: The status and reasns at the time f the end f prcessing f the relevant cut-ff are: DWP instructin: Settlement Instructin is unsettled because ne f the cunterpart s linked settlement instructins is missing RWP instructin: Settlement Instructin is unsettled because ne f its linked settlement instructins is missing In this example, the result f the cmputatin will be the cmputatin f ne penalty: - Party B is impsed with a Penalty t be paid t Party A. Amunt f the penalty: SEFP = SEFP fr securities + SEFP fr cash = Rate fr the ISIN* Reference Price* Quantity + Discunt Rate* Amunt Page 23 f 60

24 5. Cmputatin f Late Matching Fail Penalties (LMFP) Any settlement instructin sent by a T2S Actr, being in scpe f the penalties calculatin as described in chapter 3.4, that is matched in T2S after the relevant cut-ff f its ISD 7, will be subject t cmputatin f Late Matching Fail Penalties (LMFP) fr the business day when it is matched. T2S will identify instructins subject t LMFP fr a given business day by checking all instructins that were matched n that business day. Once a given settlement instructin has been identified as subject t LMFP accrding t rules defined abve, its T2S accepted timestamp and the T2S accepted timestamp f the cunterpart instructin have t be analysed t determine if a penalty is impsed r nt. C-11: A penalty will be impsed if the matched late settlement instructin, initially identified as subject t cmputatin f LMFP, has a T2S accepted timestamp later than the T2S accepted timestamp f its crrespnding cunterpart instructin. Accrding t Pint 4 f Article 16 (Cllectin f cash penalties) f the Draft Technical Standards n Settlement Discipline: the penalty is charged t the last participant t enter r mdify 8 the relevant settlement instructin fr the perids between the ISD and the matching f the instructin. As a cnsequence, nly ne f the tw cunterparts f a transactin can be impsed with a LMFP. The participant with the earliest T2S accepted timestamp will nt be cnsidered as a failing participant and hence, n penalty will be impsed t this participant due t the late matching (even if such participant als sent the instructin late t T2S). C-12: T2S ffers the pssibility t send settlement instructins as already matched. These settlement instructins will be subject t cmputatin f Late Matching Fail Penalties in case they are sent late t T2S. Hwever, it is nt pssible fr T2S t determine the failing participant by cmparing the T2S acceptance timestamps. Cnsequently, it was agreed in the CSDR TF that the LMFP will be cmputed and reprted by T2S cnsidering by default that the failing participant is: Pending pint: Either the Instructing Party r the delivering party. CSDR TF will take a final decisin n ne r the ther after further analysis n the tpic. Once the failing participant has been identified (either by cmparing the tw T2S accepted timestamps fr instructins matched in T2S, r by using the default rule fr instructins sent as already matched), there is a need fr calculating the exact amunt f the penalty. C-8 (bis): Applying the same principles described in C-8 fr SEFP, the fllwing table summarizes the basis fr calculating the amunt impsed by the LMFP fr each type f transactin. Each case is further detailed afterwards in C-15 and C-16: 7 I.e.: Cut-ffs are planned at 16:00 fr DVP instructins, 17:40 fr BATM/CBO related instructins, and 18:00 fr FOP instructins. In additin t CR-0635, there will be a need fr new T2S events f the settlement day indicating the end f prcessing f each and every cut-ff t indicate the latest time when an instructin culd be settled. 8 Nte that the mdifiable fields f settlement instructins in T2S are nt matching fields, therefre the mdificatin f an instructin is nt cnsidered by the T2S penalty mechanism and nly the accepted timestamp must be checked. Page 24 f 60

25 Type f transactin i) Transactins with exchange f securities versus cash - Delivering versus Payment (DVP) - Receiving versus Payment (RVP) ii) Transactins with exchange f securities nly - Delivering Free f Payment (DFP) - Receiving Free f Payment (RFP) iii) Transactins with exchange f cash nly - Debiting Payment Free f Delivery (DPFOD) - Crediting Payment Free f Delivery (CPFOD) iv) Transactins with exchange f securities and cash (i.e. same directin) - Delivery with Payment (DWP) - Receiving with Payment (RWP) LMFP Penalty based n the quantity f securities failed t be delivered and penalty rate f the ISIN. Given that we are in a late matching scenari, it is nt pssible t have the reasn fr failing Lack f cash ; hence, the penalty rate f the ISIN is always used. Penalty based n the quantity f securities failed t be delivered and penalty rate f the ISIN Penalty based n the amunt f cash failed t be delivered and the penalty rate will be the discunt rate f the relevant currency Penalty will be the sum f: - The penalty based n the quantity f securities failed t be delivered and penalty rate f the ISIN (case ii); and - The penalty based n the amunt f cash failed t be delivered and the discunt rate f the currency (case iii) C-14: The frmulas t calculate the amunt impsed by a Late Matching Fail Penalty (LMFP) are the fllwing: The frmulas will differ depending n whether the instructin subject t LMFP can either still settle, r n lnger settle, n the business day when the instructin is matched (i.e. depending n whether it is matched befre r after the relevant cut-ff fr the Matching Business Day). When the instructin can still settle n the business day when it is matched: This scenari relates t thse instructins matched after their ISD (late matching), but matched at a pint in time when it is still pssible t settle them n the business day when they are matched (i.e. matched befre the relevant cut-ff fr Matching Business day). As a cnsequence, in this scenari, the LMFP shall be calculated fr each business day as frm the ISD until, and excluding, the business day when the instructin is matched. Example 3 f sectin 2- Definitins is an example f this scenari. It is wrth mentining that in this scenari, in case the instructin des nt settle n the business day when it is matched (even if it was pssible because it arrived befre the cut-ff), then a separate calculatin will have t be perfrmed fr an additinal SEFP (please see Sectin 4 fr further details). I.e. T2S will cmpute tw penalties fr that instructin fr the same business day, a LMFP and a SEFP. Page 25 f 60

26 When the instructin can n lnger settle n the business day when it is matched: This scenari relates t thse instructins matched, n r after the ISD, at a pint in time when it is nt pssible t settle them n the business day when they are matched, because it is after the relevant cut-ff. As a cnsequence, in this scenari, the LMFP shall be calculated fr each business day as frm the ISD until, and including, the business day when the instructin is matched. Example 2 and Example 4 f sectin 2- Definitins are examples f this scenari. C-15: Frmula fr Late Matching Fail Penalty (LMFP) f instructins that can still settle n the business day when they are matched: See als List f CSDR Items fr Clarificatin : Item 17 Frmula used fr calculatin f cash penalties. i. Fr DVP and RVP Settlement Instructins; and ii. Fr DFP and RFP Settlement Instructins Given that in LMFP, there is n pssibility t have a Lack f cash (i.e. the fail is always due t a late sending f the instructin causing the late matching), the frmula used is the same in bth cases (i. and ii.) because the rate is always the rate fr the ISIN. LMFP Where: - N is equal t the number f business days resulting frm the difference between the ISD and the Matching Business Day (MBD). - Rate is the flat penalty rate stred in Static Data fr the asset type f the ISIN f the failed instructin (accrding t ESMA definitins) and fr the relevant business day (x). Mathematically is x= MBD n (see examples belw). - Reference Price is the price stred in Static Data fr the ISIN f the instructin and fr the relevant business day (x). Mathematically is x= MBD n (see examples belw). - Quantity is the quantity f securities failed t be delivered, which is the matched quantity f the Settlement Instructin. Given that LMFP relate t the matching time, it is nt the remaining quantity at cut-ff time like in SEFP but the matched quantity. Tw detailed examples are prvided hereafter t clarify the frmula: Page 26 f 60

27 First example: A DVP settlement instructin (delivering shares f ISIN1 versus Eurs) is matched at 14:00 ne business day after its ISD (i.e. MBD= ISD+1 ). Given that matching ccurs at 14:00, it is matched befre the relevant cut-ff f ISD+1 (i.e. DVP cut-ff is at 16:00) s it can still settle n ISD+1. LMFP will be calculated as fllws (i.e. cnsidering each business day as frm the ISD until, and excluding, the business day when the instructin is matched): N = 1 X= (MBD-n), starting with n=1 until N=1, which implies: LMFP= R(ISD)* P(ISD)* Quantity Assuming that the Rate and reference Price fr the ISIN1 n the ISD are R(ISD)= 1bp and P(ISD)= 8 Eurs, the penalty impsed will be: LMFP = 0,0001* 8 *5.000 = 4 Eurs Secnd example: A DFP settlement instructin (delivering 5000 units f ISIN1) is matched at 17:00 tw business days after its ISD (i.e. MBD= ISD+2 ). Given that matching ccurs at 17:00, it is matched befre the relevant cut-ff f ISD+2 (i.e. FOP cut-ff is at 18:00) s it can still settle n ISD+2. LMFP will be calculated as fllws (i.e. cnsidering each business day as frm the ISD until, and excluding, the business day when the instructin is matched): N = 2 X= (MBD-n), starting with n=1 until N=2, which implies: LMFP= R(ISD+1)* P(ISD+1)* Quantity + R(ISD)* P(ISD)* Quantity Assuming that the Rate and reference Price fr the ISIN1 n ISD+1 and n ISD are R(ISD+1)= 1bp; R(ISD)= 1bp; P(ISD+1)= 9 Eurs and P(ISD)= 8 Eurs, the penalty impsed will be: LMFP = 0,0001* 9 * ,0001* 8 *5000 = 8,5 Eurs iii. Fr DPFOD and CPFOD Settlement Instructins (ISIN quantity is 0): Where: - N is equal t the number f business days resulting frm the difference between the ISD and the Matching Business Day (MBD). - Rate is the discunt rate f the relevant currency stred in Static Data (accrding t ESMA definitins) and fr the relevant business day (x). Page 27 f 60

28 Mathematically is x= MBD n - Amunt is the cash amunt failed t be delivered, which is the matched cash amunt f the Settlement Instructin. Given that LMFP relate t the matching time, it is nt the remaining amunt at cut-ff time like in SEFP but the matched amunt. iv. Fr DWP and RWP Settlement Instructins: LMFP = LMFP fr the securities side + LMFP fr the cash side Where: - LMFP fr the securities side is the ne calculated fllwing the frmula f case i and ii. - LMFP fr the cash side is the ne calculated fllwing the frmula f case iii. C-16: Frmula fr Late Matching Fail Penalty (LMFP) f instructins that can n lnger settle n the business day when they are matched: See als List f CSDR Items fr Clarificatin : Item 17 Frmula used fr calculatin f cash penalties. Everything will be exactly the same than in the previus pint C-15 but we have nw t include fr the calculatin, additinally, the business day where the instructins are matched. I.e. The relevant frmulas will be the same but with n starting with zer (staring with n=0 instead f with n=1), in rder t include in the calculatin the business day where the instructins are matched. i. Fr DVP and RVP Settlement Instructins; and ii. Fr DFP and RFP Settlement Instructins Given that in LMFP, there is n pssibility t have a Lack f cash (i.e. the fail is always due t a late sending f the instructin causing the late matching), the frmula is the same in bth cases because the rate is always the rate fr the ISIN. Where: - N is equal t the number f business days resulting frm the difference between the ISD and the Matching Business Day (MBD). - Rate is the flat penalty rate stred in Static Data fr the asset type f the ISIN f the failed instructin (accrding t ESMA definitins) and fr the relevant business day (x). Mathematically is x= MBD n (see examples belw). Page 28 f 60

29 - Reference Price is the price stred in Static Data fr the ISIN f the instructin and fr the relevant business day (x). Mathematically is x= MBD n (see examples belw). - Quantity is the quantity f securities failed t be delivered, which is the matched quantity f the Settlement Instructin. Given that LMFP relate t the matching time, it is nt the remaining quantity at cut-ff time like in SEFP but the matched quantity. Tw detailed examples are prvided hereafter t clarify the frmula: First example: A DVP settlement instructin (delivering 5000 shares f ISIN1 versus Eurs) is matched at 16:30 n its ISD (i.e. MBD= ISD). Given that matching ccurs at 16:30, it is matched after the relevant cut-ff f the ISD (i.e. DVP cut-ff is at 16:00) s it cannt be settled n ISD. LMFP will be calculated as fllws (i.e. cnsidering each business day as frm the ISD until, and including, the business day when the instructin is matched): N = 0 X= (MBD-n), starting with n=0 until N=0, which implies: LMFP= R(ISD)* P(ISD)* Quantity Assuming that the Rate and reference Price fr the ISIN1 n the ISD are R(ISD)= 1bp and P(ISD)= 8 Eurs, the penalty impsed will be: LMFP = 0,0001* 8 *5000 = 4 Eurs Secnd example: A DFP settlement instructin (delivering 5000 units f ISIN1) is matched at 18:30 tw business days after its ISD (i.e. MBD= ISD+2 ). Given that matching ccurs at 18:30, it is matched after the relevant cut-ff f ISD+2 (i.e. FOP cut-ff is at 18:00) s it cannt be settled n ISD+2. LMFP will be calculated as fllws (i.e. cnsidering each business day as frm the ISD until, and including, the business day when the instructin is matched): N = 2 X= (MBD-n), starting with n=0 until N=2, which implies: LMFP= R(ISD+2)* P(ISD+2)* Quantity + R(ISD+1)* P(ISD+1)* Quantity + R(ISD)* P(ISD)* Quantity Assuming that the Rate and reference Price fr the ISIN1 n ISD+2, ISD+1 and n ISD are: R(ISD+2)= 1bp; R(ISD+1)= 1bp; R(ISD)= 1bp; P(ISD+2)= 12 Eurs; P(ISD+1)= 9 Eurs and P(ISD)= 8 Eurs, the penalty impsed will be: LMFP = 0,0001*12* ,0001*9 * ,0001*8 *5000 = 14,5 Eurs Page 29 f 60

30 iii. Fr DPFOD and CPFOD settlement instructins (where ISIN quantity is 0): Where: - N is equal t the number f business days resulting frm the difference between the ISD and the Matching Business Day (MBD). - Rate is the discunt rate f the relevant currency stred in Static Data (accrding t ESMA definitins) and fr the relevant business day (x). Mathematically is x= MBD n - Amunt is the cash amunt failed t be delivered, which is the matched cash amunt f the Settlement Instructin. Given that LMFP relate t the matching time, it is nt remaining amunt at cut-ff time like in SEFP but the matched amunt. iv. Fr DWP and RWP Settlement Instructins: LMFP = LMFP fr the securities side + LMFP fr the cash side Where: - LMFP fr the securities side is the ne calculated fllwing the frmula f case i and ii. - LMFP fr the cash side is the ne calculated fllwing the frmula f case iii. T simplify the abve definitins, it has been cnsidered in all the frmulas that the price f the security and the cash amunt f the settlement instructin is denminated in the same currency than the currency f the amunt t be impsed by the penalty. C-10 (bis): Shall the price r the amunt be in a different currency, the exchange rate will be used in rder t calculate the amunt f the penalty in the relevant currency (e.g. Eur). Pending pint: As mentined in clarificatin C-10 fr SEFP, given that T2S is a multi-currency settlement platfrm, T2S prvides cash settlement in central bank mney in any T2S settlement currency, it has t be discussed in the CSDR TF hw t define the relevant currency f the amunt impsed by a penalty. Same principle agreed fr SEFP will be applied fr LMFP. C-17: Fr the cmputatin f Late Matching Fail Penalties (LMFP) the maximum perid, that T2S will be able t cnsider the relevant price fr previus days where the instructin failed t settle due t the late Page 30 f 60

31 matching, is the perid the reference data (reference prices) remains in the system withut being purged (i.e. 3 calendar mnths). I.e. in case an instructin is matched mre than 3 calendar mnths after its ISD, nly the prices fr the business days within the last 3 calendar mnths (cunting backwards frm the business day the instructin was matched) are available fr the cmputatin f the LMFP. As a cnsequence, in case an instructin has an ISD mre than 3 calendar mnths in the past, T2S will cmpute the LMFP: Using the prices available fr the business days within the last 3 calendar mnths, and Fr the prices fr the business days befre the last 3 calendar mnths (that are nt available because these prices have already been purged), T2S will use in the cmputatin f the penalty the clsest price available (i.e. the price fr the earliest business day, which is the price fr the business day f 3 mnths ag). Page 31 f 60

32 6. Reference data This sectin utlines the reference data required fr the cmputatin f penalties, as described in the previus sectins. The sectin fcuses n (i) the definitin f the relevant data (in terms f classes f infrmatin and their attributes), (ii) the identificatin f the actrs that shall be respnsible fr prviding and maintaining these data and (iii) the identificatin f the T2S actrs that shall be respnsible fr feeding T2S with these data and keeping them up-t-date. Cnversely, at this stage it des nt predicate any specific implementatin ptin (neither in terms f functins nr frm a data structure viewpint), as this will require a detailed functinal and technical assessment f the final set f user requirements, in cnjunctin with an adequate set f vlumetric assumptins cncerning the different reference data feeds (see sectin 10 Vlumetrics and pen questins n reference data ). C-18: The Financial Instrument Type is a classificatin f securities accrding t which CSDs shall reprt, as laid ut in the CSDR Level 2. This classificatin is als relevant, tgether with the Liquidity and SME Grwth Market classificatins (see belw fr their definitin), fr the identificatin f the applicable penalty rate fr any given instructin. Fr each security, the Financial Instrument Type classificatin can be autmatically derived frm the CFI Cde f the same security, accrding t the fllwing mapping table (under review by ESMA): TABLE 1 CFI CODE FINANCIAL INSTRUMENT TYPE MAPPING TABLE CFI Cde Structure Financial Instrument Type Psitin 1 f the cde is E SHRS Psitin 1 f the cde is D and psitin 4 is T r C SOVR Psitin 1 f the cde is D, psitin 2 is nt Y and psitin 4 is neither T nr C Psitin 1 f the cde is R Psitin 1 f the cde is C and psitin 2 is E Psitin 1 f the cde is C and psitin 2 is nt E Psitin 1 f the cde is D, psitin 2 is Y and psitin 4 is neither T nr C Psitin 1 f the cde is T, psitin 2 is T and psitin 3 is N All ther CFI Cde structures DEBT SECU ETFS UCIT MMKT EMAL OTHR See als List f CSDR Items fr Clarificatin : Item 2 Types f Financial Instruments fr review and evaluatin f CSDs / reprting f settlement fails and ISO CFI10962:2015 standard cmpliance. ESMA, r anther relevant market-wide bdy, shall be respnsible fr prviding and maintaining this mapping table. T2S shuld in any case implement the mapping table, because it will need it fr the identificatin f the applicable penalty rate. This des nt exclude that the same mapping table may als be implemented n the CSD side, e.g. fr reprting purpses. Page 32 f 60

33 The implementatin f the mapping table in T2S shall nt necessarily imply string the new infrmatin as a new attribute f the Security bject (as riginally requested with CR ), in rder t avid unnecessary impact n the applicatin and n the securities reference data messages. In such case, reprting frm T2S t CSDs wuld be based n the CFI cde nly. This classificatin f securities is an attribute f the Securities Subject t Penalties (see C-21 belw), therefre the T2S actr respnsible fr prviding and maintaining this attribute and the T2S actr respnsible fr feeding T2S with this attribute and keeping it up-t-date are the same mentined belw fr C-21. C-19: The Liquidity is a binary classificatin f securities that applies fr shares, i.e. when the Financial Instrument Type f the security is SHRS and that specifies whether the security is Liquid r Illiquid. This classificatin f securities is an attribute f the Securities Subject t Penalties (see C-21 belw), therefre the T2S actr respnsible fr prviding and maintaining this attribute and the T2S actr respnsible fr feeding T2S with this attribute and keeping it up-t-date are the same mentined belw fr C-21. C-20: The SME Grwth Market is a binary classificatin f securities that applies fr any type f securities and that specifies whether the security is listed/traded in a SME Grwth Market r nt. This classificatin f securities is an attribute f the Securities Subject t Penalties (see C-21 belw), therefre the T2S actr respnsible fr prviding and maintaining this attribute and the T2S actr respnsible fr feeding T2S with this attribute and keeping it up-t-date are the same mentined belw fr C-21. See als List f CSDR Items fr Clarificatin : Item 3 Discrepancy between types f Financial Instruments fr review and evaluatin f CSDs / reprting f settlement fails and asset classes fr calculating cash penalties. C-21: The Securities Subject t Penalties is a list f securities that defines the scpe f financial instruments subject t penalties. Each item f this list is a class f infrmatin that includes the fllwing attributes: ISIN Financial Instrument Type (as defined in C-18) Liquidity (as defined in C-19) SME Grwth Market (as defined in C-20) Valid Frm (date frm which the item f the list is valid) Valid T (data until which the item f the list is valid) 9 CR608 is currently n hld and pending decisin Page 33 f 60

34 As t pint (ii) f the intrductry part f this sectin, ESMA, r a data prvider based n raw data prvided by ESMA, shall be respnsible fr prviding and maintaining the list f securities subject t penalties (this is still under discussin with ESMA). As t pint (iii) f the intrductry part f this sectin, the current default assumptin is that each CSD (acting as a SME) shall be respnsible fr feeding T2S with these data (fr the list f securities subject t penalties fr which they act as Securities Maintaining Entity) and fr keeping them up-t-date 10. See als List f CSDR Items fr Clarificatin : Item 9 Scpe f financial instruments subject t penalties. C-22: The Daily Price is a list f prices that shall be used fr the daily calculatin f penalties, as described in the previus sectins. Each item f this list is a class f infrmatin that includes the fllwing attributes: ISIN Price Date (date f validity f the price) Currency Cde Price (value f the price, i.e. the clsing price f the day) As t pint (ii) f the intrductry part f this sectin, an external prvider shall be respnsible fr prviding and maintaining the list f daily prices. As t pint (iii) f the intrductry part f this sectin, the current default assumptin is that each CSD (acting as a SME) shall be respnsible fr feeding T2S with these data (fr the prices related t securities fr which they act as Securities Maintaining Entity) and fr keeping them up-t-date 11. C-23: The Securities Penalty Rate is a list f applicable rates fr each security s asset type / liquidity. Each item f this list is a class f infrmatin that includes the fllwing attributes: Asset Type / Liquidity Daily Flat Penalty Rate (rate value) Valid Frm (date frm which the rate value applies) See als List f CSDR Items fr Clarificatin : Item 3 Discrepancy between types f Financial Instruments fr review and evaluatin f CSDs / reprting f settlement fails and asset classes fr calculating cash penalties. As t pint (ii) f the intrductry part f this sectin, the Eurpean Cmmissin will adpt a Delegated Act related t the penalty rates t be applied t failed transactins (t be reviewed n an ad hc basis). As t pint (iii) f the intrductry part f this sectin, the current wrking assumptin is that the T2S 10 An alternative ptin may be investigated at a later stage whereby an external prvider wuld feed T2S with the full list f Securities Subject t Penalties and keep them up-t-date n behalf f all the CSDs. 11 An alternative ptin may be investigated at a later stage whereby an external prvider wuld feed T2S with the full list f Daily Prices and keep them up-t-date n behalf f all the CSDs. Page 34 f 60

35 Operatr will uplad and update this infrmatin in T2S manually (it is expected that changes t the securities penalty rate wuld nly be dne n an exceptinal basis, e.g. when market cnditins are changing). CSDs shall be able t view this infrmatin, as fr ther general T2S parameters (see sectin f the UDFS fr a list f the general cnfiguratin parameters). C-24: The Cash Penalty Rate is a list f applicable rates fr each T2S settlement currency. Each item f this list is a class f infrmatin that includes the fllwing attributes: Currency Cde Daily Flat Penalty Rate (rate value, i.e. discunt rate f the currency, enfrced t zer in case f negative discunt rates) Valid Frm (date frm which the rate value applies) As t pint (ii) f the intrductry part f this sectin, ECB shall be respnsible fr prviding and maintaining the cash penalty rate fr eur, whereas the relevant CB shall be respnsible fr prviding and maintaining the cash penalty rate fr ther settlement currencies (e.g. the Danish CB fr DKK). As t pint (iii) f the intrductry part f this sectin, the current wrking assumptin is that the T2S Operatr will uplad and update this infrmatin in T2S manually (it is expected that changes t the cash penalty rate wuld nly ccur a few times per year). C-25: The Eur Freign Exchange Reference Rate is a list f daily applicable exchange rates fr each currency against the Eur. Each item f this list is a class f infrmatin that includes the fllwing attributes: Currency Cde Daily Exchange Rate (rate value, i.e. the value in Eurs crrespnding t the currency unit) Exchange Rate Date (date f validity f the exchange rate) As t pints (ii) and (iii) f the intrductry part f this sectin, ECB shall be respnsible fr feeding T2S with the daily exchange rates fr all relevant currencies against Eur and fr keeping them up-t-date. C-26: The respnsible actr shall create and maintain new penalties related reference data (e.g. a new security subject t penalties, a new daily price, etc.) in T2S befre they are used fr the calculatin f penalties fr a given date. C-27: After reference data have been used fr the calculatin f penalties fr a given date, sme updates f reference data are still pssible and they may trigger the re-calculatin f penalties fr previus dates. The fllwing table prvides the exhaustive list f all the pssible reference data updates that may be perfrmed by the relevant respnsible actr, in rder t trigger the recalculatin and update f previusly calculated penalties (see sectin 8.2- Autmatic update f existing penalties by T2S fr mre infrmatin): Page 35 f 60

36 TABLE 2 POSSIBLE REFERENCE DATA UPDATES Respnsible T2S Actr Class f Infrmatin Attribute Updatable CSD (acting as SME) Securities Subject t Penalties ISIN N Financial Instrument Type Yes CSD (acting as SME) / External Prvider Liquidity SME Grwth Market Valid Frm Valid T Daily Price ISIN N Price Date Currency Cde T2S Operatr Securities Penalty Rate Asset Type / Liquidity N Daily Flat Penalty Rate Yes Price Valid Frm T2S Operatr Cash Penalty Rate Currency Cde N Daily Flat Penalty Rate Yes ECB Eur Exchange Reference Data Valid Frm Currency Cde Daily Exchange Rate Exchange Rate Date Yes Yes N N N Yes Yes N N N Yes N C-28: In rder t ensure T2S des nt allw amending reference data (and cnsequently recalculating penalties) after the billing prcess between the CSDs and their custmer has been finalized, the abve listed updates can nly be perfrmed n reference data that were within their validity perid in the last X calendar days, with X being a pre-defined and cnfigurable T2S system parameter (in any case nt higher than the general T2S retentin perid f three mnths). Page 36 f 60

37 7. Reprting f penalties The penalties are calculated and reprted fr each business day n a grss basis. Accrding t Pint 5 f Article 16 (Cllectin f cash penalties) f the Draft Technical Standards n Settlement Discipline: On a daily basis, the CSD shall prvide t participants the details f the calculatin f the penalties fr every failed settlement instructin, indicating the accunt t which each failed settlement instructin refers. In this line, all the penalties cmputed fr a business day D will be reprted by T2S at the end f the NTS n the fllwing business day D+1 via a new T2S ad-hc functinality fr reprting f penalties. C-29: The penalties cmputed will be reprted within the Daily Penalty List, which will be designed based n the ISO methdlgy. Penalties will be als made available via U2A (i.e. via T2S GUI). C-30: The reprting f the penalties will be based n a new penalties repsitry in T2S, which will stre the infrmatin needed t ppulate and send the relevant infrmatin fr each penalty, i.e. instructins-like, the new repsitry will be used t keep the recrds and infrmatin fr each and every penalty. Like ther dynamic data, penalties will be purged after 3 calendar mnths frm the business day when they are cmputed. Penalties will be als stred in Lng Term Statistics (LTSI) and archived in Legal Archiving (LEA) and prvided n request accrding t the LEA rules. C-31: Penalties are cmputed fr, and reprted t, the relevant Accunt wner f the securities accunt f the underlying settlement instructin. N matter whether the cause f the failure was n the securities r n cash side f the transactin, the penalty will be always cmputed fr the Accunt wner f the securities accunt. Accrding t clause 15 f the CSDR: One f the mst efficient ways t address settlement fails is t require failing participants t be subject t a cmpulsry enfrcement f the riginal agreement. Accrdingly, the failing participant (party impsed with the penalty) and the nn-failing participant (party entitled t receive the penalty) are the tw cunterparts respnsible fr the settlement f the underlying transactin, and cnsequently the Accunt wners f the securities accunts. Reprting the penalties t the Accunt Owner f the securities accunt f the underlying settlement instructin (i.e. CSD Participant) is in line, nt nly with the CSDR and RTS n Settlement Discipline, but als with the ISO definitins where Fail and Claim Management are cnsidered as part f settlement / semt messages r business area 12. Semt message reprting is based n the securities side, fr example, semt.018 (reprt f pending instructins) prvide the infrmatin, i.e. unsettled instructins, based n the securities accunt f the pending instructin. Reprting t the Accunt Owner f the securities accunt implies that it is the CSD participant that shall be in charge f recnciling the penalty even in case the penalty was impsed due t a settlement failure 12 Page 37 f 60

38 n the cash side (e.g. in case f a failed RvP). Same as in the semt.018, the Accunt Owner f the securities accunt is in charge f recnciling and will have t cntact the payment bank prviding cash services if it is nt its wn DCA. The CSD participant will knw the transactin t which the penalty applies t and, as a result, will be in a psitin t recharge it t its payment bank if, after investigatin, the latter is held respnsible. Please nte that t help in this recnciliatin, the Daily Penalty List will prvide the DCA f the underlying settlement instructin. Finally, reprting t the Accunt Owner f the securities accunt helps the mnthly aggregatin f the penalties cmpared with the case where the penalties impsed due t a settlement failure n the cash side wuld be reprted t the payment bank wner f the DCA. Please nte that the CSD may nt have a relatinship with all the payment banks prviding cash services t its participants (and als in T2S, CSD participants are in the data scpe f the relevant CSD whereas the payment banks are in the data scpe f their Central Bank). C-32: In case f External CSD settlement instructins 13, the External CSD is cnsidered as the Accunt Owner f the relevant securities accunt f the underlying settlement instructin. Please refer t the Annex sectin Additinal clarificatin fr external CSD settlement fr further details. C-33: Each penalty cmputed will be reprted twice: 1. T the Accunt Owner f the securities accunt f the underlying settlement instructin (i.e. CSD Participant) t whm the penalty is impsed 14 (i.e. the failing participant). 2. T the Accunt Owner f the securities accunt f the underlying settlement instructin (i.e. CSD Participant) entitled t receive the penalty 15 (i.e. the nn-failing participant). Please nte that each penalty will have a cmmn unique identificatin assigned by T2S that can be used fr recnciliatin n bth sides. Additinally, T2S will prvide an individual unique identificatin t each cunterpart. Cnsequently, any penalty might be identified by: Cmmn identificatin f the penalty (it is a unique identificatin assigned by T2S t the penalty and it is cmmn fr bth the failing and the nn-failing participant) Unique individual identificatin f the penalty fr the failing participant. Unique individual identificatin f the penalty fr the nn-failing participant. It is wrth clarifying that nly tw f them are reprted tgether i.e. the Cmmn identificatin f the penalty and the relevant Unique individual identificatin fr the party that is addressed. 13 As defined in the annex, External CSD settlement Instructins are thse whse depsitry is an External CSD and the securities accunt is unknwn in T2S. 14 In terms f the Penalty List message this has t be understd as: Penalty t be debited 15 In terms f the Penalty List message this has t be understd as: Penalty t be credited Page 38 f 60

39 7.1 Daily Penalty List The Daily Penalty List, including the penalties f a business day D, will be generated after the end f the Night Time Settlement f D+1. C-34: In rder t avid unnecessary prcessing and strage, T2S will create the Daily Penalty List nly if the requiring T2S Actr has set up in advance the cnfiguratin (needed t receive the Daily Penalty List. The cnfiguratin f the Daily Penalty List (standard T2S ne-time cnfiguratin prcess) will be dne via the T2S GUI. C-35: The Daily Penalty List shall allw each CSD t receive, in a single message, all the relevant penalties cmputed fr the previus business day. All the relevant penalties cmputed has t be understd as all the penalties that its participants (each Accunt Owner), i.e. all parties created under the CSD data scpe, are either impsed with r entitled t receive. Cnsidering that penalties are infrmed per Accunt Owner f the securities accunt f the underlying settlement instructin (i.e. CSD Participant), in the new ISO message fr the Daily Penalty List, the Accunt Owner shall be repetitive in rder t be able t include all the infrmatin in a single message. C-36: It shall als be pssible fr CSD participants that are directly cnnected t T2S (i.e. DCPs) t receive the Daily Penalty List including all the penalties that this CSD participant (i.e. Accunt Owner defined in a given CSD) is either impsed with r entitled t receive. In case a DCP is an active participant f several CSDs, the DCP wuld have t cnfigure and receive a Daily Penalty List per CSD where it is active / defined as participant. I.e. The DCP will receive, in a different flw/message, ne Daily Penalty List fr each CSD it is active with. The relevant CSD (Accunt Servicer BIC) f each Daily Penalty List will be prvided within the message. C-37: T2S Actrs will be able t cnfigure the Daily Penalty List accrding t their wish t: receive the Daily Penalty List directly after its creatin (via A2A mde) nt t receive directly after its creatin but t query the Daily Penalty List afterwards (this latter query /pulling the list feature will be available via A2A as well as U2A). C-38: All Daily Penalty List pushed in A2A mde will be cmpressed. C-39: Fr the Daily Penalty List a message splitting at business level may ccur in rder t avid exceeding the size limitatin f 32 MB. C-40: When sending the Daily Penalty List, T2S shall flag that this message is cming frm T2S and, specifically, frm the T2S Penalty mechanism. Fr this purpse, the business applicatin header f the Daily Penalty List will infrm, additinally, the Penalty mechanism within the details f the riginatr f the message (i.e. within the Frm blck f the business applicatin header). Page 39 f 60

40 C-41: After the clarificatins prvided in this dcument regarding the cmputatin f penalties, it is cnsidered that each penalty cmputed fr a given business day and reprted t the Accunt Owner (CSD participant) and/r its CSD shall include the details listed hereafter. Fr a given business day, CSD and Accunt Owner, each penalty reprted will infrm: Penalty Details: - Individual ID f the penalty I.e.: reference assigned by T2S t the relevant side f the penalty i.e. fr the relevant accunt wner (either fr the failing r fr the nn-failing participant). - Cmmn ID f the penalty. I.e.: reference assigned by T2S t the penalty and that is cmmn fr bth the failing and the nn-failing participant. - Type f penalty. I.e.: SEFP (Settlement Fail Penalty) r LMFP (Late Match Fail Penalty) - Number f days: Value is always 1 in case f SEFP. Number f business days used fr the calculatin f the LMFP (i.e. the business days as frm the ISD until, and either including r excluding, the business day when the instructin is matched in T2S). - Penalty Rate in basis pints and qutatin date (repetitive field) - Reference Price and qutatin date (repetitive field) - Freign Exchange Rate Details, Price and qutatin date in case the reference price is nt in Eurs (repetitive field) - Amunt f the Penalty: Prvided in the relevant T2S currency and tgether with: Debit if the penalty is impsed t the CSD Participant (i.e. fr the failing participant) Credit if the CSD Participant is entitled t receive the penalty (i.e. fr the nnfailing participant) - Related settlement instructin details: T2S Actr Reference f the Settlement Instructin T2S Reference f the Settlement Instructin T2S Matching Reference Instructing Party BIC Cmmn reference stated in the underlying instructin Crprate Actin Id stated in the underlying instructin (in case f CAs n flws as therwise the penalty wuld have nt been cmputed) ISO Transactin Cde Page 40 f 60

41 ISD f the settlement instructin Securities Accunt number Securities Mvement Type (DELI r RECE) Delivering and Receiving Parties 16. I.e. cmmunicatin f the: Delivering Depsitry BIC (i.e. BIC f the delivering CSD) Delivering Party 1 BIC (i.e. BIC delivering CSD Participant) Delivering Party 2 (i.e. client f the delivering CSD participant, nly if prvided in the Settlement Instructin 8 ) Receiving Depsitry BIC (i.e. BIC f the receiving CSD) Receiving Party 1 BIC (i.e. BIC receiving CSD Participant) Receiving Party 2 (i.e. client f the receiving CSD participant, nly if prvided in the Settlement Instructin 17 ) ISIN and classificatin details including: Financial Instrument Type Liquidity SME Grwth Market Quantity f the settlement instructin (remaining quantity fr SEFP r matched quantity fr LMFP) Payment Cde (FREE r APMT). DCA number (nly in case f settlement instructins against payment) DCA s wner BIC (nly in case f settlement instructins against payment) Currency and Amunt f the settlement instructin (remaining amunt fr SEFP r matched amunt fr LMFP) Credit/Debit indicatr f the settlement instructin (debit r credit f DCA) Acceptance and Matching timestamps (as per CR600) Infrmatin abut the cut-ff relevant fr the instructin: T2S event fr the end f prcessing the relevant cut-ff cnsidered in the calculatin f the penalty Executin time f the event In case f SEFP : Reasn cde triggering the calculatin f the SEFP (i.e. the reasn cde by the time f the relevant cut-ff ). 16 Cnsidering the securities mvement type f the instructin, the Delivering and Receiving Parties allw the identificatin f the cunterpart details 17 The client f the CSD participant can be infrmed in the Settlement Instructin as a BIC r as a Prprietary Cde r Name and Address (nly when the any f the first tw are used it is used fr matching purpses) Page 41 f 60

42 C-42: The Daily Penalty List shall als include, per Accunt Owner (CSD Participant), the aggregated amunt f all the penalties reprted fr the relevant business day. I.e.: Aggregated Debit Amunt (sum f all penalties impsed t this CSD Participant that are reprted in the Daily Penalty List, i.e. sum f all penalties reprted as debit fr this Accunt Owner); Aggregated Credit Amunt (sum f all penalties reprted in the Daily Penalty List that this CSD Participant is entitle t receive, i.e. sum f all penalties reprted as credit fr this Accunt Owner); Within the CSDR TF it was clarified that even if T2S will nt prvide in the Daily Penalty List the aggregated amunt including previus days, the ISO message shall allw infrming it. I.e.: Aggregated amunt including the previus business days (sum f all penalties impsed t this CSD Participant fr the business day + the previus nes (sum f all penalties reprted as debit + sum f all penalties reprted as credit until the current business day)) 7.2 Availability - query - f penalties in U2A As already mentined, nce the penalties are cmputed, they will be reprted in the Daily Penalty List (if cnfigured) and als made available in U2A t CSDs and directly cnnected parties (DCPs). Being available in U2A means that authrized T2S Actrs will be able t query and view the penalties via the T2S GUI. Pending pint: It is still under discussin whether CSD participants will be allwed t query penalties via U2A r nt. Fr the time being, the functinality described hereafter cnsiders that T2S will make penalties available in U2A t bth, CSDs and CSD participants directly cnnected t T2S. C-43: Fr the query f penalties, the T2S default rules fr queries apply. Fr example, given that the query fr penalties is in U2A, it will nt be pssible t send penalty queries t T2S during the maintenance windw. In that case, a message will be returned indicating that T2S is currently under maintenance. Additinally, fllwing the same principle as fr the U2A balance queries during the Night Time Settlement cycles, during the prcessing f penalties (i.e. daily calculatin f penalties after the NTS) it wn t be pssible t query penalties. U2A penalty queries sent during the daily calculatin f penalties shall nt be stred in T2S fr further prcessing, and the T2S actr shuld receive a real time message that the daily calculatin f penalties is currently running. C-44: In rder t query penalties, a new privilege will be defined in T2S. I.e. Penalty Query shall be a new bject privilege whse bject is the relevant T2S Party (CSD, CSD Participant r External CSD). C-45: When prcessing queries, T2S will nly return results where the party that has submitted the query has the right t access the underlying data (the penalty). Thus, a CSD participant r an External CSD can query the fllwing penalties subject t access rights: Page 42 f 60

43 Penalties that this party is impsed with; Penalties that this party is entitle t receive. A CSD can query the fllwing penalties subject t access rights: Penalties that its participants (i.e. parties defined under its data scpe) are impsed with; Penalties that its participants are entitled t receive. The queries presented hereafter are described in terms f search criteria and the results and screen t be prvided as respnse, but d nt predicate any specific implementatin ptin in terms f the number f screens needed in T2S t prvide these search criteria. C-46: Penalty query with a reference: In rder t query penalties, the query shall require the user t specify at least ne r a cmbinatin f the fllwing parameters: Cmmn Id f the Penalty Individual ID f the penalty The T2S Actr Reference f the underlying settlement instructin (and the Instructing party) T2S Reference f the underlying settlement instructin. T2S Matching Reference Query respnse (depending n the reference used): When the Cmmn Id f the Penalty is used as parameter fr the query, T2S shall return (subject t access rights) the relevant penalty and its cmmn details fr bth the failing participant and the nn-failing participant in the Penalty cmmn details screen, where the fllwing infrmatin will be prvided: - Cmmn ID f the penalty. - Type f penalty ( SEFP r LMFP ) - Business Day when the penalty was cmputed - ISIN - Status f the penalty (i.e. Cmputed, Remved r Updated) and The descriptin (free text) f the reasn fr the remval if the status f the penalty is remved and if it was prvided by the CSD when the penalty was remved. - Eur Amunt f the Penalty Additinally: - Individual Ids f the penalty (ne fr the failing and anther fr the nn-failing participant) and fr each f them: CSD Page 43 f 60

44 Accunt Owner - Related settlement instructin main references: T2S Actr Reference f the Settlement Instructin T2S Reference f the Settlement Instructin T2S Matching Reference Subject t access rights, it shall be pssible t retrieve all the details f each individual penalty by accessing the Penalty details screen (described belw) directly frm the Penalty cmmn details screen. When the Individual Id f the Penalty is used as parameter fr the query, T2S shall return (subject t access rights) the relevant penalty (fr the failing OR the nn-failing participant) and its details in the Penalty details screen. The Penalty details screen will prvide the same infrmatin prvided in the Daily Penalty List (see sectin 7.1). Additinally: Subject t access rights, it shall be pssible t retrieve all the details f the related settlement instructin (i.e. access t the Settlement Instructin details screen ) frm the penalty details screen When either the T2S Actr Reference r the T2S Reference f the underlying Settlement Instructin is used as parameter fr the query, T2S shall return (subject t access rights) all the penalties assciated t this Settlement Instructin. In case T2S returns a single penalty, the relevant penalty and its details will be prvided (i.e. the Penalty details screen already described abve). In case there is mre than ne penalty returned, the list f penalties will be prvided (Penalty List screen). Within this screen, T2S shall prvide fr each penalty returned: - Cmmn ID f the penalty - Individual ID f the penalty - Type f penalty ( SEFP r LMFP ) - Business Day when the penalty was cmputed - ISIN - CSD - Accunt Owner - Status f the penalty (i.e. Cmputed, Remved r Updated) - Eur Amunt f the Penalty and als the directin (Debit, Credit r TBD) - Related settlement instructin main references: Page 44 f 60

45 T2S Actr Reference f the Settlement Instructin T2S Reference f the Settlement Instructin T2S Matching Reference Frm this screen (Penalty List screen), the T2S Actrs shall be allwed t query the details f each single penalty reprted in the list (i.e. t g t the Penalty details screen). When the T2S Matching Reference is used as parameter fr the query, T2S shall return (subject t access rights) all the penalties assciated t the tw matched Settlement Instructins. Same as in previus case: In case T2S returns a single penalty, the relevant penalty and its details will be prvided (i.e. the Penalty details screen already described abve). In case there is mre than ne penalty returned, the list f penalties will be prvided (Penalty List screen already described abve). C-47: Penalty query by ISIN Cde: T2S shall allw querying penalties assciated t a given security and as f a specific date (i.e. cmputed n a given business day). I.e. query parameters: Business day Security (ISIN cde) CSD Accunt Owner This query shall require the ISIN and the date as minimum search criteria. In case the CSD is nt specified, T2S will autmatically cnsider the CSD assciated t the party f the user perfrming the query. When specifying the Business Day, it shat be allwed t specify a range / perid. I.e. Frm and T. Limitatins t the number f days will be prvided in the in a secnd step at technical grup level depending n vlumetric assumptins and perfrmance impacts. Query respnse: The query shall return (subject t access rights) the relevant penalty /penalties. In case T2S returns a single penalty, the penalty and its details shall be prvided in the Penalty details screen (details described abve). In case there is mre than ne penalty returned, T2S will prvide the list f penalties in the Penalty List screen (as described abve). C-48: Penalty query by CSD Participant: T2S shall allw querying penalties f a T2S Party r its respnsible CSD as f a specific date (i.e. cmputed n a given business day). I.e. query parameters: Business day CSD Page 45 f 60

46 Accunt Owner This query shall require: i) either the CSD r the Accunt Owner (CSD participant) as well as; ii) the date as minimum search criteria. In case the CSD is nt specified and nly the Accunt Owner is prvided, T2S will autmatically cnsider the CSD assciated t the party f the user perfrming the query. When the Accunt Owner is prvided in the query, it shat be allwed t specify a range / perid fr the Business day. I.e. Frm and T. Limitatins t the number f days will be prvided in the in a secnd step at technical grup level depending n vlumetric assumptins and perfrmance impacts. Query respnse: In the respnse t this query (subject t access rights), T2S shall prvide nt nly the list f penalties, but als, per Accunt Owner (CSD Participant): the aggregated amunt f all the penalties reprted fr the relevant business day. I.e.: Aggregated Debit Amunt (sum f all penalties impsed t this CSD Participant i.e. sum f all debit penalties fr this Accunt Owner); Aggregated Credit Amunt (sum f all penalties that this CSD Participant is entitle t receive, i.e. sum f all credit penalties fr this Accunt Owner); C-49: Query revisins f a Penalty: T2S shall allw querying the revisin histry f a penalty. As it is described in fllwing sectin 8- Mdificatin f existing penalties, existing penalties can be mdified accrding t the rules defined in that sectin. As a cnsequence, T2S will allw t query the revisins (histry) f a given penalty. This query will be accessible frm the Penalty details screen cntaining the details f the penalty fr which the T2S Actr wishes t see the histry. The results will be prvided in the Penalty revisins screen. C-50: T2S shall prvide the pssibility t exprt the result f the queries frm the current screen int a csv-file. If exprting a list (Penalty List screen), the related search criteria are exprted as well whereas detailed data are nly exprted if the respective list and the details screen are cvered by the same query. Otherwise just the list entry will be exprted. Page 46 f 60

47 8. Mdificatin f existing penalties 8.1 Remval f existing penalties by a CSD Accrding t ESMA s Technical Advice under the CSD Regulatin (pint 57 in page 17): in the limited circumstance where settlement cannt be perfrmed fr reasns that are independent frm any f the participants r the CSD, the penalty wuld nt be charged. In rder t achieve that exceptin, it shuld be pssible t reduce the amunt f the penalty t zer. Examples f these ccurrences may be a suspensin f the instrument frm trading and settlement due t recnciliatin issues, specific crprate actins which imply the instrument n lnger exists, r technical impssibilities at the CSD level. In rder t prevent abuse, these exemptins shuld be apprved by the Cmpetent Authrity, either thrugh apprval f the CSD prcedures detailing in which specific cases penalties d nt apply, r n a case by case basis. As a cnsequence, T2S will prvide the CSDs the functinality t remve an already cmputed and reprted penalty (i.e. t reduce the amunt f the penalty t zer). C-51: Remval f existing penalties can be requested in U2A (via T2S GUI). Cnsidering that the remval f penalties shall ccur nly in limited circumstances, T2S will prvide this functinality via U2A. After discussins in the CSDR TF, it was agreed that als an A2A cmmunicatin will be needed. Nevertheless, n ISO message was deemed necessary and a flat file cmmunicatin can be freseen (t be decided in a secnd step at technical grup level). C-52: CSDs will be able t request the remval f a penalty nly when the penalty was impsed t ne f its participants. Fr this purpse, the T2S peratr will grant by default an ad-hc privilege t the CSDs (e.g. Privilege: Remve penalties ). The CSDs will then have t grant this privilege t their relevant U2A r A2A users that will manage the remval f penalties (i.e. T2S will require this privilege in rder t perfrm the remval f a penalty). The privilege will nt be available fr CSD participants (i.e. CSD Participants cannt be granted with this privilege). C-53: In rder t request the remval f a penalty in U2A, CSDs may query in U2A the penalty as described in previus sectin 7.2. The request fr remval (related buttn) will be dne frm the Penalty details screen. C-54: In rder t ensure T2S des nt allw mdifying (remving) a penalty after the billing prcess between the CSDs and their custmer has been finalized, CSDs will be able t request the remval f a penalty when the penalty was cmputed within the last X calendar days. With X being a pre-defined and cnfigurable T2S system parameter (in any case nt higher than the general T2S retentin perid f three mnths). This limit is based n the assumptin that the crrectins shall be made befre the payment f the penalty is dne. Additinally, the payment may ccur in a maximum perid f 2 calendar mnths after the cmputatin f the penalty accrding t the fllwing: Page 47 f 60

48 Accrding t Pint 5 f Article 16 (Cllectin f cash penalties) f the Draft Technical Standards n Settlement Discipline: A CSD shall charge and cllect at least mnthly the net amunt f cash penalties t be paid by each participant. On a daily basis, the CSD shall prvide t participants the details f the calculatin f the penalties fr every failed settlement instructin, indicating the accunt t which each failed settlement instructin refers. Accrding t Pint 1 f Article 17 (Redistributin f cash penalties) f the Draft Technical Standards n Settlement Discipline: The CSD shall redistribute t the receiving participants that suffered frm a settlement fail the net amunt f cash penalties that it has cllected in accrdance with Article 16, at least mnthly. Hence, it is predictable that the X number f days will imply a perid that is: i) nt nly lwer than the general T2S retentin perid f 3 three mnths but als ii) lwer than 2 calendar mnths. C-55: When the remval f a penalty is requested, the CSD will have the pssibility t include a descriptin (free text) f the reasn why the penalty is remved i.e. set t zer. C-56: The remval f a given penalty des nt have any impact n pssible future penalties that culd be cmputed fr the same underlying settlement instructin. C-57: Once a penalty has been remved (i.e. amunt has been set t zer), the penalty will be stred in T2S as status Remved tgether with the prvided text descriptin (if any). Frm the pint in time a penalty is remved, it will be shwn as remved in the GUI. C-58: T2S will als reprt the remval f a penalty at the time f the creatin f the fllwing Daily Penalty List. Fr this purpse, T2S will generate a List f Mdified Penalties tgether with the fllwing Daily Penalty List (same time but different list). I.e. On the fllwing business day after the remval f the penalty, T2S will generate tw lists: The nrmal Daily Penalty List with the penalties cmputed fr the previus day; and The List f Mdified Penalties including the penalties that have been remved since the generatin f the lists f the previus business day. Within the List f Mdified Penalties, the penalties that have been set t zer will be reprted with: - New amunt equal t zer, - Status Remved ; and - The descriptin (free text) f the reasn fr the remval if it was prvided by the CSD when the penalty was remved. The List f Mdified Penalties will be generated nly if at least ne penalty has been mdified since the generatin f the lists f the previus business day. Otherwise, the List f Mdified Penalties will nt be generated. Within the List f Mdified Penalties T2S will prvide the new aggregated amunt per Accunt Owner (CSD Participant) fr the relevant business day fr which a penalty has been remved. Page 48 f 60

49 Please nte that in case penalties related t different business days were remved, T2S will generate a List f Mdified Penalties per business day. Fr example: During business day , tw penalties are remved by a CSD (e.g. Penalty 1 cmputed fr and Penalty 2 cmputed fr ). After the Night Time Settlement f , T2S will generate tw Lists f Mdified Penalties: One infrming abut the mdified penalties fr (i.e. remval f Penalty 1) and, anther, infrming abut the mdified penalties fr (i.e. remval f Penalty 2). Fr mre infrmatin abut the List f Mdified Penalties please refer t sectin 8.3- List f Mdified Penalties. C-59: T cater fr mistakes in the remval f penalties, T2S shall allw re-including a penalty that has been previusly remved. The penalty will be flagged as re-included and T2S will calculate again the amunt (it may have changed due t updates in the reference data while it was remved) at the same time as the next calculatin f new penalties. T2S will reprt the re-inclusin (Penalty with status reincluded ) in the fllwing List f Mdified Penalties. The re-inclusin can be requested in U2A (via T2S GUI). Similar t the remval, an A2A cmmunicatin will be als needed fr re-inclusins but n ISO message is deemed necessary and a flat file cmmunicatin can be freseen (t be decided in a secnd step at technical grup level). CSDs will be able t request the re-inclusin f a previusly remved penalty when the penalty was cmputed within the last X calendar days. With X being a pre-defined and cnfigurable T2S system parameter (in any case nt higher than the general T2S retentin perid f three mnths). 8.2 Autmatic update f existing penalties by T2S C-60: Upn changes f values f the related reference data, T2S shall recalculate existing penalties and update them in case its details have changed, fr example, if there is a new amunt due/entitled t receive. The related reference data triggering the recalculatin and pssible update f a penalty are: Changes in the reference price f a given ISIN fr a given business day that was used fr the calculatin f the penalty. Changes in the values f the attributes f the Securities Subject t Penalties bject that was used in the calculatin f the penalty. I.e. fr a given ISIN, the changes f the value f the Financial Instrument Type, the Liquidity r the SME Grwth Market f its Securities Subject t Penalties bject that was valid at the time f calculatin f the penalty. Page 49 f 60

50 Changes in the values f the Daily Flat Penalty Rate that was used in the calculatin f the penalty (either the Securities Penalty Rate r the Cash Penalty Rate). C-61: Fr efficiency reasns, the recalculatins f existing penalties will be dne nce a day (same time as calculatin f new penalties, in a mment in time with lw platfrm wrklad i.e. after NTS) fr all changes in the reference data ccurred alng the previus day (mre precisely since the previus recalculatin prcess /generatin f penalty lists was perfrmed). C-62: T2S will nly update thse penalties that were cmputed within the last X calendar days. This will be ensured by nt allwing changes f reference data that are related t dates that are mre than X calendar days in the past (see sectin 6- Reference data). As already mentined, the reasning fr this limit is that penalties shall nt be mdified after the billing prcess between the CSDs and their custmer has been finalized. C-63: T2S will nly update thse penalties that have nt been remved by the CSD (i.e. penalties with status Remved will nt be updated). C-64: Once a penalty has been updated i.e. new reference data has been applied mdifying the existing penalty, the penalty will be stred in T2S as Updated. In case a penalty is updated, T2S will generate a List f Mdified Penalties. This List f Mdified Penalties will be generated tgether with the generatin f the fllwing Daily Penalty List. I.e. On the fllwing business day, after the recalculatin f a penalty, T2S will generate tw lists: The nrmal Daily Penalty List with the penalties cmputed fr the previus day; and The List f Mdified Penalties including the updated penalties since the generatin f the lists f the previus business day. Within the List f Mdified Penalties, the penalties that have been updated will be reprted with: - New updated amunt and values; and - Status Updated The List f Mdified Penalties will be generated nly if at least ne penalty has been mdified since the generatin f the lists f the previus business day. Otherwise, the List f Mdified Penalties will nt be generated. Within the List f Mdified Penalties T2S will prvide the new aggregated amunt per Accunt Owner (CSD Participant) fr the relevant business day fr which a penalty has been updated. Please nte that in case penalties related t different business days are updated, T2S will generate a List f Mdified Penalties per business day. Fr example: During business day , tw penalties are updated by T2S (e.g. Penalty 1 cmputed fr is updated due t a change in the price, and als Penalty 2 cmputed fr is updated Page 50 f 60

51 due t a change in the price). After the Night Time Settlement f , T2S will generate tw Lists f Mdified Penalties: One infrming abut the mdified penalties fr (i.e. update f Penalty 1) and, anther, infrming abut the mdified penalties fr (i.e. update f Penalty 2). Fr mre infrmatin abut the List f Mdified Penalties please refer t fllwing sectin 8.3 belw. 8.3 List f Mdified Penalties The List f Mdified Penalties shall be generated by T2S when there has been a mdificatin (remval, re-inclusin r update) in a penalty since the generatin f the previus business day lists. Otherwise, the List f Mdified Penalties will nt be generated. In case that there has been mdificatins f mre than ne penalty, and these penalties were cmputed fr different business days, T2S will generate a List f Mdified Penalties per business day as described in sectins 8.1 and 8.2. The List f Mdified Penalties shall behave in the same way than the Daily Penalty List in terms f pssible recipients, cnfiguratin and infrmatin prvided. As a cnsequence: C-65: In rder t avid unnecessary prcessing and strage, T2S will create the List f Mdified Penalties nly if the requiring T2S Actr has set up in advance the cnfiguratin needed t receive the List. The cnfiguratin f the List f Mdified Penalties (standard T2S ne-time cnfiguratin prcess) will be dne via the T2S GUI. C-66: It shall be pssible fr bth CSDs and DCPs t receive the List f Mdified Penalties. The penalties will be reprted per Accunt wner. DCPs will need t cnfigure ne List f Mdified Penalties per CSD they are active with. C-67: T2S Actrs will be able t cnfigure the List f Mdified Penalties accrding t their wish t: receive the List f Mdified Penalties directly after its creatin (via A2A mde) nt t receive directly after its creatin but t query the List f Mdified Penalties afterwards (this query /pulling the reprt will be available in A2A as well as in U2A). C-68: All the Lists f Mdified Penalties pushed in A2A mde which exceed the minimum cmpressin size f 2 kb will be cmpressed. C-69: Fr the the List f Mdified Penalties a message splitting at business level may ccur in rder t avid exceeding the size limitatin f 32 MB. C-70: When sending the List f Mdified Penalties, T2S shall flag that this message is cming frm T2S and, specifically, frm the T2S Penalty mechanism. Fr this purpse, the business applicatin header f Page 51 f 60

52 the List f Mdified Penalties will infrm the Penalty mechanism within the details f the riginatr f the message (i.e. within the Frm blck f the business applicatin header). C-71: Fr each penalty reprted (i.e. each penalty that has been mdified) in the List f Mdified Penalties, the same fields and structure per Accunt Owner as in the Daily Penalty List will be prvided. The penalty will be reprted with status Updated and the new data after the mdificatin will be infrmed in the relevant field. Fr example, the new amunt cmputed fr the penalty will be infrmed in the field amunt. The List f Mdified Penalties shall als include, per Accunt Owner (CSD Participant), the new aggregated amunt(s) fr the business day (i.e. cnsidering the new data). Page 52 f 60

53 9. Vlumetrics and pen questins n reference data Id Q- 01 Q- 02 Q- 03 Q- 04 Q- 05 Q- 06 Questin Hw many items f the list f Securities Subject t Penalties will be created, updated and deleted per day and with which distributin/peaks? Will there be any initial lading f the list f Securities Subject t Penalties fr securities that already exist in T2S? Yes. Hw many active/valid elements will cntain the list f Securities Subject t Penalties (in terms f min-max range)? Hw many items f the list f Daily Prices will be created, updated and deleted per day and with which distributin/peaks? Hw many active/valid elements the list f Daily Prices will cntain (in terms f minmax range)? The vlumes f penalties need t be estimated: - Number f SEFP per business day- This ne can be related t the expected max rati f 5% f failed settlement instructins (accrding t current T2S vlumetric assumptins). Please nte that the number f reprted penalties will be twice this number as the penalties are reprted t the party the penalty is impsed with as well as t the party entitled t receive the penalty. - Number f LMFP per business day- Currently n data is available fr the whle T2S cmmunity abut the number f instructins sent t late. It shall be estimated the number f instructins sent t late as well as the average number f days that the instructins are sent late. Page 53 f 60

54 10. Annex 10.1 Additinal clarificatin fr external CSD settlement See als List f CSDR Items fr Clarificatin : Item 13 Crss-brder settlement penalty recnciliatin. In the cntext f T2S, external CSD settlement can be defined as settlement which invlves ne CSD nt participating in T2S. In case penalties are impsed in the cntext f T2S external CSD settlement because the instructin and its ISIN are in scpe, the prcess will invlve a chain f transactins and therefre further clarificatin was deemed necessary. An External CSD (CSD nt participating in T2S) is defined as a specific party type External CSD by a CSD participating in T2S (with which it has established a legal relatinship utside T2S). An "External CSD" T2S party is cnsidered as a CSD Participant f the CSD in T2S. In this cntext, External CSD settlement instructins are thse whse depsitry is an External CSD, i.e.: Delivering settlement instructins whse Delivering Depsitry is an External CSD Receiving settlement instructins whse Receiving Depsitry is an External CSD These settlement instructins may be sent directly by the External CSD (if DCP), r by the CSD in T2S n behalf n the External CSD, r by anther authrised party. The abve clarificatin, regarding the treatment in T2S f "External CSD" parties as CSD Participant f the CSD in T2S, is very relevant fr the penalty mechanism because it implies that: in external CSD settlements fr which a penalty is cmputed, T2S will cnsider the External CSD as either the failing participant r the participant entitled t receive the penalty. In ther wrds, in External CSD settlement instructins, the External CSD acts as Accunt wner. This is in line with the fact that the participants f an External CSD are nt knwn by T2S (i.e. they are nt T2S parties). Fur examples (tw fr each f the tw mst representative scenaris fr external CSD settlement) are prvided hereafter in rder t illustrate hw the penalty mechanism will wrk in external CSD settlement: First scenari: Issuer CSD in T2S (CSD I) and investr CSD (CSD A) utside and defined as External CSD by CSD I: Example 1: Delivery frm Participant I (at issuer CSD I) t Participant A (at investr External CSDA) Example 2: Delivery frm Participant A (at investr External CSDA) t Participant I (at issuer CSDI) Secnd scenari: Investr CSD (CSD A) in T2S and the issuer CSD (CSD I) utside and defined as External CSD by CSD A: Example 1: Delivery frm Participant I (at External CSDI issuer f the security) t Participant A (at investr CSDA) Page 54 f 60

55 Example 2: Delivery frm Participant A (at investr CSDA) t Participant I (at External CSDI issuer f the security) First scenari with Issuer CSD in T2S (CSD I) and investr CSD (CSD A) utside and defined as External CSD by CSD I Example 1: Delivery frm Participant I (at Issuer CSD I) t Participant A (at investr External CSDA) The business transactin is cmpsed by the matched settlement instructins: SI-I and SI-A. - SI-I is a delivering settlement instructin f a CSD in T2S (CSDI) - SI-A is a receiving External CSD settlement instructin (CSDA) - Additinally, T2S will generate a settlement instructin (T2SgSI) fr realignment purpses within the CSDI. In this scenari, if SI-I is subject t a penalty in T2S (Participant I is the failing participant): 1. Details f the penalty will be prvided by T2S in the Daily Penalty List f issuer CSD I: - Penalty impsed t Participant I; and - External CSD A is entitled t receive the penalty. The CSD I shall prvide the External CSD A with the details f the penalty Nte that if External CSD A acts as DCP, then the External CSD A culd receive the Daily Penalty List directly frm T2S. 2. The External CSD A shall recncile the details f the penalty prvided (the ne calculated by T2S) with the penalty calculated in its wn system (theretically fr the same amunt) and distribute the infrmatin t its participant, hence prviding Participant A with the infrmatin abut the penalty it is entitled t receive. Page 55 f 60

56 First scenari with Issuer CSD in T2S (CSD I) and investr CSD (CSD A) utside and defined as External CSD by CSD I Example 2: Delivery frm Participant A (at investr External CSD A) t Participant I (at Issuer CSDI) The business transactin is cmpsed by the matched settlement instructins: SI-I and SI-A. - SI-A is a delivering External CSD settlement instructin (CSDA) - SI-I is a receiving settlement instructin f a CSD in T2S (CSDI) - Additinally, T2S will generate a settlement instructin (T2SgSI) fr realignment purpses within the CSDI. In this scenari, if SI-A is subject t a penalty in T2S ( External CSD A is the failing participant): 1. Details f the penalty will be prvided by T2S in the Daily Penalty List f issuer CSD I: - Penalty impsed t External CSD A ; and - Participant I is entitled t receive the penalty. The CSD I shall prvide the External CSD A with the details f the penalty Nte that if External CSD A acts as DCP, then the External CSD A culd receive the Daily Penalty List directly frm T2S. 2. The External CSD A shall recncile the details f the penalty prvided (the ne calculated by T2S) with the penalty calculated in its wn system (theretically fr the same amunt) and distribute the infrmatin t its participant, hence prviding Participant A with the infrmatin abut the penalty it is impsed with. Page 56 f 60

57 Secnd scenari with investr CSD (CSD A) in T2S and the issuer CSD (CSD I) utside and defined as External CSD by CSD A Example 1: Delivery frm Participant I (at External CSDI issuer f the security) t Participant A (at investr CSDA) The business transactin is cmpsed by the tw matched settlement instructins: SI-I and SI-A. - SI-I is a delivering External CSD settlement instructin (CSDI) 18 - SI-A is a receiving settlement instructin f a CSD in T2S (CSDA) - Additinally, T2S will generate a settlement instructin (T2SgSI) fr realignment purpses within the CSDA. In this scenari, if SI-I is subject t a penalty in T2S (Participant A is the failing participant): 1. Details f the penalty will be prvided by T2S in the Daily Penalty List f investr CSD A: - Penalty impsed t External CSD I ; and - Participant A is entitle t receive the penalty The CSD A shall prvide the External CSD I with the details f the penalty Nte that if External CSD I acts as DCP, then the External CSD I culd receive the Daily Penalty List directly frm T2S. 2. The External CSD I shall recncile the details f the penalty prvided (the ne calculated by T2S) with the penalty calculated in its wn system (theretically fr the same amunt) and distribute the infrmatin t its participant, hence prviding Participant I with the infrmatin abut the penalty it is impsed with. 18 Please nte that fllwing the settlement chain, issuers CSDs d nt instruct investr CSDs. This instructin (SI-I) is generated by the investr CSD fr matching purpses in T2S (it is generated either upn the receipt f an allegement frm CSD I r nce its participant A has instructed). Page 57 f 60