T2S: Settling without borders in Europe

Transcription

1 T2S: Settling without borders in Europe T2S DCP Infosession Paris, 11 October 2011 T2S Programme Office European Central Bank

2 Table of Contents 1 Status Update 2 What is a DCP? 3 What are the implications of becoming a DCP? 1

3 T2S status update Finalisation of the framework agreement Numerous meetings and workshops throughout the last two years Negotiations concluded in September; final drafting meeting early October 2011 Submission of Framework Agreement to Governing Council in October 2011; parallel legal consistency check Final offer expected in November 2011 Finalisation of the Currency Participation Agreement largely in parallel 2

4 Framework Agreement The Framework Agreement is a bilateral contract between the Eurosystem and each individual CSD Users, and DCPs in particular, are not part of the contract Legal relationship between Eurosystem and CSDs on the one hand and between the CSDs and their users needs to be distinguished Reference to DCPs in FA: - Art 1; Art 12: Eurosystem shall not maintain a contractual relationship to DCPs for the matters contemplated under the FA; CSDs remain responsible for DCPs - Information in certain cases, e.g. disconnection or suspension Liability: coverage of customer claims 3

5 Basic T2S Governance Principles Involvement of all relevant stakeholders: CSDs, Users, central banks (inside and outside the euro area) Transparency Eurosystem as owner and operator of T2S T2S will be multi-currency and all currencies in T2S will be equal System of checks and balances to ensure that T2S meets the evolving needs of the market in a consensual way 4

6 Proposed future T2S Governance 5

7 T2S governance User involvement in T2S governance bodies Advisory Group: users will be full members CSD Steering Group: users will be observers Change Review Group: users will be observers Operations Managers Group: DCPs will be observers for specific items 6

8 Price list Tariff items Settlement services Delivery versus payment Free of payment Payment free of delivery Internal T2S liquidity transfer Account allocation Matching Intra-position movement Intra-balance movement Auto-collateralisation service with payment bank Intended settlement day failed transaction Daytime settlement process Price 15 cents 9 cents 9 cents 9 cents 3 cents 3 cents 6 cents 6 cents 15 cents 15 cents 3 cents Explanation Two instructions per transaction will be charged per instruction per instruction per instruction per transfer per instruction per instruction per transaction per transaction for issue and return, charged to collateral provider surcharge per business day failed per instruction surcharge per instruction 7

9 Price list Tariff items Settlement services (continued) * Daytime congestion charge, from 2-4 p.m. * Auto-collateralisation service with NCB * Instruction marked with top or high priority * Cancellation * Settlement modification Account management services * Securities account * Fee per cash account Price Free Free Free Free Free Free Free Explanation Two instructions per transaction will be charged additional surcharge per instruction for issue and return, charged to the collateral provider surcharge per instruction per instruction per instruction Fee options: a) monthly fee per ISIN in the account or b) monthly fee per account Monthly * These items will initially be set at a zero price, presuming that actual usage will be within an expected consumption pattern. However, should there be a stronger than expected use of the IT system resources which adversely affects T2S performance, it will be reconsidered to charge for these items. Such review will occur at regular intervals. 8

10 Pricing of T2S information services Target of 25% of T2S annual revenues to be recovered from information services fees Information services A2A reports A2A queries U2A queries Messages bundled into a file Transmissions Price (euro cent) 0.4 cent 0.7 cent 10 cent 0.4 cent 1.2 cent Explanation Per business item in any A2A report generated Per queried business item in any A2A query generated Per executed search function Per message in a file Per transmission (= primarily per inand outbound message) 9

11 Examples on the use of information services 1. Expected average use as discussed in the pricing workshop and reflecting the assumptions: 2.5 single cent and 3.0 messages bundled in 0.4 cent = a total of 4.2 cent per instruction 2. Exclusive use of message-based services use only individual messages and no use of reports/messages bundled in files: cent = total of 7.2 cent per instruction (i.e. 71% higher costs than expected average use) 3. Stock-exchange trade, standard settlement instruction sent pre-matched by CCP before settlement day: cent for 2 messages sent / received by CCP in files (the initial instruction and the settlement notification, each 0.4 cent) 10

12 Examples on the use of settlement services 1. Stock-exchange trade, standard settlement instruction sent pre-matched by CCP before settlement day: - 15 cent for DvP settlement, no charge for day-time, no matching fee cent for 2 messages sent / received by CCP in files (the initial instruction and the settlement notification, each 0.4 cent) 2. OTC transaction to be settled on T+0, using auto-collateralisation with central bank - 3 cent matching - 15 cent for DvP settlement - 3 cent for day-time settlement service - no charge for auto-collateralisation service cent for 6 messages sent / received by CSD individually during the day (each 1.2 cent; number and type of info service depends on CSD s preference, the collateral / number of ISINs) [without autocoll, only 3 messages] 11

13 Table of Contents 1 Status Update 2 What is a DCP? 3 What are the implications of becoming a DCP? 12

14 Direct Connectivity What is Direct Connectivity? A technical facility allowing T2S Parties to access T2S and use its securities settlement services without the need for a CSD to act as a technical interface. Direct connectivity affects neither the business or legal relationships between CSDs and the T2S party, nor the processing of the CSD s T2S party. - URD v5.0 Glossary 13

15 About direct connectivity Direct Connectivity refers to the existence of a (direct) network connection between a T2S Actor and the T2S platform. Any participant of the CSD have the possibility to connect to T2S via direct connectivity. E.g. Banks, Custodians, CCPs, Stock Exchanges, Trading Platforms, and CSDs (as participant of another CSD). A Directly Connected Party (DCP) can communicate with T2S without using the relevant CSD/NCB as relay or proxy (e.g. sending settlement instructions, receiving status advices, querying data etc.). 14

16 About direct connectivity I want to be a DCP. Do I still have a relation with my CSD? Yes, the contractual relationship between the DCP and the CSD remains as it is. Securities accounts of DCPs are still opened at the CSD. In addition, participant needs authorisation from the CSD in order to become DCP in T2S. Directly connected parties will not have a contractual relationship with T2S. 15

17 Direct vs. indirect connectivity I am a DCP. Do I still need a technical connection to my CSD? Yes, direct connectivity to T2S offers access to the T2S services only (i.e. settlement services). Other services (e.g. custody and other value added services) offered by the CSDs will not be available through direct connectivity to T2S and will still require a connection to the CSD. 16

18 Direct vs. indirect connectivity I am a DCP. Can I still send my settlement instructions via my CSD? Yes, being DCP in one CSD does not prevent from sending settlement instructions via the CSD (e.g. for back-up connectivity). However, T2S will always send the responses according to the routing configuration (i.e. the technical address specified in T2S) and irrespective of whether the settlement instruction is sent directly or visa the CSD. INDIRECT Bank DIRECT Bank BOTH Bank CSD CSD CSD 17

19 Direct vs. indirect connectivity I am a DCP in one CSD. Would I automatically become a DCP in other CSDs? No, when a participant becomes a DCP in one market, the participant - gets authorisation from its CSD in that market. - establishes technical connectivity to T2S. However, for becoming DCP in other markets, a participant needs to get authorisation from its CSD in the respective market. A participant could use one technical connectivity to T2S to act as a DCP in several markets. 18

20 Direct vs. indirect connectivity I am a DCP in one CSD. Do I have to be a DCP in my other CSDs? CSD 1 Indirect CSD 2 Direct CSD 3 Both CSD 4 Via 3 rd Party Bank CSD CSD CSD CSD 3 rd Party No. Direct connectivity in a CSD depends on the participant s choice and the agreement of the CSD. 19

21 Access mode options What are my options for accessing T2S? DCPs have the possibility to communicate with T2S in two ways: - Via Application-to-Application (A2A) interaction i.e. using the ISO20022 messaging and/or DCP Network Provider Web T2S - Via User-to-Application interaction (U2A) using the T2S GUI A2A U2A 20

22 Functionality in A2A access mode A2A access mode offers the majority of the T2S functionality, e.g. - Sending settlement instructions from T2S - Maintaining static data in T2S, like party, securities accounts, DCAs - Querying T2S for settlement instructions - Receiving reports from T2S - Liquidity management, etc. U2A A2A 21

23 Functionality in U2A access mode U2A mode offers access to the complete T2S functionality (including what is offered in A2A mode) Certain functionality of T2S is offered only in U2A mode. E.g. - Maintaining relationship between CSD Participant and a Securities Account - Creating links between securities account and DCA - Maintaining external RTGS accounts data in T2S - Amending securities prices reference data in T2S 22

24 U2A vs. A2A access mode Can I use U2A only to access T2S? Yes, however, below aspects should be considered. U2A Less appropriate for large volume Less adaptation effort to T2S Manual interaction not allowing integration with internal STP processes A2A More appropriate for large volume Higher adaptation efforts to T2S Allow for STP implementation Need to use U2A for certain functionality 23

25 Access rights I am a DCP. What can I do in T2S? It depends on the access rights that the CSD grants to the DCP, e.g. privileges to - Send settlement instruction (SI) to T2S on an ISIN, on a securities account - Amend/ Cancel SI on an ISIN, on a securities account - Instruct party hold/ release settlement instruction on a securities account - Query T2S, etc. The more T2S functionality the DCP wants to access, the more privileges it will require from its CSD Different profiles of DCPs are possible 24

26 Access rights Scenario A: Read-only direct access to T2S, combined with indirect connectivity via the CSD BANK Settlement instructions CSD Queries Query responses and reports Settlement instructions 25

27 Access rights Scenario B: Full access for direct instruction of T2S Settlement instructions BANK Confirmations Queries Query responses and reports 26

28 Information for DCPs I am a DCP. What information do I receive from T2S? This depends on the message subscription and report configuration The message subscription determines the real-time push messages that the DCP receives based on a set of rules and parameters (e.g. ISO Message type, instruction type, status, etc) The report configuration determines the reports (e.g. statement of holding) that the DCP receives at a certain point of time or following specific events in T2S 27

29 Information for DCPs I am a DCP. Can my CSD receive information on my instructions from T2S? Yes. The CSD can monitor the instructions sent by its DCPs - By subscribing to copies of the instructions, and subsequently to the status advices and confirmations - By means of reports and/or queries to retrieve the information at specific points in time, thus lowering the communication costs Option A: REAL TIME MONITORING BANK Settlement instruction (SI) Status advice Confirmation SI copy Status advice Confirmation CSD Option B: ON DEMAND MONITORING Query Results Statements CSD 28

30 Table of Contents 1 Status Update 2 What is a DCP? 3 What are the implications of becoming a DCP? 29

31 Table of Contents 3 What are the implications of becoming a DCP? 2a a) 2b b) 2c 1c c) d) e) Which role in the governance structure of T2S? Which connectivity options and to what? What functional adaptation? How to migrate? How to manage cash, liquidity and collateral? 30

32 Governance Structure How will I potentially be involved in the T2S Governance bodies? User involvement in T2S governance bodies - Advisory Group: users will be full members - CSD Steering Group: users will be observers - Change Review Group: users will be observers - Operations Managers Group: DCPs will be observers for specific items 31

33 Table of Contents 3 What are the implications of becoming a DCP? 2a a) 2b b) 2c 1c c) d) e) Which role in the governance structure of T2S? Which connectivity options and to what? What functional adaptation? How to migrate? How to manage cash, liquidity and collateral? 32

34 Network options How many and which type of connectivity licenses will be awarded for T2S? Up to three Network Service Providers (NSPs) will be awarded a connectivity licence - Two licences are reserved for Value Added-Network Service Providers (VA-NSP) - One licence is reserved to provide dedicated links 33

35 Network: VANs As a DCP, what are my decision criteria for VANs? VANs have the following characteristics: - Maximum set of value-added services, reduces required effort regarding both implementation and testing - Each unit of traffic (either (a) a single message or (b) a file consisting of multiple messages) is charged - Value-added services include non-repudiability failover handling protocol/data transformation - Underlying protocol on the T2S side will be DEP; protocol on the client side can differ if the VA-NSP supports this 34

36 Network: VA-NSPs The following diagram depicts directly connected actors using VA-NSPs: DCP 1 DCP 2 DCP 3 CSD A VA-NSP 1 VA-NSP 2 T2S T2S T2S T2S Site 1 Site 2 Site 3 Site 4 Region 1 Region 2 - DCPs, CSDs,, commission one or two of the VA-NSPs pre-selected by Eurosystem - Use of the VA-NSPs (or other NSPs) for indirect connectivity via CSDs would be subject to individual, bilateral contracts 35

37 Network: Dedicated Links As a DCP, what are my decision criteria for a Dedicated Link? Dedicated Links have the following characteristics: - Bandwidth pricing allows for lower cost at same service level for high expected volumes - Only a minimum set of value-added services, meaning that a potential service gap has to be filled, e.g., with respect to non-repudiability failover handling protocol/data transformation - The communication functionality will be implemented by both the Eurosystem and the DCPs, CSDs,, and will be the same as for the VAN(s) 36

38 Network: Dedicated Links The following diagram depicts directly connected actors using DL-NSPs: DCP 1 DCP 2 DCP 3 CSD A potentially long distance last mile (access points nearby) NSP 1 T2S Site 1 NSP 2 NSP 3 Concentrator T2S T2S Site 2 Site 3 NSP A T2S Site 4 redundant connections per region Region 1 Region 2 - DCPs, CSDs,, commission NSPs with the connection to a concentrator node - From a risk perspective, all market participants are expected to have a fallback connection (either direct or indirect) 37

39 U2A vs. A2A access modes What are the technical implications of using the A2A and U2A access modes? U2A Internet Browser based User Interface (mainly devised as fallback option for low volume traffic) Same as A2A; in addition, secured (SSL+PKI) Internet based Access without SLA is possible (may be temporarily unavailable) A2A Exchange of ISO20022 based single messages, files (containing multiple instructions) Available via DL-/VA-NSP-connections only (with SLAs) Pull (queries) notification Synchronous communication mode (i.e. data exchange happens w/o buffering) Push (cf. sending of reports) / Pull notification Asynchronous communication mode (i.e. messages are buffered) 38

40 Operational Procedures What relationship will the DCP have to the T2S Operator? The initial assumptions: - In the context of technical connectivity, a procedure will be in place for the DCP to contact the T2S Operator in case of problems - For other types of issues and incident management regarding T2S services, the CSD will be the first point of contact for the DCP. For practical reasons and to avoid duplication, it could make sense that CSDs agree on a procedure by which common information may be distributed to DCPs by T2S Procedures will be documented in the T2S Manual of Procedures (MOP) 39

41 Table of Contents 3 What are the implications of becoming a DCP? 2a a) 2b b) 2c 1c c) d) e) Which role in the governance structure of T2S? Which connectivity options and to what? What functional adaptation? How to migrate? How to manage cash, liquidity and collateral? 40

42 Functional adaptations I want to become a DCP, what do I have to do? Becoming a DCP for T2S can have a major impact on your organisation and systems, therefore the following aspects have to be analysed: Strategic impact, i.e. define the business model with T2S Interfacing impacts, i.e. analyse the necessary adaptations in your systems Define the mapping between your business model and the T2S functionalities Derive the necessary configurations in T2S Operational impacts, i.e. define the new operating model 41

43 Strategic impact When I become a DCP, what will be the impact on my business model and which new services can I offer to my clients? It depends on your current business model. For example: - A CCP could extent its offer to additional CSDs. - A custodian bank could offer new services (e.g. tri-party repos). - A DCP could offer message translation and routing services (e.g. MT - > ISO20022) to clients. First define your future business model and the services you want to offer to your clients. T2S will have an impact on your existing services, but also bring opportunities for new services. 42

44 Interfacing impacts When I become a DCP, which interface impacts do I have to take into account? Existing applications need to be adapted to changes in the message content and format: - T2S uses the ISO20022 format as stated in the URD ("The T2S Interface shall use ISO 20022/UNIFI as its single standard for all communications, both inbound and outbound. ) - T2S might provide information in a different way than existing infrastructures using ISO15022 or proprietary messages. Using the U2A channel will not require changes to the interface, but will have an impact on internal processes 43

45 Interfacing impacts (example) ISO End-customer DCP T2S ISO or proprietary standard End-customer DCP s ISO Check list : Understand customization (enrichment) of ISO messages for T2S as explained in UDFS chapter 3 Understand co-existence rules, implement where relevant Ensure continuity of service to customers that have not migrated 44

46 Interface Adaptations Which adaptations do intermediaries have to do? Intermediaries Handling ISO NCB CSD IDCP Continuation of existing communication possibilities until coexistence period of ISO and ISO T2S DCP IDCP Migration to ISO after coexistence period CMS Possible thin layer of translation between ISO to/from ISO RTGS IDCP Handling proprietary ISO communication ISO communication Possible need of translation to/from ISO Proprietary standards based communication 45

47 Mapping with T2S Functionalities How can I integrate my business model with T2S? T2S offers a wide range of functionalities that can be leveraged to support the business model. Depending on the business model chosen you need to map these functionalities to your services: - Send settlement instruction - Hold, amend, cancel instructions - Query limit utilisation - Receive statement of Holding - Etc 46

48 Mapping with T2S Static Data For which kind of data do I need to define a mapping to T2S? The DCP need to map its internal data into T2S: - Securities Account structure and securities position structure - Cash Account structure and cash balance structure - Potentially other data (Party identifier, Limit management, etc) 47

49 Configuration in T2S How flexible can I configure T2S to tailor it to my needs? T2S offers a wide range of configuration options that can be leveraged to support the business model: - Roles and privileges (to align them to the internal or external organisation) - Report configuration (for reporting to clients, internal management, regulatory bodies) - Message subscription for real time status monitoring of instructions in T2S - Collateral eligibility and collateral prices for securities - Limit set-up and maintenance for auto-collateralisation/ clientcollateralisation (either directly or via their respective CSD or CB) 48

50 Impact on internal processes What are the operational impacts that I have to face as a DCP? Depending on its business model a DCP could be impacted in several areas: - Settlement services, e.g. which instructions go via which channel - Information services, e.g. timing and format of reports/queries - Reconciliation, e.g. redesign to integrate new data sources - Scheduling, e.g. adapt to the T2S schedule and calendar - Business continuity - Training 49

51 Functional adaptations (example) Scenario: Offering tri-party collateral services using T2S Impact: Upgrade interfaces to support the T2S messages (ISO 20022) Define which action should result in interacting with T2S (sending settlement instructions, queries, etc) Adapt collateral management system to the information and status messages provided by T2S Define/adapt the accounts structure and manage the mapping with the T2S accounts codification 50

52 Functional adaptations (example) Impact (continued): Configure role for technical and business users in T2S and the necessary grants from clients (to send the instructions for their accounts) Configure message subscription to receive status messages indicating failure or full settlement of instructions on the relevant security accounts Subscribe to delta Statement of Holding for all relevant accounts Define reporting to clients Setup reconciliation procedures between T2S and the internal applications Update process description for the service offer and the internal processes. Update of the business continuity procedures to include the T2S related activities 51

53 Table of Contents 3 What are the implications of becoming a DCP? 2a a) 2b b) 2c 1c c) d) e) Which role in the governance structure of T2S? Which connectivity options and to what? What functional adaptation? How to migrate? How to manage cash, liquidity and collateral? 52

54 Responsibilities in migration Who is responsible for what (especially with respect to testing)? The Eurosystem is responsible for the T2S production environment readiness and for the coordination and monitoring of the migration process All parties are to (1) establish and test their connectivity on the production environment prior to go-live and (2) ensure that fall-back arrangements are in place The CSDs/CBs are responsible for their own readiness and migration as well as for their respective communities DCPs are responsible for their own readiness, migration 53

55 T2S Testing: Phase Overview USER TESTING EXECUTION PHASE Connectivity Testing Bilat. I/O Multilat. I/O Bilateral Testing Multilateral Testing Testing Testing CSDs Stage Acceptance Testing Stage Community Testing Business Day Testing Migration Testing CSD Certification DCP Certification 54

56 Certification Who lays out the requirements for and signs off the certification needed to become a DCP? Basic certification criteria with respect to connectivity and communications are specified by the Eurosystem (ensuring that a connected party is able to properly send/receive well-formed messages or files). The CSDs also jointly specify basic criteria (e.g., additional tests to be performed), which have to be met in order to directly interact with T2S. Upon fulfilment of both basic sets of criteria, certification could be awarded to the DCP by one CSD which is valid across CSDs in T2S. However, each CSD might define specific criteria aside from the set of standard criteria described above. Therefore, a certification that the basic criteria are fulfilled signed off by one CSD may not be sufficient for another CSD. 55

57 Phased migration What are the possible scenarios for becoming a DCP (i.e., migrating)? CSD 1 DCP-to-be T 2 S DCP CSD 1 T 2 S CSD 2 CSD 2 CSD 1 DCP-to-be T 2 S CSD 1 DCP-to-be T 2 S DCP CSD 1 T 2 S CSD 2 CSD 2 CSD 2 CSD 1 DCP T 2 S CSD 2 56

58 Phased migration: Testing What are the implications of the different migration paths with respect to testing? Every state has to be tested Both risks and testing complexity differ for the depicted migration paths - Deferring the set up as DCP results in less overall risk, but higher testing effort - Acting as a DCP in a CSD as soon as the CSD migrates reduces the testing efforts, but might create additional risk 57

59 Table of Contents 3 What are the implications of becoming a DCP? 2a a) 2b b) 2c 1c c) d) e) Which role in the governance structure of T2S? Which connectivity options and to what? What functional adaptation? How to migrate? How to manage cash, liquidity and collateral? 58

60 Multiple Business relationships I have a business relationship with multiple CSDs/ NCBs. Who will define me in T2S? Bank A Bank B Bank Each CSD and the NCB with which the bank maintains a business relationship will define the bank as a Party in T2S. 59

61 CSD Participants vs. Payment Banks Key Dimensions T2S Party Hierarchical Model Contractual relationship Principles of Direct Connectivity (DC) Requirements for Direct Connectivity Access modes to T2S Clients of CSD Privileges to be granted by respective CSD Build technical connectivity to T2S or use message routing service providers (e.g. CSD, other CSD Participants, NCB) ISO messages (A2A) T2S GUI (U2A) CSD Participant Under CSD hierarchy leg DCP in one CSD does not mean DCP in all CSDs Payment Bank Under NCB hierarchy leg Clients of NCB DCP in one NCB does not mean DCP in all NCBs Privileges to be granted by respective NCB Build technical connectivity to T2S or use message routing service providers (e.g. NCB, other payment banks, CSD) ISO messages (A2A) T2S GUI (U2A) 60

62 DCP in CSD and NCB I am a DCP in a CSD. Do I have to be a DCP in the NCB(s)? CSD 1 Indirect CSD 2 Direct NCB 1 Indirect NCB 2 Direct Bank CSD CSD NCB NCB No. Direct connectivity in a CSD does not mean direct connectivity in the NCB. It depends on the bank s choice and the agreement of the NCB. 61

63 Sample service offering: Target 2 Liquidity transfer (MT202) Liquidity transfer (U2A/A2A camt5) Access to T2S GUI via the ICM Bank DCA intraday balance (U2A/A2A camt5) Optional debit notifications (MT900) Credit notifications (MT202) DCA end of day statement (MT940/MT950 or camt5 without BAH) RTGS RTGS DCA Securities RTGS RTGS ISO DCA Securities Cash related information flows 62

64 Payment Banks as DCP How will direct connectivity be enabled for Payment Banks? Irrespective of the different options for establishing direct connectivity with T2S, Payment Banks need to be granted the necessary privileges by their respective NCB. The privileges will allow the Payment Bank to perform functions in T2S directly. A Payment Bank operating under multiple NCBs in T2S, will require privileges to be granted by the each NCB separately. Hence, depending on the set-up, the Payment Bank may be a DCP with one NCB while being an Indirect Participant with another NCB. A Payment Bank acting as a DCP in an NCB, also has the option to leverage the indirect connectivity option offered by its NCB. 63

65 Payment Banks as DCP What does direct connectivity mean for Payment Banks? Depending upon the legal and business arrangements between the Payment Banks and their NCBs, the NCB will grant the relevant privileges to the Payment Bank as DCP (see below an example of potential set-up) Liquidity Transfers PAYMENT BANK Real time status updates and confirmations Queries Query Responses / Reports Static Data Maintenance National Central Bank Real time status updates and confirmations (including activity initiated by Payment Banks) 64

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