T2S features and functionalities

Transcription

1 T2S features and functionalities Conference at Narodowy Bank Polski 23 June 2009 T2S Project Team European Central Bank /2009/005409

2 T2S settles CSD instructions Notary function Custody and assetservicing function Registration of issuer indebtness and investor holdings e.g. coupon payments, redemptions, stock splits issuer / investor Settlement function Change of ownership among investors buyer / seller Banking function e.g. lending and borrowing lender / borrower 2

3 Outline 1. What is T2S? 2. T2S Main features 3. T2S Functionalities 3

4 T2S main features Real-time gross settlement (RTGS) functionality for all financial instruments that are held with a CSD in T2S have an ISIN code settle in book-entry form are fungible (from a settlement process perspective); i.e. no need for additional identifier during the settlement process. T2S will be technically capable of settling currencies other than euro (design is multicurrency) T2S will settle only in central bank money (CeBM) and not in commercial bank money (CoBM) Settlement rules and procedures will be common to all participating CSDs 4

5 The T2S process flow matching & settlement 1. Settlement instructions captured are processed in the Validation component, 2. according to the rules and restrictions stored in the Static Data 3. Once validated, instructions are matched in the Matching component. 4. Instructions may be maintained. 5. Matched transactions are checked for their settlement eligibility 6. Once eligible, instructions are prioritised in the Sequencing component, and 7. processed, in RTGS mode, for the final settlement. 8. In the case of failed settlement, transactions are moved to the Recycling and Optimisation components. 9. In some lifecycle stages, reporting to the instructing entities is required. 10. T2S parties may query the system at any time Lifecycle Management and Matching 1 2 Validation Static Data Settlement Unmatched instructions Matched instructions 3 4 Instructions Matching Maintenance 8 Recycling & Optimisation Securities accounts Eligibility 5 Eligible instructions Provisioning & Booking 7 Interface 9 Report Management 10 Queries Management Sequencing Dedicated cash accounts 6 5

6 Who can connect to T2S? T2S Actors T2S Actors CSDs in T2S CSDs in T2S T2S Parties T2S Parties Central Banks Central Banks T2S Payment Banks Payment Banks T2S Operator T2S Operator 6

7 Direct and indirect connection to T2S CSD in T2S CSDs in T2S Indirect connection T2S Party T2S Parties T2S Direct connection CSD in T2S CSDs in T2S T2S Party T2S Parties Technical connection Contractual relationship 7

8 Main Schedule of the Settlement Day (18:45-19:30) Start-of-day period ( SOD ): includes processes critical for the preparation of the night-time settlement period, such as identification of eligible instructions. (19:30-03:00) Night-time settlement period: mainly processes settlement instructions that have been input over the previous days with an intended settlement date equal to the current settlement date. (03:00-05:00) Maintenance window (05:00-18:00) Daytime settlement period: mainly used for same-day or intraday settlement 16:00 cut-off time for the same day value DVP instructions 18:00 cut-off time for the same day value bilaterally agreed treasury management instructions and FOP transfers (18:00-18:45) End-of-day period ( EOD ): permits CSDs and their participants to perform critical end-of-day activities, such as reporting requirements. 8

9 Proposed high Level timetable, should be used as a working assumption. The number of night-time settlement cycles and the deadline are yet to be defined. Reports Reports Reports Reports 9

10 Outline 1. What is T2S? 2. T2S Main features 3. T2S Functionalities 1. Life Cycle Management and Matching 2. Settlement 3. Static Data 4. Reporting 5. Liquidity Management 6. Cross-CSD settlement and settlement with external CSDs 10

11 Life Cycle Management & Matching Validation Checks instructions against T2S static data and harmonised rules T2S will accept unmatched or matched settlement instructions from CSDs, CCPs, stock exchanges or other organised markets, and directly connected market participants Matching Compares the settlement details of the buyer and the seller Settlement eligibility Performs the final validation before submitting an instruction to the settlement process Verifies whether an instruction is eligible for settlement depending on settlement date, deadlines, etc. Instructions maintenance Consists of the management of instructions to amend, cancel, hold or release a settlement instruction 11

12 Outline 1. What is T2S? 2. T2S Main features 3. T2S Functionalities 1. Life Cycle Management and Matching 2. Settlement 3. Static Data 4. Reporting 5. Liquidity Management 6. Cross-CSD settlement and settlement with external CSDs 12

13 The T2S settlement process Sequencing A queue of instructions that are eligible for settlement, taking into account different levels of priority Provisioning and Booking The availability of securities and/or cash are checked and the final bookings of the movements related to the instructions are performed Recycling and Optimisation Detects and resolve settlement gridlocks performs technical netting of obligations in cash and securities with a view to settle new transactions as well as transactions that could not settle in earlier attempts Auto-Collateralisation Intraday credit in CeBM when the buyer has not enough cash available on its dedicated T2S cash account 13

14 Optimisation Features Optimisation Features Technical Netting Partial settlement Additional Optimisation Algorithms (Identification of chains of transactions) Auto- collateralisation Technical netting reduces the need of cash and securities on transactions to minimise the use of resources The additional optimisation algorithms looks at all transactions in different ISINs to identify chains of transactions, empty circles, etc. Auto collateralisation, creates extra liquidity for the settlement via collateral on flow and an stock Partial settlement splits transactions if only limited resources remain available 14

15 Settlement optimisation in T2S Optimisation will run both during the night and during the day in T2S and will: Identify back-to-back transactions and more complex circles Have the same efficiency during the night and during the day For each transaction, the optimisation looks for those transactions in the whole stock that could settle if linked It generates and settles the identified circles The only difference between night and daytime optimisation is the starting point of the optimisation During the night time the optimisation will look at all transactions together aiming to maximise settlement with the resources available During the day time the optimisation is triggered by additional resources (cash and/or securities) or new transactions that cannot settle when considered in isolation. It attempts settlement looking at all relevant transactions to this transaction to maximise settlement 15

16 Auto-collateralisation Definition An automated intraday credit operation in central bank money duly collateralised aiming at facilitating the settlement of securities-related transactions and triggered when cash is insufficient on the buyer s side. Auto-collateralisation should be available To all participating markets During the whole settlement day at zero interest In repo and in pledge environments 16

17 Sources of assets for Auto-collateralisation 2 sources of collateral: Eligible assets available for collateralisation by currency (collateral on stock) Securities collateral from the securities being purchased (collateral on flow ) Collateral will contribute to form a Liquidity Reserve Collateral + CeBM cash balance Liquidity Reserve T2S will verify that sellers hold sufficient securities and buyers hold sufficient Liquidity Reserve as part of its settlement process 17

18 Partial settlement Definition A process that settles only fraction of the settlement instruction original volume and amount when full settlement is not possible due to lack of securities Partial settlement* Applied only if indicated on instruction level Only for DVP instructions T2S common thresholds Activation of partial settlement (inclusion of eligible instructions to the partial settlement queue) At the end of the night-time settlement cycle From 14:00 until 14:15 From 15:45 until closure of the same day T2S DVP settlement deadline * Some principles to be consulted with markets in July-August 18

19 Additional T2S functionalities Hold and Release of Instructions Voluntary mechanism to hold back and release instructions Linking of instructions On One-to-One, One-to-Many or Many-to-Many basis All-or-None, After, Before Conditional Securities Delivery (CoSD) Settles instructions that, exceptionally, require the fulfilment of a settlement condition outside T2S, before allowing the securities settlement to take place in T2S The fulfilment of the external settlement conditions shall be managed by an administering party (a CSD in T2S) 19

20 Outline 1. What is T2S? 2. T2S Main features 3. T2S Functionalities 1. Life Cycle Management and Matching 2. Settlement 3. Static Data 4. Reporting 5. Liquidity Management 6. Cross-CSD settlement and settlement with external CSDs 20

21 The scope of T2S static data Configuration data Roles and access rights Securities reference data Party reference data Service and message subscriptions Limit management

22 Services and Service Subscriptions A service in T2S is any report, query, function or message in T2S which a T2S Actor may require A service subscription in T2S is a set of services that T2S provides to the CSD or to the NCB or the CSD or the NCB provides to its T2S parties A service subscription is configurable and is comprised of one or more services that a CSD provides to its participant or an NCB provides to its payment banks For example, a CSD would be able to define different service configurations for its different types of T2S parties, such as direct participants, CCPs and trading platforms 22

23 Roles and Access Rights Roles and access rights govern to which applications, functions and data a T2S system user has access to The model places no restrictions on the number and types of roles that can be configured It is designed to provide maximum flexibility in adapting the access rights of T2S system users. Constraints and privileges to accessing functionality will be based on the business requirements for access to T2S A CSD may configure different roles for its participants in order to provide a differentiated service offering based on their own customer classifications 23

24 Outline 1. What is T2S? 2. T2S Main features 3. T2S Functionalities 1. Life Cycle Management and Matching 2. Settlement 3. Static Data 4. Reporting 5. Liquidity Management 6. Cross-CSD settlement and settlement with external CSDs 24

25 T2S Reports - Definition When speaking of reports in the context of T2S it has the following meaning: a predefined set of data automatically made available at a certain point in time or event during the business day reflecting the situation in T2S at this time or event and automatically sent to the receiver (= push mode). Note: If the information provided by a report is needed by a T2S actor at an individual it can be queried 25

26 T2S Reports General rules The massage type and XML structure will be compliant with ISO20022 standards All reports will be available in application-to-application (A2A) and user-to-application (U2A) mode, i.e. automatically sent to an application of the receiver (A2A) available for download if need be (U2A) A T2S actor can decide to receive all the reports defined in T2S or to receive no reports at all CSDs, directly connected parties and NCB will receive T2S reports. Information contained in the reports will be in line with the access rights of the individual receiver 26

27 Message Subscription Service The message subscription service will allow a CSD to configure for itself or for its T2S parties with direct connectivity to T2S a subscription to copies of messages sent between a directly connected T2S party and T2S in real-time using push mode messaging The CSDs will be allowed to subscribe to real-time push mode settlement information using a rules-based definition based on the following criteria: Message type Instruction type Message status Participant / account qualifier Party or account identifier depending on the qualifier T2S dedicated cash account And ISIN 27

28 Outline 1. What is T2S? 2. T2S Main features 3. T2S Functionalities 1. Life Cycle Management and Matching 2. Settlement 3. Static Data 4. Reporting 5. Liquidity Management 6. Cross-CSD settlement and settlement with external CSDs 28

29 Three kind of liquidity transfer orders available Immediate liquidity transfer orders Liquidity will be transferred immediately after the transfer was instructed*) Predefined liquidity transfer orders Liquidity will be transferred at a certain time or event chosen by the account holder of the account to be debited*) The transfer will be executed once only Standing liquidity transfer orders Liquidity will be transferred at a certain time or event chosen by the account holder of the account to be debited*) The transfer will be executed every settlement day until it is deleted *) Providing that there is sufficient liquidity available on the account to be debited 29

30 Three kind of liquidity transfer orders available Immediate, predefined and standing liquidity transfer orders are between T2S dedicated cash accounts and RTGS accounts Immediate liquidity transfer orders are also possible between two T2S dedicated cash accounts in order to re-allocate liquidity between two T2S dedicated cash accounts owned by the same T2S party within the same Central Bank 30

31 Controlling the use of cash in T2S In order to control the use of cash made available on one T2S dedicated cash account a treasurer can make use of the following tools: Net buying limits It limits the use of cash available on a T2S dedicated cash account Auto-collateralisation limits It limits the use of auto-collateralisation to cover lack of cash on the T2S dedicated cash account Reservation of cash for specific instructions Amount of cash reserved cannot be used to settle instructions, unless the instruction being settled refers to the initial reservation instruction 31

32 Outline 1. What is T2S? 2. T2S Main features 3. T2S Functionalities 1. Life Cycle Management and Matching 2. Settlement 3. Static Data 4. Reporting 5. Liquidity Management 6. Cross-CSD settlement and settlement with external CSDs 32

33 Settlement process in T2S T2S to handle three types of settlement: Intra-CSD settlement (domestic settlement) when the party and the counterparty of the transaction are participants of the same CSD, which is the Issuer CSD of the security Cross-CSDs settlement (the settlement is internal to T2S) when the transaction involves different CSDs that are all CSDs in T2S External CSDs settlement when the transaction involves at least one CSD external to T2S This process results in different number of settlement movements depending on the nature of the transaction and on the relationships established between CSDs 33

34 Definition of the relationships between CSDs When accepting a security not issued in its books (acting as an investor CSD), a CSD will have the choice between: Technical Opening accounts in issuer CSD Investor Issuer CSD Issuer Issuer of the security (using the issuer CSD CSD A CSD CSD II CSD as the technical issuer CSD); Or opening accounts in another investor CSD (using another investor CSD as the technical issuer CSD). Technical Issuer CSD Investor CSD CSD C The issuer CSD is considered as its own technical issuer CSD for the securities issued in its books. Investor CSD CSD A Technical Issuer CSD Issuer Issuer CSD CSD II Technical Issuer CSD Issuer Issuer CSD CSD II These relationships are stored in T2S to allow an automated process that will derive all movements, necessary to finalise settlement, from simple instructions sent by market participants. 34

35 Cross-CSDs settlement vs External CSDs settlement Cross-CSDs transactions as efficient, safe and easy as domestic settlements the simultaneous settlement of securities and cash between participants of different CSDs market participants will not need to submit information related to the interaction and contractual relationships between their CSDs; this information is already available within T2S, market participants will only need to submit standard information related to the trade (i.e. to/from whom, I have sold/bought a security) External CSDs settlement Remains as complex as current situation Split into two parts, one within T2S and the other within external CSDs Requires interaction with the external CSDs This interaction remains (controlled and maintained) at the level of the CSDs (T2S CSDs) according to their arrangements with the respective external CSDs; it is not centralised in T2S Four scenarios are needed 35to detail the settlement procedure

36 Q & A 36