New Hold/Release mechanism for securities settlement instructions. 23 November 2009

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1 Announcement Connectivity A May 2009 New Hold/Release mechanism for securities settlement instructions Key features Note: This revised version supersedes the versions published on 29 May 2009 and 8 June 2009 and highlights corrections to When the hold flag cannot be set and Error messages - MT548. Effective 23 November 2009 as part of the Clearstream Banking Luxembourg (CBL) November Release and according to the recommendations formulated by the Securities Markets Practice Group (SMPG), a Hold flag for securities settlement instructions will be available in CBL s securities settlement processing. A party will be able, on or after settlement date, to temporarily hold back a securities transaction from settlement, even if cash or securities provision is available, and to release it only when settlement is desired. The Hold/Release functionality will be implemented in full compliance with ISO15022 messaging standards. In this context, the ISO message type MT530 will be supported by CBL in the Creation via SWIFT and CreationDirect input channels. Note: The Hold flag can be set both on new instructions and on instructions pending in CBL. Customer benefits Impacted media Customers will be able unilaterally to prevent settlement by setting a Hold flag on an instruction such that it will participate in the matching process but will not be presented for settlement. Customers will be able to release held instructions to settlement processing at their own discretion; for example, when cash or securities become available for provisioning. This is particularly relevant when omnibus accounts are used with no segregation of cash or securities positions per underlying customer. Without having to re-instruct, the customer will be able to release a held instruction by resetting its Hold flag. CreationOnline; Creation via SWIFT; CreationDirect via VPN; CreationDirect via LiMa; CreationDirect via Internet; CreationDirect via FileAct. Impact on other functionality The implementation of the Hold/Release mechanism with the new Release will impact the following functionality: Instructions with an Immediate Release Flag; Temporary, for matching only instructions; Anticipated Net Balance and Forward Available Balance; Priorities; Automatic cancellation of pending linked instructions. 28 October 2009 A09076-rev (1)

2 Instructions with an Immediate Release flag If the instruction to be put on hold carries an Immediate Release flag, the Hold flag will take precedence over the Immediate release flag and the instruction will not be released for settlement processing until the customer releases the instruction. Temporary, for matching only instructions The use of message function PREA for entering temporary, for matching only securities instructions (4T, 5T, 4TCE, 5TCE) will be modified such that the existing Function of the Message code for such instruction types (:23G:PREA) will have to be complemented by the Type of Settlement Indicator :22F::SETR/CEDE/MTCH. The following content will be accepted for creating temporary, for matching only instructions: :23G: PREA :22F::SETR/CEDE/MTCH :23G: NEWM :22F::SETR/CEDE/MTCH If :23G:PREA is used without the complementary :22F::SETR/CEDE/MTCH, a normal settlement instruction will be created with the Hold flag set. Anticipated Net Balance and Forward Available Balance The Anticipated Net Balance and the Forward Available Balance, in MT940 Money Suspense, MT942 Interim Money Suspense and MT950 Cash Balance and MT950 Money Statement reports, have been adapted to recognise the new Hold flag setting. The cash countervalues of held instructions will be included in both anticipated and forward cash balances, provided that they qualify for inclusion in the calculation according to existing rules. The MT950 reports, which are available in PDF format via CreationDirect and CreationOnline, will be able to include a new Pending - On hold Securities balance, representing the net cash value of held instructions that would immediately qualify for settlement when released by the parties who sent the original instructions. Note: Both types of reporting allow for held instructions when calculating the Anticipated Cash Balance. Priorities Customers can assign a priority to an instruction that is on hold. However, such priority setting will not affect the instruction s settlement sequence as long as the instruction remains on hold; it will take effect only when the customer releases the instruction for settlement. Automatic cancellation of pending linked instructions Transactions that are on hold for 60 calendar days after their requested settlement date and are not reconfirmed by the customer are automatically cancelled in accordance with the standard rules. When the Hold/Release flag cannot be set The Hold/Release mechanism cannot be used in certain circumstances: The instruction to be put on hold must not be locked-in for settlement or provisioned and released to the domestic market. Instructions that had been transmitted to a settlement location external to CBL cannot be put on hold in CBL, even if the actual domestic settlement has not yet taken place. The Hold flag can be applied only to free of and against payment receipt and delivery securities settlement instructions. Cash and for matching only instructions cannot be put on hold. 29 May 2009 A09076 (2)

3 Instructions that have reached the end of their life cycle (for example, they have settled or been cancelled or rejected) cannot be put on hold. Instructions that form part of a domestic Back to Back or REPO transaction pool cannot be put on hold, regardless of whether the pool status is Complete or Incomplete. If a newly input instruction contains both Pool and Hold information, the instruction will be rejected. A modification request to add a Hold flag to such an instruction will be rejected and the customer will be informed via MT548 Settlement Status and Processing Advice with the reason indicated as :25D::TPRC//REJT :24B::REJT//NARR - Hold not possible on target instruction. Note: The non-contingent instruction that forms part of a Transaction Linking Pool can be put on hold. Instructing via SWIFT and CreationDirect MT540-3 securities settlement instructions Customers will be able to include the Hold flag on all new and pending MT54x messages by using the function code PREA or NEWM with a narrative /HOLD/ or /RELEASE/, as appropriate. Messages MT54x with function code PREA For putting on hold a new MT54x securities instruction, the use of :23:PREA will cause the instruction is put on hold immediately it is recorded in CBL. For putting on hold a pending MT54x securities instruction with a modification request, the use of :23:PREA will have to be complemented by the inclusion of: :20C::PREV//16x containing the reference number of the instruction to be modified. Messages MT54x with function code NEWM To put on hold a new MT54x securities instruction, the use of :23:NEWM will have to be complemented by the inclusion of: :70E::SPRO///HOLD/ as settlement processing narrative. To put on hold a pending MT54x securities instruction with the modification request, the use of :23:NEWM will have to be complemented by the inclusion of: :70E::SPRO///HOLD/ as settlement processing narrative; and :20C::PREV//16x containing the reference number of the instruction to be modified. To release a pending, on hold MT54x securities instruction with the modification request, the use of :23:NEWM will have to be complemented by the inclusion of: :70E::SPRO///RELEASE/ as settlement processing narrative; and :20C::PREV//16x containing the reference number of the instruction to be modified. Note: If :20C::PREV//16x is not provided where appropriate, the modification instruction will be rejected. MT54x with :23G:PREA with :70E::SPRO///RELEASE/ is not possible and will be rejected. MT530 Transaction Processing Command To put on hold or release instructions that are pending in CBL, customers will be able to use the new dedicated message type MT530 as follows: A pending instruction is put on hold when the customer enters an MT530 with :22F::SETT//NPRE An instruction on hold is released when the customers enters an MT530 with :22F::SETT//YPRE In both cases, field :20C::PREV//16x must contain the reference of the instruction to be held/released. See Announcement A09074, dated 29 May 2009, for details of the new MT530 Transaction Processing Command). 28 October 2009 A09076-rev (3)

4 Reporting via CreationConnect The implementation of the Hold/Release mechanism will have no impact on the reporting of instructions that have not yet reached their respective provisioning period: their matching status will be reported without any indication of potential Hold/Release status information. The same applies in the case of modification requests sent to release held instructions that have not yet reached their provisioning period. When the provisioning period for a held instruction is reached, customer reporting will be adapted to the appropriate Hold/Release scenario as follows: Hold/Release scenario Emitter instruction on hold - Counterparty instruction released Emitter instruction on hold - Counterparty instruction on hold Emitter instruction released - Counterparty instruction on hold Emitter instruction on hold - No instruction from counterparty Allegement - Counterparty instruction on hold Reported Status/Reason CreationDirect, SWIFT CreationOnline :25D::SETT//PENx :24B::PENx//PREA :25D::SETT//PENx :24B::PENx//BOTH :25D::SETR//PENx :24B::PENx//PRCY Reporting of matching status: Unmatched Reporting of allegement Pending/Failing Settlement Your instruction on hold Pending/Failing Settlement Both instructions on hold Pending/Failing Settlement C party instruction on hold Reporting of matching status: Unmatched Reporting of allegement The new held instruction statuses will be included in the versions of reports as follows: Report ISO15022 format PDF format MT537 Statement of Pending Transactions MT548 Settlement Status and Processing Advice MT94x (Interim) Money Suspense Report Error Messages - MT548 Settlement Status and Processing Advice The MT548 Settlement Status and Processing Advice is used to report the rejection and the status of a previously received instruction or cancellation request. The following Status/Reason codes will be used for reporting unsuccessful Hold/Release operations: Reason for rejection Status (Narrative) Reason code Target instruction for Hold' or 'Release' is not found :25D::TPRC//REJT :24B::REJT//NRGN Several possible target instructions for 'Hold' or :25D::TPRC//REJT :24B::REJT//NRGN 'Release' are found The target instruction has already the requested :25D::TPRC//REJT :24B::REJT//NARR status (:70D::REAS//Invalid Replacement instruction) The underlying security of the instruction that is to be changed has multiple places of safekeeping and is to settle in a remote market. a The target instruction has already settled or was cancelled The target instruction is for domestic settlement and has already been sent to the domestic market :25D::TPRC//REJT :25D::TPRC//REJT a. The update instruction (MT530) does not have the necessary information to identify the target instruction. To avoid problems when updating a pending instruction, customers should use either the Common Code in the MT530 or a Place of Safekeeping in the MT54x or in CreationOnline. :24B::REJT//NRGN :24B::REJT//NRGN :25D::TPRC//REJT :24B::REJT//NARR (:70D::REAS//Target not found) The target instruction carries a pool reference :25D::TPRC//REJT :24B::REJT//NARR (:70D::REAS//Hold not possible on target instruction) 28 October 2009 A09076-rev (4)

5 MT94x (Interim) Money Suspense reports Held instructions that have reached their respective provisioning or settlement period will be included with their relevant statuses in the detailed instruction lists of the MT940 and MT942 reports. The cash countervalues of these instructions will be included in the cash forecast figures notified in fields :64: Anticipated Net Balance and :65: Forward Available Balance of the MT540. This information will be available in the machine-readable and PDF versions of these reports. MT950 Cash Balance / Money Statement The machine-readable format of MT950 reports will remain unchanged. In the PDF versions, however, the consolidated cash information on anticipated net balances for held instructions will be provided in a new Pending - On hold Securities subbalance. This new subbalance will indicate the net cash value of held against payment receipt and delivery instructions with an expected settlement date equal to the report date. The value shown in this new subbalance will not be included in the value shown for the existing Pending - Securities subbalance but it will be included in the anticipated net balance. CreationOnline Instructing via CreationOnline In the Securities Pre Release screen, a new subtab will be available when creating a new instruction that enables users to select the value Hold or Release. If the user makes no selection when creating a new instruction, the value will default to Release. To enter a modification request for a pending instruction, the user will first have to retrieve the instruction in Securities Post Release and then change the setting for the instruction from Hold to Release or from Release to Hold, as required. Queries via CreationOnline In the Securities Post Release screen, the instruction query functionality will include specific Hold/ Release search criteria. On the Advanced Query page, the Reason Code pick list is adapted a follows: BOTH - Both instructions on hold - The emitter of the instruction and the counterparty have both entered held instructions. PREA - Your instruction is on hold - The emitter has entered a held instruction and the counterparty has entered a released instruction. PRCY - Counterparty instructed pre-advice - The emitter has entered a released instruction and the counterparty s instruction is on hold. The user will be able to refine a query on a specific held or released instruction by combining it with the relevant Activity Status and similar search criteria. Cash Balances screen By selecting the Anticipated Net Balance balance type, the user will be able to retrieve the net cash value of all instructions that fail settlement, including held instructions that have reached their respective provisioning or settlement period. By selecting the new On Hold Net Balance balance type, the consolidated cash value of pending held against payment receipt and delivery instructions that have reached their respective provisioning or settlement period will be displayed. 29 May 2009 A09076 (5)

6 Further information The enhancements to cash and custody messages will be included, as of 23 November 2009, in the relevant CreationConnect documentation. For further information about our products and services, please visit or contact Clearstream Banking Customer Service or your Relationship Officer. 8 June 2009 A09076-rev (6)