Monte Titoli Instructions X-TRM Service

Transcription

1 Monte Titoli 9 September 2013 T h e I t a l i a n t e x t s h a l l p r e v a i l o v e r t h e E n g l i s h v e r s i o n

2 C O N T E N T S 1 INTRODUCTION DESCRIPTION OF THE SERVICE DEFINITIONS GENERAL CHARACTERISTICS OF THE X-TRM SERVICE COMMUNICATIONS FEES ACCESS METHOD FUNCTIONALITY OF THE X-TRM SERVICE FOR TRANSACTIONS TO BE SETTLED IN THE NET AND GROSS SETTLEMENT SERVICES ADMINISTERED BY MONTE TITOLI ACQUISITION OF OPERATIONS/TRADES VALIDATION VALORISATION MATCHING DOUBLING OF OPERATIONS UPDATING OF OPERATIONS CANCELLATION OF OPERATIONS/TRADES AUTOMATIC CANCELLATION OF UNMATCHED OPERATIONS Removal of operations ROUTING OF TRADES TO THE SETTLEMENT SERVICES Routing of trades to the net settlement service Routing of trades to the gross settlement service HOLD/RELEASE FUNCTIONALITY MANAGEMENT OF OPERATIONS IN RESPONSE TO CORPORATE EVENTS POST-TRADING REPORTING TECHNICAL METHODS OF INTERACTION WITH THE X-TRM SERVICE AVAILABILITY OF THE SERVICE FUNCTIONALITY OF THE X-TRM SERVICE FOR TRANSACTIONS TO BE SETTLED IN FOREIGN SETTLEMENT SYSTEMS DESCRIPTION OF THE SERVICE REQUIREMENTS FOR PARTICIPATION ACQUISITION OF OPERATIONS BILATERAL NETTING WITHOUT INTERVENTION OF THE CCP FOR TRADES FROM MARKETS Cancellations by the market ROUTING OF OPERATIONS CANCELLATION OF OPERATIONS CUT-OFF FOR ENTRY/CHANGE OF OTC OPERATIONS SETTLEMENT FINALITY REMOVAL OF OPERATIONS POST-TRADING REPORTING

3 SEE CHAPTER MANAGEMENT OF PARTICULAR OPERATIONS/TRADES SPECIFIC CONTRACTUAL CHARACTERISTICS Repurchase agreements ADMINISTRATION OF OVERNIGHT REPURCHASE AGREEMENTS INTERACTION WITH THE CENTRAL COUNTERPARTY FOR CASH MARKETS NOVATION OF GUARANTEED TRADES ACQUISITION OF TRADES FROM THE CASSA DI COMPENSAZIONE E GARANZIA (IDEM MARKET) ACQUISITION OF TRADES FROM THE CASSA DI COMPENSAZIONE E GARANZIA (BUY-IN EXECUTION) CREATION OF NET BILATERAL BALANCES (PAYMENTS) WITH THE CENTRAL COUNTERPARTY OPERATING MODEL A ( GROSS MARGINATION MODEL) OPERATING MODEL B ( NET MARGINATION MODEL) UPDATING OF BILATERAL NET BALANCES (TRANSFERS) ON THE DAY BEFORE THE DATE OF SETTLEMENT REPORT TO THE GENERAL CLEARING MEMBER APPENDIX CALCULATION METHODS COUNTERVALUE FORWARD PRICE TOTAL COMMISSION UNIT ACCRUAL E/360 ISMA EUROPEAN METHOD ACCRUAL COUNTERVALUE STOCK EXCHANGE TRADES RATE

4 1 INTRODUCTION These Instructions, together with the Operating Regulations for Settlement Services and Related Activities, describe the operations of the daily matching and routing system administered by Monte Titoli (hereinafter the X-TRM Service). 2 DESCRIPTION OF THE SERVICE The X-TRM Service enables transactions in non-derivative financial instruments to be acquired, matched, routed and forwarded to net settlement, gross settlement or to foreign settlement services. Transactions acquired by the Service can originate from: Regulated and unregulated markets Central counterparties (for stock options exercised/assigned at maturity or prematurely, for reports originating from stock futures which have reached maturity and for the execution of a buy-in) A national central bank (for trades originating from placement/repurchase of government bonds) Brokers Net settlement services A securities lending service The service: is completely automated uses a modular architecture that can adapt to specific market requirements and to the central counterparties and settlement services that it interacts with provides operators in financial instruments with a complete range of real time post-trading and reporting functionalities. 3 DEFINITIONS The main terms used in these Instructions are defined as follows: - general clearing member: a party that assumes vis-à-vis the central counterparty the contractual positions for transactions made on its own behalf and/or on behalf of third parties that assume the role of non-clearing members. - non-clearing member: a party that enters into an agreement with a general clearing member so that the latter may assume vis-à-vis the central 4

5 counterparty the contractual positions for transactions made by the nonclearing member on its own behalf and/or on behalf of third parties. - individual clearing member: a party that participates in the central counterparty system on its own behalf and/or on behalf of its clients. - Target2: the trans-european automated real-time gross settlement express transfer system as regulated by the European Central Bank guideline of 26 April cash/securities transfer: the operation by which an intermediary transfers securities or cash to a counterparty with or without the corresponding movement of cash or securities. - trade: a combination of two equal and opposite operations, matched and communicated by two members or acquired by a market. - central counterparty: (hereinafter CCP ) a party interposed between two contracting parties by novation of the original obligation, which becomes the buyer of the sold trade and the seller of the bought trade, thereby guaranteeing the successful conclusion of obligations assumed. - counterparty: in the context of an individual transaction, a member of the X- TRM Service that acts as a non-declarant counterparty in a transaction. - issuer: a member of the X-TRM Service that declares a transaction. - settlement instructions: transactions sent from the X-TRM Service to the settlement services in the form of individual trades or bilateral balances with the central counterparties automatically cleared by the X-TRM Service. - settlement agent: a member of the settlement services that settles securities on its own behalf and/or on behalf of others (trader and/or X-TRM member). - trader: a broker that is a member of one or more regulated or non-regulated markets. - operation: the set of items of information that constitutes a transaction. With this set of information, a member of the X-TRM Service declares that it has concluded a transaction in securities and/or cash with another member. - X-TRM member: a member of the X-TRM Service in its on name and on its own behalf and/or in the name and on behalf of third parties. - Rules: the Operating rules for Settlement Systems (EXPRESS II) and related activities. - bilateral balance: in the context of the net liquidation service, the bilateral balance represents, for the same stock code, the algebraic sum (amount of securities and cash) of trades concluded between two members. - multilateral balance: in the context of the net liquidation service, the multilateral balance represents the algebraic sum (amount of securities and cash) of a single member compared to all other members. - X-TRM service: the daily matching and routing system, administered by Monte Titoli, which allows operations to be acquired, matched, routed and forwarded to net settlement, gross settlement or to foreign settlement services (hereinafter the Service ). 5

6 4 GENERAL CHARACTERISTICS OF THE X-TRM SERVICE 4.1 COMMUNICATIONS Monte Titoli sends service instructions/communications to members regarding: the admission of new members to the Service the exclusion or suspension of members from the Service according to the provisions of Article 47 of the Operating Regulations for Settlement Services (Express II) and Related Activities reports as provided in the contractual documentation other communications of a merely informative character any changes to the scheduled hours of the Service. Members receive communications: through the company website for communications of general nature by post / fax, to the address/number indicated by the member by registered post with return receipt, telegram, fax, post or other means that provide documentary evidence of receipt of the communication for communications of an individual nature By telematic means for operational-type communications regarding the ordinary administration of the Service. Members of the service communicate with Monte Titoli in writing by registered letter with return receipt, telegram, fax, courier or other means that provide documentary evidence of receipt of the communication. Communications of an operational nature may also be sent by electronic means. 4.2 FEES The fees payable to Monte Titoli for the X-TRM Service are set out in the Price List annexed to the General Conditions Part II. 4.3 ACCESS METHOD Members may use any of the following interactive methods to access the Service: from a web platform (MT-X: X-TRM Online) from a user system (RNI/File Transfer, RNI/Message Switching, LU6.2 and SWIFT). 6

7 5 FUNCTIONALITY OF THE X-TRM SERVICE FOR TRANSACTIONS TO BE SETTLED IN THE NET AND GROSS SETTLEMENT SERVICES ADMINISTERED BY MONTE TITOLI The functionalities of the X-TRM Service are: acquisition of operations/trades validation valorisation update/deletion matching doubling routing to settlement systems post-trading reporting automatic updating of transactions on financial instruments subject to corporate actions (coupon payment, dividend payment, total and partial reimbursement). In addition to these functionalities, the Service incorporates some functionalities in support of central counterparty activities such as: novation of guaranteed trades creation of net bilateral balances with the central counterparty. The following diagram illustrates the functionalities of the Service. FIGURE 1 Mercato A = Market A Mercato B = Market B Banca Centrale = Central Bank CCP = CCP OTC = OTC Liquidazione Netta = Net Settlement Liquidazione Lorda = Gross Settlement 7

8 5.1 ACQUISITION OF OPERATIONS/TRADES The X-TRM Service acquires operations/trades originating from: Borsa Italiana markets the MTS market other regulated and unregulated markets X-TRM members the Bank of Italy for the placement/repurchase of government bonds central counterparties for the exercise procedure for stock options/stock futures and for the execution of buy-ins the net settlement service for unsettled transactions in the net cycles and for collateral transactions the securities lending service for opening and discharge operations. The types of operations/trades that can be entered into the X-TRM Service can be summarised as follows: TABLE 1 OPERATIONS TRADES ACRO NYM OPTION TYPE ACRONYM ORIGIN 1 Sale/purchase of securities CVT X-TRM Participating Markets Repurchase agreement PCT X-TRM Participating Markets Securities/cash transfer CTC Central Bank CCP X-TRM members Automatic Opening of securities loan APT Automatic Discharge of securities loan EPT Automatic When operations/trades are entered into the X-TRM Service, regardless of their origin, a check is made that both the issuer and the counterparty have adhered to the "acquisition of operations" function offered by the Service. 1 The origins listed are those that are valid on the date of publication of this document. 8

9 Operations/trades entered by X-TRM members 2 must contain all information necessary for their matching and subsequent settlement. According to the type of operation entered, some information is obligatory and if not declared, assumes predefined default values. Other information is optional. The table below sets out the information 3 necessary for matching and settlement, regardless of the type of operation and its origin, and indicates the default values automatically assumed by the system for optional information. TABLE 2 OBLIGATORY FIELD DEFAULT VALUE NOTES ISSUER YES NO TRADING TYPE YES NO Values assumed: P own account T third party account COUNTERPARTY YES NO CODE OF TRADED ITEM (SECURITIES/CASH) YES NO Identifies the code of the financial instrument being traded, which must be operative in the X-TRM service in order for it to be admitted into the relevant settlement service. In the case of cash, a conventional ISIN code (IT ), is used, representing the Euro currency. QUANTITY YES NO SIGN (referring to quantity) NO D (PURCHASE) TRANSACTION TYPE YES NO CENTRAL COUNTERPARTY NO NO DATE EXECUTED NO Date on which the trade entered the X- TRM service. Identifies the CCP used by the markets. It must be compatible with the records of the trades that each CCP intends to guarantee in the market to which it belongs. SETTLEMENT DATE NO - Trades to be forwarded in net settlement: T+2 for BOT T+3 for other securities - Trades to be forwarded to the gross settlement service T+0 END-OF-VALIDITY DATE NO Settlement date Must be compatible with the declared calendar of the settlement service If different dates are indicated by X-TRM members, the earlier of the two dates is considered valid. COUNTERVALUE NO NO Indicated only in cash/securities transfers. 2 Trades entered by markets/central banks/ccps are considered automatically matched. 3 Table 3 below indicates information considered as the matching key. 9

10 OBLIGATORY FIELD DEFAULT VALUE NOTES Admits a deviation of 5 Euro more or less. At the time of matching, the lower of the two declared countervalues is considered valid. SETTLEMENT CURRENCY NO EUR Expressed in the ISO code. EXCHANGE RATE NO 1 Represents the conversion ration between the trading currency and the settlement currency. PRICE YES With the exception of transfers NO TOTAL COMMISSION NO NO ISSUE OF CONTRACT NOTE STAMP CATEGORY STAMP CHARGE NO YES If calculation is required N No contract note issued NO N No calculation of stamps EXPENSES NO NO UNIT ACCRUAL NO Interest accrued on the last coupon detachment SETTLEMENT SYSTEM CODE YES 02 Can be expressed as a total amount or as a percentage. It is entered only for operations originating from X-TRM members. Entered only for operations originating from X-TRM members. Indicates whether the operation is to be routed to the settlement service administered by Monte Titoli or to the foreign settlement systems. 4 SETTLEMENT AGENT CODE N Settlement agent code present in the X-TRM registries If indicated, it must be present in the X- TRM registries. If not indicated: - it is the issuer itself if the direct participant in the settlement - the party selected by the trader if a nonclearing member in the settlement. For operations in fail, the settlement agent of the gross settlement system coincides with the agent of the net settlement GENERAL MEMBER CODE N Settlement agent code present in the X-TRM registries Can be declared only for trades guaranteed by CCP. If indicated, it must be indicated in the X- TRM registries. If not indicated: - the issuer itself is the direct participant in the CCP 4 The settlement systems are as follows: 00 (match only), 01 (gross liquidation), 02 (net liquidation). 10

11 OBLIGATORY FIELD DEFAULT VALUE NOTES - the party selected by the trader if a nonclearing member of the CCP. FINAL BENEFICIARY TRADING MEMBER FINAL BENEFICIARY COUNTERPARTY NO NO HOLD/RELEASE NO R NO NO Allowed only for operations originating from X-TRM members and with settlement system 01 (gross settlement), 02 (net settlement) Allowed only for operations originating from X-TRM members and with settlement system 01 (gross settlement), 02 (net settlement) Allowed only for operations with settlement system 01 (gross settlement), 02 (net settlement) and: originating from the participants; originating from the market at the condition that the market management companies and central counterparties notify to Monte Titoli that the related functionality is available (as per the Service information notice referred to in article 10 of Express II Rules) In addition to the information set out above, there is also provision for specific data on the settlement service to which the operations are to be forwarded. The following information can be entered for operations to be settled in the gross settlement system: settlement priority: allows a member with debts for securities to specify the order of operations on its accounts through management of queues in gross settlement. This information is not a key field for matching and can be modified by the declarant. The default value assigned by the system is medium priority. time-out: enables a deadline to be set for settlement of the trade. This deadline is established at 16:00 hours for all operations entered into X-TRM (net operations, OTC operations, PCT overnight spot leg), but the counterparties may agree on a later dateline (between 16:00 and 17:50) by increasing the field value. If a timeout is not specified, the trade remains in the execution queue until 16:00 or, if so agreed, until a later time up to a maximum of 17:50. This information is not a key field for matching and cannot be modified after matching. 5.2 VALIDATION Validation, which is specific for each type of operation, involves formal, logical and congruency checks on the elementary data of each individual operation and completion with default values. This takes place both for operations originating from X-TRM members and for trades entered by markets/central banks/ccps. 11

12 FINAL BENEFICIARYCOUNTERPARTY (*) FINAL BENEFICARY TRADING MEMBER (*) SETTLEMENT SYSTEM CODE UNIT ACCRUAL EXPENSES STAMP CHARGE STAMP CATEGORY CONTRACT NOTE ISSUE TOTAL COMMISSION PRIZE QUANTITY EXCHANGE RATE SETTLEMENT CURRENCY COUNTERVALUE END-OF-VALIDITY DATE SETTLEMENT DATE DATE EXECUTED CENTRAL COUNTERPARTY TRANSACTION TYPE SIGN OBJECT CODE TRADED COUNTERPARTY ISSUER If the operation is valid, the Service sends the party concerned a message of acceptance for each operation entered into X-TRM. The system issues an error message if the operation is not valid. The X-TRM Service attributes an unequivocal reference code for each valid operation entered, together with the issuer code and the date of entry. 5.3 VALORISATION Valorisation is performed only if no errors have been detected during the validation phase. Accounting values (countervalues, interest, etc.) are calculated according to the codified rules for each type of operation. The appendix entitled METHODS OF CALCULATION sets out all the formulas for data calculated by the Service. 5.4 MATCHING Operations entered by X-TRM members that have passed the validation phase are submitted to the matching function, which verifies the correspondence of information on the trade. There is no provision for the aggregation of individual operations. The matching keys described below are specific for each type of operation and define the elementary data necessary for the comparison. TABLE 3 MATCHING FIELDS KEY TRANSACTION TYPE BUY-SELL X X X X X X X X X X X X X X X X X X X X REPURCHASE AGREEMENT CASH/SECURITIE S TRANSFER X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X 12

13 (*) The final beneficiary trading member and the final beneficiary counterparty codes are matching keys only if valued by both X-TRM members. A processed operation can have the status of: matched if there is an exact correspondence between the issuer s declaration and the counterparty s corresponding declaration unmatched if the operation is in one of the following states: - outbound: the counterparty has still not communicated the operation, or there is at least one item of the matching data is different; - response: an operation that is equal and contrary to the outbound operation, generated automatically for the information of the counterparty. 5.5 DOUBLING OF OPERATIONS All trades sent from markets, central banks and central counterparties, which by definition are already matched, are submitted to the doubling process. The process consists of duplicating individual communications received by the X-TRM Service into two matched operations, so that each member, in the capacity of issuer, can fully visualise their operations. As occurs with operations declared by intermediaries, the X-TRM Service attributes a reference code to each individual operation. 5.6 UPDATING OF OPERATIONS By this function, X-TRM members communicate updates to previously entered operations. Requests for update are subjected to the same validation, valorisation and matching process as operations at the entry phase. The Service sends the member an acceptance message for each formally valid update request or an error message if invalid. In addition to all the data corresponding to the operation, the operator must also provide the reference code given by the X-TRM Service during the entry phase. Two types of processing take place, according to the matching status of the operation: matched operation Only the fields of matched operations that are not part of the matching key can be altered. For operations to be settled in net settlement, the own account/third party account information that is fundamental for the settlement of the trade can be changed up to the day before it is sent to the settlement service. For operations to be settled in the gross settlement system, which can be modified only if they are still awaiting settlement, the end-of-validity field can be changed only by the administrator of the X-TRM Service. outbound operation 13

14 It is always possible to change any data item in an outbound operation. This is not the case with a response-type operation. 5.7 CANCELLATION OF OPERATIONS/TRADES Cancellation of trades originating from markets and central counterparties is allowed to X-TRM members who are entitled to such functionality, provided that the market management companies and the central counterparties have communicated to Monte Titoli to make available these functionalities to their participants. X-TRM members are prohibited from cancelling trades originating from central banks; in such case trades may only be cancelled by the systems from which they originate. Cancellation of trades originating from X-TRM members is allowed in accordance with the following: outbound operation It is always possible to cancel an outbound operation. When a request for cancellation is received, the Service marks the operation as cancelled with an indication in the user report ( S as an indicator of cancellation) and indicating that it was the user that cancelled the operation. matched operation The operation and the matched instructions cannot be cancelled unilaterally. The operation and the matched instructions may be cancelled if both X-TRM members, enabled to this functionality, have requested the cancellation and provided that the operation has not yet been sent to the settlement. The operations not settled at the original date of settlement may be cancelled if both X-TRM members, enabled to this functionality, have requested for the cancellation. This is not the case with a response-type operation. 5.8 AUTOMATIC CANCELLATION OF UNMATCHED OPERATIONS The Service automatically cancels all transactions that are not matched on the date of settlement. In such cases, the Service marks the operation as cancelled with an indication in the user report ( S as an indicator of cancellation) and an increase in the type field value to automatism= 3 to indicate that it was cancelled automatically by the system. 14

15 5.8.1 Removal of operations The Service automatically removes matched and unmatched operations by the following timescales: 3 days after the original date of settlement if the operation was settled on that date 3 days after the effective date of settlement of the operation in the case of operations settled after the original date of settlement 3 days after the end-of-validity date if the operation is settled by that date For all linked operations (e.g. PCT) the latest settlement date is considered and removal takes place only when both meet the established criteria for removal. 5.9 ROUTING OF TRADES TO THE SETTLEMENT SERVICES This is the function by which the X-TRM Service forwards matched trades to the settlement services in the form of settlement instructions Routing of trades to the net settlement service Transactions in release status are sent to the net settlement system by two different methods: batch method, at the closure of the X-TRM Service for trades with a settlement date two days later, so that on the day before each settlement date, the trades are available in the pre-settlement report of the net settlement service. in real time, during the opening hours of the X-TRM Service, for trades communicated during the day with a settlement date on the following day. On receipt of the matched trades, the settlement acquisition procedure carries out all the registry checks on both the securities and participating entities in order to verify the correct alignment between the information held by the X-TRM Service and that held by the net settlement system Routing of trades to the gross settlement service Transactions in release status are sent to the gross settlement system according to the following timescales: transactions with immediate settlement (with a settlement date that is the same as the date of entry) are sent from X-TRM to the gross settlement service immediately after they are matched. Trades received after the close 15

16 of gross liquidation (18:00) are accepted by the system but will only be sent for settlement on the following day, in accordance with their declared end-ofvalidity date Transactions with deferred settlement dates are sent to gross settlement before the commencement of the service on the settlement day transactions that are not settled on the scheduled settlement date are resubmitted to gross settlement (together with the transactions indicated in the preceding point) for further consecutive days, until successfully settled or until their end-of-validity deadline is reached. Trades resubmitted keep the original data declared by the counterparties except for the priority, which may be varied by the seller of the securities and for the hold/release status for which paragraph 5.10 applies HOLD/RELEASE FUNCTIONALITY The hold/release functionality permits participants to suspend unilaterally (hold) the routing of operations to the settlement services, until specific release instruction (release), which shall be inserted by the participant suspending the operation (and also by the counterparty where it also has suspended the operation). The hold/release functionality is available to participants for the management of OTC operations, while the management of operations received by the market and of guaranteed operations is allowed only for the market management company and the central counterparties notifying to Monte Titoli that the functionality is available to their participants, as per the Service Information Notice referred to in article 10 of the Rules. As indicated in paragraph 5.1, the release status is attributed by the X-TRM service by default. Participants may request to Monte Titoli on a general basis the attribution of the hold status for OTC operations entered directly by X-TRM members of which they avail themselves, specifying the settlement account and the settlement system ( 01 gross settlement; 02 net settlement). The change of the indicator may occur during the opening of the X-TRM service, according to the cut offs communicated pursuant to article 10 of the Rules. Operations to be settled in the net settlement Participants may suspend the routing of operations to the net settlement valorising with H the hold/release field. For the following routing to the settlement of operations on hold, the participants that has put the operation on hold shall modify the indicator to release. 16

17 Whether the change of the indicator to release occurs within the cut off of the day preceding the original date of settlement, the operations are routed to the net settlement. Whether the change of the indicator to release does not occur within the cut off of the day preceding the original date of settlement, the operations are arranged for the following routing to the gross settlement. The operations maintain the status acquired at the cut off, unless the participants have requested to Monte Titoli on a general basis the attribution of a predefined status (hold/release) to the operations, originally entered for the net settlement and on hold at the cut off. Operations to be settled in the gross settlement Participants may suspend the routing of operations to the gross settlement valorising with H the hold/release field. This applies: a) to operations with deferred settlement date in the gross settlement; b) to operations with immediate settlement, taking into account that operations with immediate settlement entered on release status or changed to release shall not be put on hold afterwards; c) to operations that at the end of the gross settlement are not settled; for such operations participants may request on a general basis to Monte Titoli the attribution of a predefined status (hold/release); d) to the operations on hold at the original date of settlement (and hence not entered in the settlement). For the subsequent routing to the gross settlement of the operations on hold, participants that have put on hold the operations shall change the indicator to release. The change of the indicator to release may occur until the cut off of the end of validity date. Whether the change of the indicator to release occurs within the cut off of the day preceding the original date of settlement, the operations are routed to the gross settlement of the following day. Whether the change of the indicator to release occurs after the cut off of the day preceding the original date of settlement, the operations are routed to the gross settlement of the current day of settlement, accordingly with the cut off provided 5. The valorisation of the hold/release indicator for the repurchase agreements applies both to the spot transaction and the forward contract and it is possible to change it distinctly for each of the two operations, also following the settlement of the spot transaction. 5 Operations not settled at the time out even if put on release within the cut off of the date of settlement are routed to the gross settlement of the following day. 17

18 5.11 MANAGEMENT OF OPERATIONS IN RESPONSE TO CORPORATE EVENTS In the case of operations on securities concerned by specific events that occur during the period between the date of their settlement and the end-of-validity date, the X-TRM Service operates according to provisions governing the operation's market of origin 6. For market operations not settled at the original date of settlement on securities which are subject to the payment of dividends, coupons, or partial or total redemption, the adjustment procedure is completely automatic and the options offered are: bringing the end-of-validity date forward to the date preceding the date of payment and/or redemption cancellation of the original operation and insertion of a new operation with the same status of the original operation (hold/release) and with an adjusted countervalue or, in the case of a redeemed security, of a cash transfer. Members are provided with full information on adjusted operations. For operations not settled at the original date of settlement on securities which are subject to other capital operations (grouping, splits, pure merger or merger by incorporation, division, or capital increase with or without payment) and on securities (warrants, covered warrants and certificates) for which the final deadline for exercise has passed, deletion and insertion take place in administrative mode POST-TRADING REPORTING The X-TRM Service provides members with complete reports on operations entered directly by members themselves or originating from markets/central banks/central counterparties, by the following methods: Detailed batch report This is made available to members each morning at the conclusion of the overnight processing and contains the details of operations entered into the Service during the preceding day only. Report on request 6 Operations not settled at the time out even if put on release within the cut off of the date of settlement are routed to the gross settlement of the following day. 6 OTC operations are not subject to the automatic matching and routing process, but the counterparties involved are required to manage them. Only in the event that the security is redeemed is the operation is cancelled in administrative mode in accordance with the declared end-of-validity date. 18

19 This is made available at any time of the day during the opening hours of the X-TRM Service. It enables members to verify the status of all operations entered during the day or on the preceding day. The main criteria that can be used to customise the selection of relevant operations are: - Counterparty code - Object code traded - Operation type - Settlement date - Execution date - Date entered - Status of the operation (valid or cancelled) - Matching status (matched, outbound, acknowledged) - Origin (user system, market) - Settlement system - Settlement status for operations present in the gross settlement service; - Status of the hold/release indicators; - Status of the bilateral cancellation indicators. Online report Enables members of the Service to obtain a real time report on all operations present in the system. Original entry on-screen This function enables selected operations to be displayed on-screen or printed, including the hold/release indicator. In addition to enquiries, the onscreen function allows the operations displayed to be updated or cancelled. For operations present in the gross settlement system, in addition to the specific data on the trade, information is provided on both the final outcome of settlement and on the intermediate states of the operations in process (queuing due to lack of securities, queuing in Target2 for settlement of funds, etc.). The following settlement information is provided: - settlement operation number (N.O.R.): issued by Monte Titoli, this number is an unequivocal reference for messages received by the gross settlement system and enables an association to be made between the settlement instruction sent to that service and the declaration present in the X-TRM service. - settlement indicator: enables immediate verification of the final or momentary settlement status of an operation. The following values are indicated: awaiting settlement, settled, not settled. Information is also given for unmatched operations. - settlement status: provides details of the intermediary and final state of a transaction sent to the settlement system (e.g. queuing due to lack of securities, trade not executed due to lack of funds, etc.). 19

20 - settlement status date/time: contains the date and time of the last change in settlement status. This becomes significant once settlement has taken place as it indicates the actual moment of settlement independently the declarations of the contracting parties to the operation. 20

21 TECHNICAL METHODS OF INTERACTION WITH THE X-TRM SERVICE TABLE 4 TECHNICAL METHOD OF USE FUNCTIONS M.S. RNI F.T. LU6.2 SWIFT FIN E/O FILEACT INTERACT MT-X ACQUISITION/CHANGE IN OPERATIONS X G52 G53 X G50 G51 X X MT540 MT541 MT542 MT543 MT548 X G50 G51 X REQUEST FOR RE-TRANSMISSION OF OPERATIONS X G54 G55 X X MT598 MT548 X OUTCOME OF RE-TRANSMISSION OF OPERATIONS (ROM/ACB) X G56 X G56 X G56 X ONLINE ALIGNMENT OF USER SYSTEMS X G57 G58 X X MT598 MT AVAILABILITY OF THE SERVICE The Service is available on working days as indicated in the TARGET operational calendar. Dates indicated in operations acquired by the X-TRM Service 7 can also refer to other calendars (e.g. the Borsa calendar) and therefore be determined independently by the system of origin, but must in any case be compatible with the TARGET calendar. The architecture of the Services requires that the relevant operation timetables take account of the availability of the systems that the Service interacts with, i.e.: The gross funds settlement system (Target 2) the net settlement and gross settlement services. 7 For example, operations originating from markets. 21

22 For more detail on the daily timetable for the activities of the Service, see the Service communications pursuant to Article 10, paragraph 1 of the Regulations for settlement services (Express II) and related activities. 6 FUNCTIONALITY OF THE X-TRM SERVICE FOR TRANSACTIONS TO BE SETTLED IN FOREIGN SETTLEMENT SYSTEMS 6.1 DESCRIPTION OF THE SERVICE The X-TRM service enables trades concluded on markets (e.g. EuroMOT) and organised exchange systems (e.g. EuroTLX) and OTC operations entered by the user to be routed to settlement systems other than Express II. The acquisition of operations entered by intermediaries takes place using the entry methods currently provided for and indicated at Chapter 5.13 and by declaring the code of the settlement system. Currently the foreign settlement systems to which operations are routed are as follows: settlement system 03, which identifies Euroclear Bank, settlement system '04' which identifies Clearstream Luxembourg, and settlement system 07 which identifies OeKB. 6.2 REQUIREMENTS FOR PARTICIPATION X-TRM members that intend to settle directly with a foreign settlement system must forward to that system and in copy to Monte Titoli, the application Power of Attorney, with authorises Monte Titoli to transmit the operation to be settled to foreign settlement systems. If the X-TRM member does not participate directly in the foreign settlement system, it must sent to Monte Titoli a copy of the application Power of Attorney already sent by the settlement agent to the foreign settlement system with which the said agent settles the operations on his own behalf. 22

23 6.3 ACQUISITION OF OPERATIONS Operations that are entered must contain all the information necessary for their matching and settlement. See chapter 5.1 for details of required information. Items of information that differ from the information indicated for settlement in settlement services managed by Monte Titoli are as follows: The operation type; currently, provision is made for types CVT and CTC The subject of the operation (financial instrument): the foreign settlement system carries out checks on the admissibility of the security and the subjectmatter of the trade. With respect to OTC operations, it is permissible to trade in securities listed on the reference market that carries out settlement of its own transactions with foreign settlement systems. Moreover, the request of a member, it possible to admit unlisted securities to trading, provided that they are admitted to the foreign settlement systems. Securities index-linked to inflation may be admitted; the Euro dummy security is not admitted. Currency of settlement: currencies other than the Euro are admitted. If the settlement currency is not valorised, EUR is assumed by default. Exchange rate: in the event that the currency in which the security is traded (unknown to the X-TRM service) is different to the settlement currency, it is necessary to declare the exchange value in question. If the exchange rate is not declared, the system assumes that the trading currency is identical to the settlement currency and therefore the exchange value is 1. The settlement agent of the issuer. The Service assumes a default value that, in the case of clearing membership of the foreign settlement system, coincides with the issuer itself, whereas in the case of non-clearing membership, it is the entity normally used by the trader for settlement of trades with foreign settlement systems. If no default for the market exists, the settlement agent is designated on the basis of instructions given by the member. As part of the data of the operation, an issuer may also specify a settlement agent code other than the default code, provided that it is included on a list of codes previously communicated to the administrator of the X-TRM service. The settlement account of the issuer. The service provides a default value that, in the case of clearing membership of foreign settlement systems, corresponds to the account associated with the settlement agent for the type of trade (own/third party) which is specific to the reference SSS. In the case of non-clearing membership, the default account is designated on the basis of instructions given by the member. An issuer may also specify, with the data of the operation, a settlement code other than the default code, provided that it is included on the record of accounts associated with the issuer s settlement agent. Settlement system: this is the system in which the operation will be settled. Settlement is currently provided by Euroclear Bank, Clearstream Luxembourg and OeKB. 23

24 The date of settlement. This is freely agreed between the contracting parties and announced by the market. It must be compatible with the calendar of the foreign settlement services. If it is not declared, it is imposed as the second working day following the date of execution (BOT) or on the third working day following the date of execution (all other securities). It is permitted to enter operations that have a settlement date that coincides with the execution date (T+0). The end-of-validity date: if not declared, the date of settlement is assumed by default. If it is declared, it must be compatible with the calendar of the foreign settlement systems. 6.4 BILATERAL NETTING WITHOUT INTERVENTION OF THE CCP FOR TRADES FROM MARKETS Instructions can be routed to foreign settlement systems as individual trades or in the form of aggregate securities/cash balances. For markets that request it, the X-TRM service provides a Bilateral Netting function without the intervention of the CCPs which, exclusively for foreign settlement systems, automatically performs the aggregate netting of trades for all intermediaries who are members of that market. The relevant transactions are entered into X-TRM with an ad hoc origin and a bilateral balance for each of the counterparties subjected to netting (the type of operation comes within the class of transfers ) is subsequently forwarded to the foreign settlement systems Clearstream and/or Euroclear Bank. In accordance with all the trades entered by the market, on the afternoon of the day T before the close of the service, the new automatic transfers arising from the bilateral clearing are created in X-TRM with their new origin. Following this operation, the indications of quantity/nominal value and countervalue will necessarily be opposing. The automatic creation of transfers is in line with the following aggregation criteria: Issuer Isin Settlement date Date of trade End-of-validity-date Sign of the trade Type of issuer trade Settlement account of the issuer Counterparty Type of counterparty trade Settlement account of the counterparty Origin Settlement system 24

25 6.4.1 Cancellations by the market Cancellations on day T The cancellation has effect on the original trade as the X-TRM service has not yet created the aggregate balance. The operations present in X-TRM are given cancelled status Cancellations from T+1 to L In this case the cancellation will not alter the previously created balance, but will lead to the creation of a new settlement instruction which is sent to the relevant settlement system with a opposite sign. 6.5 ROUTING OF OPERATIONS This is the function by which the X-TRM service routes to the foreign settlement systems, in real time, the relevant settlement instructions relating to trades made on the markets and to individual matched OTC operations. Different timescales apply for i) trades subject to the netting function as indicated at chapter 6.4 compared to ii) those that are not subject to such function and referring to trades concluded in the market and to iii) OTC trades. In the first case trades are sent to the competent settlement system by the evening batch method; in the second case trades are sent immediately after they are entered into X-TRM; while in the case of OTC trades, the settlement instructions are sent only after they are matched, a process that may take some days to complete. Settlement instructions are sent by standard routes agreed with the settlement systems, which provide for the generation of a SWIFT MT 541 message for the purchasing counterparty and a SWIFT MT 543 message for counterparty that is selling the securities. If the foreign settlement system and the settlement account of the two counterparties are the same, the settlement instructions do not send the respective SWIFT MT 541 and MT 543 messages to the foreign settlement system. Following a correction by intermediaries of the trade type and/or the settlement account, the relevant cancellation messages are sent to the foreign settlement systems (SWIFT message MT 541 for the counterparty purchasing securities and MT 543 for the counterparty selling securities) together with the relevant SWIFT MT 541 or MT 543 entry message. On receipt of the instructions, the foreign settlement systems perform all the checks of form and content, immediately informing the X-TRM service that forwarded the trade of any errors that prevent it from accepting the instruction and consequently sending a SWIFT MT 548 rejection message. 25

26 6.6 CANCELLATION OF OPERATIONS With respect to the cancellation of operations entered by a user system, it is possible to forward the request of cancellation, also unilaterally, of matched operations, accordingly with the functioning rules of the foreign settlement systems. 6.7 CUT-OFF FOR ENTRY/CHANGE OF OTC OPERATIONS It is possible to enter/alter OTC operations within the terms of specific cut-offs established for the forwarding of the operations to foreign settlement systems, which differ according to the date of settlement, i.e. T+0, T+1 and T+n. The cutoffs are imposed in accordance with the operating hours of the foreign settlement systems. For more detail on the daily timetable for the activities of the Service, see the Service communications pursuant to Article 10, paragraph 1 of the Regulations for settlement services (Express II) and related activities. 6.8 SETTLEMENT FINALITY Operations are settled at the foreign settlement systems, which then assign them the status of settlement finality. 6.9 REMOVAL OF OPERATIONS The Service automatically removes matched and unmatched operations by the following timescales: 3 days after the original date of settlement for operations sent for settlement in Euroclear (settlement system 03 ) 3 days after the original date of settlement for operations sent for settlement in Clearstream (settlement system 04 ) where there are no unsettled operations 3 days after the original date of settlement for operations sent for settlement in OeKB (settlement system 07 ) where there are no unsettled operations. See chapter POST-TRADING REPORTING 26

27 7 MANAGEMENT OF PARTICULAR OPERATIONS/TRADES 7.1 SPECIFIC CONTRACTUAL CHARACTERISTICS Repurchase agreements This type of trade is characterised by a spot transaction counterposed by a forward contract, concluded on the same date, with the same counterparty, concerning the same securities and for the same nominal value. Interest is paid on expiry of the contract by the party that delivers the securities in return for cash. The date of settlement of the spot transaction and the forward contract, if communicated by the intermediaries, is freely agreed between the parties. If the trade is communicated to the market, the settlement dates are valorised by the market itself. The price of the spot transaction, expressed at its ex dividend price and with interest (where applicable) must be declared by the contracting parties. For trades that are received by the market, the forward price is calculated automatically using the algorithm defined in the METHODS OF CALCULATION section of the appendix. 7.2 ADMINISTRATION OF OVERNIGHT REPURCHASE AGREEMENTS The following settlement methods apply to Overnight repurchase agreements: the spot leg is settled, with a settlement date the same as the trade date, in the gross settlement service not later than 16:00 the forward leg is settled, with a settlement date on the first, second or third day following the trade date, in the net settlement service. ENTRY OF THE OPERATION The following procedures apply for settlement of this type of trades: 1. The market sends to the X-TRM service the overnight repurchase agreements that are to be forwarded to the net settlement service. 2. The X-TRM services subject the trade to the usual validation, valorisation and doubling processes. After the doubling process, two matched operations are created to enable each member, in the capacity of issuer, to obtain information on its own 27

28 operations in the case of a non-guaranteed trade; four (six in the case of double CCP) matched operations are created in the case of a guaranteed trade. Furthermore, for each member, an "operation identifier" is allocated to the spot leg and a different operation identifier is allocated to the forward leg, according to the operating methods established for the X-TRM service. 3. Once it has verified that the operations are repurchase agreements, the X- TRM service proceeds to: - attribute a "not presentable status to the spot transaction in the X TRM service (as such it is not routed to the net settlement service). - In the case of a trade that is not guaranteed by CCP, automatically create a transfer instruction, with the characteristics of a spot transaction, that is entered into X-TRM and routed, by the methods described below, to the gross settlement system. - In the case of a trade that is guaranteed by CCP, automatically create two (three in the case of a double CCP) transfer instructions, with the characteristics of a spot transaction, that will be present in X-TRM but rendered not presentable". - In the case of a trade that is guaranteed by CCP, automatically create two (three in the case of a double CCP) automatic transfer instructions, derived according to the established margination models. If required by the involved CCPs, X-TRM creates such "automatic transfer" instructions shaped into "n" instructions with the same nominal value/countervalue depending on the type of financial instrument; whether the creation of the "n" shaping determines a difference between the total quantity and the sum of the entered quantities, and/or between the total countervalue and the sum of the entered countervalues, X-TRM proceeds with the creation of an additional instruction containing the differences of quantity and countervalue. Such instructions will be routed in the gross settlement system in the manner described below. - Keep the forward contract in the X-TRM service so that it can subsequently be sent to the net settlement service. - Only if the forward settlement date is trade date+1, proceed to immediately forward it to the net settlement system so that the operation in question can be included in the pre-settlement report. 4. The cash transaction is automatically inserted into the X-TRM service as CTC (transfer) by the following methods: - the operation is allocated its own operation reference - the time-out is automatically set at 16:00 hours - if the trade is not guaranteed by CCP, the operation is indicated as originating from PCT and the market segment as PCO ; if it is guaranteed by CCP, it is indicated as originating from RRG and the market segment is FME - The original spot transaction identifier is shown, while the transaction number settlement instruction is not shown. - the gross settlement system is set ( 01 ). 5. Members have the following report in the X-TRM service: 28