Instructions of the Collateral Management Service X-COM

Transcription

1 Monte Titoli Instructions of the Collateral Management Service -COM AUGUST March 2015 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 CONTENTS INTRODUCTION General provisions Definitions Communications Functionalities and communication channels of the Service Operational calendar of the Service Classification of the financial instruments admitted to the Service Participation to the Service Formalities for Participants in the Service Access to the Service Participation profiles Relationship with the Settlement Agent Actions towards Participants The operation of the System Structure of the accounts and entry of the financial instruments Entry of transactions Collateral transactions Acquisition, and matching and cancellation of Transactions Acquisition and matching Cancellation Clearing and settlement of Transactions Clearing Settlement Common features of the clearing and settlement processes Clearing and settlement cycles for FOP and FOP-R Transactions with the Bank of Italy (the Bank of Italy cycle) Management of Collateral Management of Bilateral Exposures Management of Collateral Positions Substitution of Collateral Autosubstitution Management of financial instruments provided as Collateral subject to corporateactions

3 5.4 Redemption of financial instruments transferred as Collateral Management of financial instruments no longer eligible accepted as Collateral by the Bank of Italy Updating of the valuation of Collateral (mark to market) Criteria for the cancellation of Transactions by the System Appendix [the appendix in force is entirely substituted as follow) Annexes Annex Annex Annex Electronic communications Annex Annex Annex Annex Annex Annex Annex Model for interaction with the Bank of Italy The provisions highlighted in gray and italics related to the service to guaranteed markets will be activated in a later communication 3

4 Introduction The schedule for the start of the Service has been divided into subsequent stages. In the first stage the part of the Service interacting with the Bank of Italy s Collateral Pooling Management System will be available. The management of collateral transactions negotiated bilaterally between Participants in the Service or concluded on the Markets will be made available in a second stage. Monte Titoli will announce the start of this stage and simultaneously update these Instructions. 1. General provisions 1.1 Definitions The definitions given in Article 1 of the Rules of the Collateral Management Service are to be understood as being incorporated in these Instructions with the same meaning In addition, in these Instructions: «Automatic Collateral Search or Collateral ACS»: shall mean a transaction automatically generated in the mark to market process to top up the Collateral with respect to the Bilateral Exposure, according to the rules of the System; «Automatic Collateral Excess Return or Collateral CER»: shall mean a transaction automatically generated in the mark to market process to return the Collateral exceeding with respect to the Bilateral Exposure, according to the rules of the System; «Basket» shall mean a set of financial instruments meeting the same criteria for selection and evaluation of Collateral, as specified by the Markets, by the Central Counterparties or by Participants, within the parameters defined by Monte Titoli as part of the -COM Service. Each basket is identified by a special code ("Basket ID"). «Close link Collateral Transactions with the Bank of Italy»: shall mean a situation where a Participant is linked to an issuer/debtor/guarantor of financial instruments admitted to the Service, according to the provisions of the European Central Bank of 31 August 2000 (BCE/2000/7) and the following modifications and integrations; 4

5 «Close link Collateral Transactions between Participants»: shall mean a situation where a Participant is linked to an issuer/debtor/guarantor of financial instruments admitted to the Service; ISIN International Security Identification Number: shall mean the twelve-character alphanumeric code that uniquely identifies an issue of financial instruments; Collateral Autosubstitution or CAS Collateral : shall mean a transaction generated automatically by the System near the time of a corporate action for the substitution of financial instruments provided as Collateral; Collateral One Way Recall or COR Collateral : shall mean a transaction generated automatically by the System for the return to the Giver of financial instruments no longer accepted as Collateral by the Bank of Italy without simultaneous substitution; Collateral Recall or CRE Collateral : shall mean a request for the recall with substitution of financial instruments provided as Collateral by the Giver entered into the System by the Giver; «Collateral Request»: shall mean the request to transfer financial instruments entered into the System by the Giver and by the Receiver, generated on their behalf by the System or created by the System for the Transactions received by Markets and Central Counterparties; a request for the opening or (total or partial) closing of a collateral transaction entered into the System by the Giver and the Receiver or generated by the System on their behalf; Collateral Instruction : shall mean any instruction generated by the System for the execution of a Collateral Request, a Collateral Recall, a Collateral Autosubstitution or a COR Collateral; «Currency of settlement of the Transaction»: with reference to a Transaction, the currency in which is denominated the amount of the Transaction. Participation Documentation : shall mean the documentation, data and information that Participants are required to provide; GCA or Giver Collateral Account (dedicated-giver Collateral Account) shall mean the securities account opened with Monte Titoli s Central Securities Depository System and dedicated to the Service, used to record the financial instruments that Participants can make available to the System can transfer as collateral; Accounting Day or Day : shall mean the operational day of the Service on the basis of the TARGET2 calendar; Fail : shall mean a Collateral Instruction of DVP operation, FOP or FOP-R not totally settled or partially settled at the end of the Intended Settlement Date (ISD); shall mean a Collateral Instruction totally not settled at the end of the Settlement Day; «Ineligible Collateral Return or Collateral ICR»: shall mean a Transaction of return to the Giver of Collateral not più compliant with the eligibility criteria of the Receiver disposed automatically by the System with the simultaneous generation of a Transaction of substitution of the Collateral; 5

6 «Ineligible Collateral Return for CCP or Collateral ICC»: shall mean a Transaction of return to the Giver of Collateral not più compliant with the eligibility criteria set by the CCP for the Transactions guaranteed by the CCP disposed automatically by the System with simultaneous generation of a Transaction of substitution of the Collateral; «Ineligible Collateral Return for Market or Collateral ICM»: shall mean a Transaction of return to the Giver of Collateral not compliant with the eligibility criteria set by the market for the Transactions traded on the market not guaranteed by the CCP disposed automatically by the System with simultaneous generation of a Transaction of substitution of the Collateral; «ISD Intended Settlement Date»: shall mean the date intended for the settlement of the Transaction entered in the System. For the operation against payment It can be named spot or forward according to the settlement being spot or forward; Reversal Instruction or Reversal : shall mean the transaction for the return of financial instruments credited on the Bank of Italy s account, ordered by the Bank of Italy in accordance with the provisions of the document Il sistema di gestione delle garanzie in pooling e dei depositi in titoli Guida per gli operatori (Collateral Pooling and Securities Deposit Management System - Membership Guide); MT- : shall mean the web-based communication platform managed by Monte Titoli for sending and receiving instructions and documents between Monte Titoli and Participants in the Service; «DVP Transactions»: Delivery Versus Payment Transactions between Participants, shall mean the Transaction of transfer of the Collateral from the Giver to the Receiver with simultaneous transfer of the cash from the Receiver to the Giver, entailing the obligation to reciprocally return the Collaterals and the cash (with interests) at the closing date of the Transaction; FOP Transactions or Funding Transactions between Participants : shall mean transfers of Collateral from the Giver to the Receiver for which the System does not carry out the cash settlement; FOP-R Transactions or Funding Transactions between Participants in Return : shall mean returns of Collateral from the Receiver to the Giver for which the System does not carry out the cash settlement; «General Participant»: shall mean the subject that in the framework of the Central Counterparty System acts as the Counterparty of the CCP for the Transactions closed on the Market by itself or by other subjects not direct participants to the Central Counterparty System; Pool Factor : shall mean the value in decimal form of the proportion of the nominal value of the initial issue not yet redeemed for Asset-Backed Securities; «Collateral Position»: shall mean the set of financial instruments as Collateral to cover a Bilateral Exposure; «Maximum Quotation Age»: shall mean the maximum difference between the quotation date of the price and the actual date when the price is applied, accepted by the Receiver or foreseen by the eligibility rules defined by the 6

7 Central Counterparty or by the Managing Company. It is calculated on the basis of the Accounting Days; RCA or Receiver Collateral Account : shall mean the securities account opened with Monte Titoli s Central Securities Depository System and dedicated to the Service, used to record the financial instruments that Participants receive as collateral; Rules : shall mean the Rules of the Collateral Management Service adopted by Monte Titoli and approved by the Bank of Italy in agreement with Consob; RNI : shall mean Rete Nazionale Interbancaria (the National Interbank Network); Central Securities Depository Service : shall mean the service made available to issuers and intermediaries permitting the central depository management of financial instruments on accounts opened in their names; «Eligibility Set»: shall mean the criteria of valuation and selection of the Collateral applicable for the Transaction settlement comprising eligibility rules, concentration limits and haircuts. Settlement Instructions : shall mean the instruction to transfer of a specific ISIN a specifica emissione a specific issue and quantity of financial instruments in garanzia as Collateral generated by the System for the settlement of the Collateral Instruction; shall mean the instructions to transfer financial instruments provided as Collateral generated by the System for the settlement of Collateral Instructions and for which the quantity of financial instruments to be transferred is specified for each ISIN; Central Securities Depository System : shall mean the central securities depository system for managing financial instruments operated by Monte Titoli; SWIFT : shall mean the Society for Worldwide Interbank Financial Telecommunication; Minimum Lot : shall mean the minimum nominal amount of an issue of financial instruments (ISIN) that can be transferred; 7

8 1.2 Communications The Service communications referred to in Article 4 of the Rules and the additional operational communications needed for the working of the Service will be made by publication on Monte Titoli s website The percentage of gap applicable to each Operating Section The tolerance threshold applied in the process of updating the valuation of financial instruments provided as Collateral, referred to in Article 24 of the Rules, will be communicated by publication on Monte Titoli s website. 1.3 Functionalities and communication channels of the Service The functionalities of the Service are made available via the following channels of communication. their content is described in detail in the Appendix to these Instructions. Functionalities SWIFT 1 MT- RNI (web user interface) Participation profile Entry/cancellation of FOP and FOP-R Transactions Information on the acquisition/cancellation of Collateral Requests for FOP and FOP-R Transactions Information on the settlement of Collateral Instructions 2 Detailed information on Settlement Instructions Request to substitute Collateral and result thereof (Collateral Recall) Automatic return of financial instruments no longer accepted as Collateral by the Bank of Italy (COR Collateral) Collateral Autosubstitution for corporate actions Information on Bilateral Exposure at the end of the Mark to Market process Intraday information on Bilateral Exposure Notification of insufficient or excess Collateral with respect to the Bilateral Exposure Functionalities SWIFT MT- (web user interface) RNI Participation Profile 1 2 The start of the SWIFT channel is subject to a communication from Monte Titoli. Detailed information is also given on Settlement Instructions for totally or partly settled Collateral Instructions. 8

9 Collateral Profile Financial Instruments to be excluded from the Collateral Transactions with the Bank of Italy (For ISN or Issuing Country) Entry/Cancellation of DVP, FOP and FOP-R Transactions Information on the acquisition/cancellation of DVP, FOP and FOP-R Transactions Provisional Information of settlement to Participants and Settlement Agents Information on the settlement of a Collateral Instruction 3 Detailed Information of Settlement Instruction Insertion/Deletion of Request to substitute Collateral and result thereof (Collateral Recall) Information on the automatic return of financial instruments no longer accepted as Collateral disposed by the System Information on the auto-substitution of Collateral for corporate actions (Collateral Autosubstitution) disposed by the System Information on the Transactions of top up and return of Collateral disposed by the System in connection with the mark to market process Information on the Bilateral Exposure at the end of the execution of the mark to market process Intraday Information on Bilateral and Exposure and on Collateral Position Notification of Insufficient or Excess Collateral with respect to Bilateral Exposure 1.4 Operational calendar of the Service The Service follows the TARGET2 calendar. 1.5 Classification of the financial instruments admitted to the Service For the purposes of the application of the rules for the selection and valuation of Collateral (Collateral eligibility rules, concentration limits and valuation parameters) financial instruments are classified in the following typologies: governmental supranational corporate agency structured These typologies are defined on the basis of the type of issuer and, only for the structured category, on the type of issue. For financial instruments admitted to the service, Monte Titoli shall takes into account the information gathered from other information providers. For financial 3 Including the detail of the Settlement Instruction. 9

10 instruments eligible for the ECB, the System follows the ECB classification of "liquidity class and issuer group. The list of the financial instruments admitted to the System and their classification is communicated according to the modalities as of paragraph

11 2. Participation to the Service Formalities for Participants in the Service The Request for Services that persons specified in the Rules must sign in order to participate is available on Monte Titoli s website. At the launch of the first stage of the Service participation is reserved to Participants in the Central Securities Depository System. In addition, at the launch of the first stage of the Service the only Participant to act as Receiver is the Bank of Italy while the other Participants can only act as Givers. 2.1 Access to the Service Participants can access the functionalities of the Service exclusively via the communication channels specified in paragraph Participants must equip themselves with an MT- workstation to access the functionalities of the Service that are available only via the web user interface The participation to the service is in his own name and on his own behalf, and the Participants may operate directly or use a third party (operational agent); the latter must equip itself with an MT- workstation If a Participant uses a third party, it must grant it an operational mandate by filling in the appropriate form in the Participation Documentation. The Participant will nonetheless remain liable for the activity of the third party. 2.2 Participation profiles Each Participant must define its participation profile in relation to its business as a Giver and/or Receiver through the electronic channels as in Annex 2.2, in accordance with the following rules and parameters; it is reserved the right of application of the rules defined by Central Counterparties and by the Market Management Company with reference to their Operating Sections where indicated. For Sections relating to Transactions concluded on the Markets and Transactions Guaranteed by Central Counterparties, Participants must define the profile of participation as Giver and Receiver Partial settlement option: the Participant may permit the partial settlement of Collateral Transactions: for the Sections concerning Transactions closed out of the market and to Transactions of Markets (or segments) not guaranteed, the expressed Partial 11

12 settlement option applies only if the counterparty has expressed the same option; for the Sections concerning Transactions guaranteed by the Central Counterparty the Partial settlement option can be expressed only by the Central Counterparty. for Transactions with the Bank of Italy, partial settlement applies when the Giver expresses such an option, as the profile of the Bank of Italy as a Receiver is already set to permit partial settlement. The partial settlement option may not be chosen for a single Collateral Transaction. Management of the Collateral Transactions as of articles 24 and 25 of the Rules Collateral Recall and Collateral Autosubstitution Transactions may be partially executed, even if the Participant has not chosen partial settlement. Partial settlement can be set up on optional basis. If the Participant has not set up such option, it applies the rule defined by Monte Titoli and communicated with the modalities as of paragraph 1.2.1, according to article 4 (1)(e) of the -COM Rules Acceptance option: the Participant for the activity as a Receiver has to define the acceptance modalities of the FOP and FOP-R Transaction and their relevant requests for cancellation. There are the following options: automatic : the System automatically accepts such Transactions on behalf of the Receiver; partially automatic : the Receiver makes the list of Givers for whom the System automatically accepts the Transactions (i.e. white list); with regard to the Transactions entered by Givers not included in the list the Receiver has to accept/refuse manually; manual acceptance/refusal : the Receiver intends to accept/refuse each transaction. The acceptance modality is set separately for the entrance of FOP Transactions, for the entrance of FOP-R transactions, the cancellation of FOP Transactions and the cancellation of FOP-R Transactions. The acceptance profiles of FOP-R Transactions does not apply to FOP-R Transactions automatically generated by the System to close closed FOP Transactions. The System rejects FOP Transactions and FOP-R transactions entered by a Receiver that has set up the automatic o partially automatic acceptance profile with a Giver included in the white list. The acceptance modality can be set up on an optional basis. If the Participant has not set up such option, it applies the rule defined by Monte Titoli and communicated with the modalities as of paragraph 1.2.1, according to article 4 (1)(e) of the -COM Rules Collateral Autosubstitution option: according to article 25 of the Rules, the Participant or the Settlement Agent (where relevant) may permit the automatic substitution of financial instruments provided as Collateral in the case of a corporate action. that are involved in a corporate action. The Participant may configure this parameter only in relation to its own activity as a Giver. 12

13 The automatic substitution option for corporate actions can be set up on an optional basis. If the Participant has not set up such option, it applies the rule defined by Monte Titoli and communicated with the modalities as of paragraph 1.2.1, according to article 4 (1)(e) of the - COM Rules Collateral eligibility rules: This parameter may be configured by the Participant only in relation to its own activity as a Receiver. The Bank of Italy as Receiver accepts Collateral on the basis of the list of financial instruments provided daily to Monte Titoli and valid for the next Accounting Day. The eligibility criteria for financial instruments in Collateral Transactions with the Bank of Italy are governed by the Contratto quadro sulle garanzie per le operazioni di finanziamento (Pooling Framework Agreement) for the Section concerning Transaction closed out of the market: the eligibility rules are set up in the System by the Receiver and are subject to the confirmation by the Giver to whom are applied; Below the eligibility rules that can be set up by the Receiver for the Section concerning the Transactions traded out of the market: 1. type of financial instruments accepted (possible types: governmental, supranational, corporate, agency, structured); 2. denomination currency of the financial instruments accepted (the possible currencies can be chosen among the denomination currencies of the financial instruments in the Central Securities Depository System); 3. minimum rating accepted, different for each type of financial instrument accepted (governmental, supranational, corporate, agency, structured) or, if the Participant accepts financial instruments without a rating, it can be defined the no rating option. With reference to the minimum rating accepted, the System refers to the composite rating defined by Monte Titoli and communicated with the modalities as of paragraph composite rating, calcolato con le modalità di cui Allegato 2.2; 5. maximum quotation age. The financial instrument is accepted only if the difference between the current date and the quotation date for the available price for the financial instrument is not more than the indicated maximum quotation age. The quotation age is expressed as the number of days calculated on the basis of the business calendar of the Service; 6. excluded issuers. It is defined a list of issuers codes that are not accepted; 7. exclusion option close link (flag yes/no). If set on "yes", the Receiver accepts financial instruments whose issuer/guarantor is linked to the Giver through corporate relationships ( conflict of interest ); 8. issuer country, different for each type of financial instrument (governmental, supranational, corporate, agency, structured). 13

14 Each eligibility rule can be set up on an optional basis. If the Receiver has not set up one or more eligibility rule the rules defined by Monte Titoli apply. for the Section concerning the Transactions with the Bank of Italy: The Bank of Italy as Receiver accepts Collateral on the basis of the list of financial instruments provided daily to Monte Titoli and valid for the next Accounting Day. The eligibility criteria for financial instruments in Collateral Transactions with the Bank of Italy are governed by the Contratto quadro sulle garanzie per le operazioni di finanziamento (Pooling Framework Agreement) and the Participants have to provide to Monte Titoli all the information for the exclusion of financial instruments as of art. 23(2) of the Rules. The financial instruments accepted as a collateral by the Bank of Italy are managed in the System with a specific Basket for the Section of the Transaction traded on Markets not guaranteed by Central Counterparty: the System manages specific rules for the Basket composition, defined by the Market Management Company; for the Section of the Transactions guaranteed by Central Counterparty: the System manages specific rules for the Basket composition, defined by the Central Counterparty. The Close-link control is managed by the System for financial instruments belonging to the Corporate type. The Close link constraint is managed with reference to the company group of the issuer and, if present, to the guarantor(s) of the financial instrument. Limited to one or more Operating Sections, it is possible to not proceede with the Close-link control with respect to some categories of Corporate financial instruments similarly to what is foreseen by the Eurosystem rules, as reported in the Service Communications. For the Operating Sections of the Transactions guaranteed by the Central Counterparty and the Transactions closed on a not-guaranteed market, such a possibility is reserved, respectively, to the Central Counterparty and to the Market Management Company, while for the Section of the Transactions closed out of the market it is defined by Monte Titoli in accordance with the Participants and communicated with the modalities as of paragraph 1.2.1, according to article 4 (1)(e) of the -COM Rules. The Close-link control done by Monte Titoli takes place within the limits of the information received by the info-provider. The Receiver and the Central Counterparty can ask to the Giver the substitution of the Collateral placed for which ex post a Close link constraint is obsreved. The financial instruments for which it is not available information on Close link, are considered by the System: Concentration limits: not eligible for OTC Transactions if the Receiver has not excluded the Close link rule in the elegibility rules of his profile; not eligible for not guaranteed market Transactions, if not otherwise foreseen by the rules of the interested market; not eligible for guaranteed market Transactions, if not otherwise foreseen by the rules of the interested CCP. for the Section concerning the Transactions traded out of the market: the 14

15 concentration limits are set up by the Receiver and are subject to the confirmation of the Giver to whom are applied; Below the concentration limits that can be set up by the Receiver for the Section concerning the Transactions traded out of the market: a. maximum percentage of financial instruments for each combination of rating class and financial instrument type (governamental, supranational, corporate, agency, structured); b. maximum percentage of financial instruments for each combination, by issuing country and by financial instrument type (governamental, supranational, corporate, agency, structured); c. maximum percentage of an issue (ISIN) on the total value of the issue (nominal value); d. maximum percentage of an issue (ISIN) on the total amount (as countervalue) of the financial instruments placed. For the concentration limits as of a., b. and d. the percentage is applied to the countervalue of the financial instruments placed and/or to be placed as a collateral of the Bilateral Exposures with the same Eligibility Set. For the concentration limit as of (c) the maximum percentage is verified with reference to the nominal value of the issue (ISIN) placed and/or to be placed as a Collateral of the Bilateral Exposures with the same Eligibility Set. Each concentration limit can be set up on an optional basis. If the Receiver has not set up one or more concentration limits, the limits set by Monte Titoli apply, unless the Receiver has opted for the no application of each concentration limit. for the Section concerning the Transactions guaranteed by the Central Counterparty the concentration limits defined by the Central Counterparty apply with reference to the financial instruments placed or to be placed in favour of the Receiver, as collateral of the Bilateral Exposures with the same Eligibility Set. for the Section concerning the Transactions traded on a market not guaranteed by a CCP: the concentration limits defined by the Market for the interested Basket apply with reference to the financial instruments placed or to be placed in favour of the Receiver, as collateral of the Bilateral Exposures with the same Eligibility Set. The Markets can opt for the concentration limits listed in the context of the available types for the OTC Transactions; for the Section concerning the Transactions with the Bank of Italy the application of concentration limits is not foreseen Valuation parameters: for the Section concerning the Transactions closed out of the market: the haircut can be defined by the Receiver on a bilateral basis and are subject to the confirmation by the Giver to whom are applied; Below the types of haircut that can be set up by the Receiver for the Section concerning 15

16 the Transactions traded out of the market: 1. haircut for quotation age: it can be set up an haircut for each segment of quotation age calculated according to the calendar of the Service (segments: 1 day, 5 days, 30 days, 90 days, more than 90 days) or, as an alternative, it can be set up an haircut if quotation age more than n days ; 2. haircut cross-currency (currency risk), to be applied if the denomination currency of the security is different from the Currency of the Transaction (now only euro); 3. haircut for each combination type of financial instrument (governmental, supranational, corporate, agency, structured) and rating class. If the Receiver does not define one or more of such haircut types, the values defined by Monte Titoli apply. for the Section concerning the Transactions guaranteed by the Central Counterparty the haircut defined by the Central Counterparty apply; for the Section concerning the Transactions traded on Markets not guaranteed, if foreseen, the rules defined by the Market apply. The Market can define haircut in the context of the types listed before for the OTC Transactions; for the Section concerning the Transactions with the Bank of Italy percentages of haircut are not taken in consideration as the financial instruments are valuated on the basis of prices communicated by the Bank of Italy already net of haircut The choice of the options referred to in points from to and may be changed at any time during the Accounting Day according to service timetable with effect from the following Accounting Day from the clearing and settlement cycle subsequent to the change, given what stated in the following paragraphs without prejudice to the fact that The changing the parameter for the partial settlement option for FOP and FOP-R Transactions is only effective for Transactions acquired or generated in the System from the following Accounting Date by the Service subsequently to the change The modification of the selection and valuation criteria of the Section concerning the Transactions traded out of the market applies to the Transactions matched after such modification and implies the creation of a new applicable Eligibility Set The modification of the selection and valuation criteria applied to the Sections concerning Transactions guaranteed by Central Counterparty and the Transactions traded on Markets not guaranteed by Central Counterparty applies as defined, respectively, by each Central Counterparty or by the Market Management Company Participants may specify their participation profiles at the time of joining and notify subsequent changes using the channels indicated in point 1.3. The Participants use the electronic channels as of Annex 2.2, in order to provide to Monte Titoli the necessary information for the exclusion from the allocation process of financial instruments that do not satisfy the rules of the Managing System of the Collateral Pooling according to article 23(2) of the Rules. 16

17 Currently such information is represented by: list of Securities (ISIN) for which close links do exist; list of G10 countries not belonging to the European Economic Area for which the Participant has failed to fulfill the obligations of tax imposed by the "Framework Agreement on guarantees for financing operations." The indication for the exclusion of financial instruments in relation to Transactions with the Bank of Italy has immediate effects If a Participant fails to indicate one or more aspects concerning the parameters referred to in the preceding points, the parameters specified by the System and communicated by Monte Titoli in the manner referred to in point 1.2 will apply Reference currency for the information on Expositions The Participant can choose a reference currency for the information concerning the Bilateral Expositions that he has, respectively, with all the other counterparties participant, within the following currencies: EUR; USD; GBP; CHF; JPY. If the Participant does not define a reference currency, the information is given in euro. 2.3 Relationship with the Settlement Agent The Participant signs with the Settlement Agent an agreement compliant with a specific model prepared by Monte Titoli, limited to the aspects of his interest. Such an agreement has to be sent to Monte Titoli in an original copy by means of a letter with received confirmation or mail express and anticipated by to the following address: mdm@lseg.com Without prejuduce to article 7 comma 2, of the Rules the withdrawal shall be communicated by the subject that withdraws to the counterparty and simultaneously to Monte Titoli. The communication of the withdrawal shall be through registered mail or through courier and anticipated by electronic mail to the address: mdm@lseg.com. The communication shall arrive by 4 p.m., if it is received afterwards it is considered as arrived the following Day. With referencethe Operating Section for the Transactions with the Bank of Italy, the communication concerning the withdrawal must be received no less than 10 working days 17

18 before the effective date of withdrawal, and in any case in respect of the period of notice referred to the withdrawal of the "custodian bank" as part of the GC pooling System managed by Bank of Italywhile for the other Operating Sections such communication shall be must be received no less than 5 working days before the effective date of withdrawal In the case of withdrawal from the agreement with the Settlement Agent, the settlement date of the FOP-R Transactions, entered by the Participant according to article 7(3)(a), of the Rules, shall not be after more the one day from the settlement day of the Transactions irrevocable already in the System or, if missing, shall not be after the end of one Day from the effective date of the withdrawal If a new agreement is signed between the Participant and another Settlement Agent, Monte Titoli will communicate the date from which such an agreement will be valid, even though operational requirements (accounts opening, transfer of Bilateral Exposures, regulation or test of the related contractual relationships, etc.) can make necessary the suspension of the Participant In the above case, at the effective date of the new agreement Monte Titoli will transfer to the new Settlement Agent the Transactions in the System and will update the records for the traceability of the financial instruments, through the change of the reference settlement account. 2.4 Actions towards Participants According to article 10 (6), of the Rules, in the case of a Participant not fulfilling his obligations in relation to the top up or return processes of Collaterals, the counterparty, under its own responsibility, can request to Monte Titoli: - the cancellation of the Transactions not settled for non-fulfilment by the Participant; - the cancellation or the update of the Bilateral Expositions connected to the Transactions subject to cancellation; - the transfer of the Collateral received by the unfulfilling Participant and registered in its RCA account to another securities account of the Central Depositary System (indicating the ISIN and the amount); The request for actions as of the paragraph above shall be communicated to Monte Titoli through registered mail or courier, anticipated through electronic mail to the address: xxx and signed by the person with the relevant power of attorney, that shall be proved together with the request The action as of paragraph are carried out by Monte Titoli without the obligation and the right of verifying the opportunity and the compliance with possible contractual agreements between the Participants. 18

19 3. The operation of the System The lists of the Operating Sections and of the financial instruments admitted to the System are made available through the service communications, as of paragraph The Service allows managing: Transactions between Participants, that can be DVP or FOP; Transactions with the Bank of Italy, for the creation of Collaterals in the Management System of the Collateral Pooling, that are only FOP. The DVP Transactions between Participants can be traded out of the market or on a Market and guaranteed or not guaranteed by Central Counterparty. The FOP Transactions between Participants could be only OTC have as objective the collateralisation of financing transactions and are not guaranteed by Central Counterparty. For DVP Transactions, the System transfers: financial instruments provided as collateral by the Giver to the Receiver in the context of central depositary accounts (and vice versa); cash from the Receiver to the Giver through the TARGET2 System (and vice versa). The DVP Transactions are managed through the Service in the in the form of a classic repo and with the application of the ACT/360 convention on interests calculation. The management of the forward transaction is linked to the settlement of the spot transaction and the interests included in the forward transaction amount are calculated as follows: if for the lack of financial instruments the spot transaction is not settled, totally or partially, at ISD the amount of interests owed from the Giver to the Receiver is calculated with reference to the spot transaction amount traded for the financing duration; if for the lack of cash the spot transaction is partially or totally settled after the ISD, the interests amount is calculated with reference to the spot transaction amount settled and to for the financing duration. Starting form the spot transaction ISD until the end date of the Transaction, at the end of each Accounting Day the System updates the amount of the forward transaction, as the sum of the amount settled of the spot transaction and the interests amount. For the FOP Transactions between Participants and for the Transactions with the Bank of Italy, the System manages separately: the FOP Transaction for the opening or the increase of a credit line, that can be open if it does not show the close date or closed if it shows the close date; the FOP-R transaction for the closure or the decrease of a credit line with the total or partial refund of the Collateral. 19

20 3.1 Structure of the accounts and entry of the financial instruments For the Service activity giver-accounts are foreseen where are recorded and identified the financial instruments that can be placed as a Collateral and receiver-accounts (RCA) where are recorded the financial instruments received in the context of a Transaction. With reference to the Section of the Transactions guaranteed by Central Counterparty, the Participant for the Transactions closed by third parties and on behalf of which he assumes the relevant obligations in the context of the Central Counterparty and in the context of the Collateral Management Service can hold: omnibus accounts, if dedicated to collect the financial instruments made available by various third parties; dedicated accounts for each third party, if dedicated to collect the financial instruments made available only by one third party, The holder of a Giver Collateral Account (GCA) will be designated by the Service as the original owner of the financial instruments it has made available in the Service The Service ensures the traceability of the financial instruments belonging to the original owner so as to permit their substitution Credits to a GCA account (so as to make financial instruments available to the Service) and debits to a GCA account (so as to withdraw the financial instruments from the Service) can be ordered exclusively in connection with the account held by the Participant in the Central Securities Depository System in the manner established by the Central Securities Depository Service The holder of a Receiver Collateral Account (RCA) will be designated by the Service as the current owner of the financial instruments it has received as Collateral The holder of the GCA account shall make available, on the GCA account, exclusively financial instruments for which close link restrictions are not in place and for which the fiscal requirements provided for in the Pooling Framework Agreement signed by the Bank of Italy are fulfilled The giver-account can be: a Giver Collateral Account dedicated to the activity in the Collateral Management Service, called Giver Collateral Account (GCA); or an Ordinary Giver Account of the CSD System. The Participant, or if present the Settlement Agent, shall make available in the System the financial instruments according to the following modalities: if the giver-account is dedicated (GCA), through the transfer from the securities account of the CSD System (not necessarily belonging to the Participant at -COM) 5 ; if the giver-account is an Ordinary Account, through the so-called "collateralisation profile" as of Annex 3.1, or by communicating one of the following options: 4 A not matched FOP transfer by means of an RNI or SWIFT message or via MT-. 5 FOP Transfer not matched through RNI messagge, SWIFT or via MT-. 20

21 availability of all financial instruments in the account; availability of all financial instruments with the exclusion of the ones expressly specified (with the indication of the ISIN and related amount on the basis of Accounting Day); availability only of the financial instruments specified and for the specified amount (with indication of ISIN and relative quantity on the basis of Accounting Day); unavailablity of all financial instruments. These warnings can be modified, within the Service opening hours,before the cut-off indicated in the Service Communications and are valid from the following Accounting Day. With reference to the Section of the Transactions guaranteed by Central Counterparty, the Participant defines different "collateralisation profiles" for the activity of each giver-account used in the Service context, according to what stated in paragraph With reference to the category of financial instruments "structured" Participants are required to make available to the System only financial instruments for which there is no close-link The Participant that has made available to the System financial instruments (through the Settlement Agent if chosen) is qualified by the Service as the original owner of the financial instruments transferred as Collateral. The Service guarantees, through specific records, the traceability of the financial instruments belonging to the original owner in order to guarantee the return of Equivalent Securities and the possibility to do the substitution of the Collateral In the System Collaterals are transferred by records in the RCA accounts of the Receivers Participants or in the Bank of Italy account. Participants: can request the opening of more than one RCA account in order to segregate the Collaterals received by one or more specific counterparty. The Participant holder of the RCA account, or to whom the RCA account is dedicated, on which the financial instruments are credited following the settlement of Collateral Transactions as well as the Bank of Italy for what concerns the account used for the Transactions with the Bank of Italy is qualified by the Service as current owner of the financial instruments recorded on that account. 3.2 Entry of transactions Collateral transactions In the -COM System (see Annex 3.2): Participants can enter FOP, FOP-R, DVP Transaction, as Collateral Request, and 21

22 transaction of Collateral substitution; Markets can enter DVP Transactions, as contracts; Central Counterparties can enter DVP Transactions, as contracts; for each contract concluded on the Market, the Central Counterparty transmits two contracts deriving from its interposition: - a contract between the Giver Participant and the CCP - a contract between the CCP and the Receiving Participant. Transactions can be entered during the Service time indicated in the Communication as paragraph 1.2.1; the transactions entered before or after the foreseen times are rejected by the System. The transactions entered cannot be modified The DVP Transaction: shall contain the spot ISD and the forward ISD; - the spot ISD can be the same as the entry date or subsequent; - the forward ISD can be the same as the subsequent day to the spot ISD, or subsequent; can contain the trading date that: - for Transactions between OTC Participants, can be retroactive, that is before the Accounting Day in which the entry takes place; - if not specified, coincides with the entry Accounting Day; if entered in the context of the Section for the Transactions traded out of the market, shall be entered by both counterparties Participants, even on different Accounting Days, but not later then the spot ISD The opening of FOP Transactions between Participants:: may be closed, with the closing date indicated in the Collateral Request of the opening transaction, or open, with the closing date not indicated in the Collateral Request of the opening transaction; may be for immediate execution or for deferred execution (with a settlement date subsequent to the date of entry of the Collateral Request of the opening transaction entered by the Giver); may have a backdated trading date in the Collateral Request, i.e. a date earlier than the Accounting Day on which the Collateral Request was entered. it shall be entered in the System by the Giver while the one belonging to the Receiver: - is automatically created and accepted by the System on behalf of the Receiver, if he has set up the automatic acceptance option or partially automatic with a Giver in the white list; - otherwise it shall be entered by the Receiver before the ISD. 22

23 In the case of a closed FOP Transaction between Participants, at the closing date the System automatically creates, on behalf of the Giver and of the Receiver, different the Collateral Request for the closing of FOP-R Transaction for eaach Collateral Request FOP (close) that has been includeed in the amount of the the current Bilateral Exposure. The FOP-R Transaction generated by the System takes account of the changes that have occurred to the Collateral as a result of substitutions requested by the Giver or carried out automatically in connection with a corporate action (see points 5.2 and 5.3), of redemptions of financial instruments transferred to be used as Collateral (see point 5.4), and of returns of financial instruments no longer accepted as Collateral by the Bank of Italy (already carried out or created on the same Day as the creation of the FOP-R, see point 5.5). In the case of an open FOP Transaction, the Giver must enter the Collateral Request of the closing FOP-R Transaction, which can only be for immediate or deferred execution (with the settlement date equal or subsequent to the entry Accounting Day) In the case of an open FOP Transaction or of an anticipated closing request for a FOP-R Transaction closed between Participants, the Giver shall enter the Collateral Request of the FOP-R Transaction, that can have immediate or deferred execution and shall indicate the financing amount to be refunded (as decrease or closure of the Bilateral Exposure). The Collateral Request of acceptance by the Receiver: - is automatically created, in the same Day when it is acquired the one of the Giver, and accepted by the System on behalf of the Receiver if he has set up the automatic acceptance or the partially automatic option with a Giver in the white list; - otherwise shall be entered by the Receiver For the Transactions with the Bank of Italy what foreseen in the previous paragraphs applies, with the specification that on behalf of the Bank of Italy (Receiver) it applies the partially automatic acceptance of FOP and FOP-R Transactions (with the Givers Participants to the - COM Service qualified to the segment of the Transactions with the Bank of Italy and participants to the Managing System of the Collaterals Pooling included in the white list). For the Transactions with the Bank of Italy it is possible to enter FOP-R Transactions with the indication: - of the financing amount to be refunded (as decrease or closure of the Bilateral Exposure); - of a specific issue (ISIN) and related amount to be refunded. In this case the Transaction can only be "with immediate execution" and the financial instrument (ISIN) recalled is made available for new placements on the giver-account, until the end of the accounting day The substitution transactions of Collaterals that can be entered by Participants are listed in Chapter 6. 23

24 When Transactions Collateral Requests for FOP and FOP-R Transactions are entered into the System, the validation rules described in the in Annex 3.2 Appendix must be complied with. 24

25 4. Acquisition, and matching and cancellation of Transactions 4.1 Acquisition and matching The Collateral Requests for FOP and FOP-R Transactions entered by Participants with the Bank of Italy as counterparty and the Collateral Requests for FOP-R Transactions generated automatically by the System on the closing date of a closed FOP Transaction The Transactions entered by Participants, Markets or Central Counterparties, the Transactions with the Bank of Italy and the Transactions of management of Collaterals entered by Participants are passed to the acquisition phase, which is divided into validation and enrichment Validation consists of formal, logical and consistency checks on the elementary data of the instructions and checks on the ID data of financial instruments (including identification codes of basekts when forseen) and Participants Enrichment is carried out only if no errors were found in the validation phase. It consists in inserting the values of all the default data lacking for both the parties to the Transaction and the information on the clearing and settlement of Transactions If the result of validation and enrichment is negative, the System informs the subject Participant that entered the Transaction. If the result is positive, the transactions are sent to the following phases of the process. the Collateral Requests in question are accepted automatically by the Bank of Italy and matched with the corresponding Collateral Requests generated automatically by the System on behalf of the Bank of Italy as Receiver The Transactions in the acquisition and matching process can have the following statuses, which are notified by the System to the Participants involved: validation status: Rejected (owing to an error in entering the instruction, with a consequent fail in the validation process); matching status: "Not Matched", "Refused" 6 Matched Collateral Requests can have two identifiers: a. the identifier (or ID) assigned by the communication channel at the entry of the Collateral Request into the System; b. the ID assigned by the System upon successful completion of the validation and enrichment process. In the case of a Collateral Request for a FOP-R Transaction generated automatically by the System on behalf of the Giver at the closing date, the ID referred to in point b) coincides with that of the opening FOP Transaction Collateral Request. 6 Applicable in case of FOP or FOP-R Transactions rejected by the Receiver. 25

26 In the case of a Collateral Request for a FOP Transaction and an FOP-R Transaction generated automatically by the System on behalf of the Participant or the Bank of Italy as described in point 3.3.1, only the ID referred to in point b) is present. The IDs of Collateral Requests referred to in points a) and b) are included in the acquisition and matching information made available to the Participant (see Annex 4.1) In the case of positive result of the validation and enrichment processes, the System proceeds as follows: at the acquisition of DVP Transactions traded on the Market and not guaranteed: o o it creates two Collateral Requests (one for each counterparty) containing the data of the spot leg and of the forward leg (indicated as matched in the matching status) and two different Collateral Instructions, respectively for the spot leg and for the forward leg, sending a notification to both Giver and Receiver counterparties; the Collateral Requests indicate the reference of the Market Contract, while the Collateral Instructions indicate the reference of the Collateral Request; communicates to the Market the acquisition result, if requested; at the acquisition of DVP Transactions traded on the Market and guaranteed by CCP, the System creates the following Collateral Request (indicated as matched in the matching status): o Collateral Request between Giver and CCP; o Collateral Request between CCP and Giver; o Collateral Request between CCP and Receiver; o Collateral Request between Receiver and CCP; and the following Collateral Instructions: o two Collateral Instructions for the spot leg (Giver - CCP and CCP - Receiver); o two Collateral Instructions for the forward leg (Receiver - CCP and CCP - Giver). The Collateral Requests indicate the reference to the Market contract and of the Central Counterparty while the Collateral Instructions indicate the reference to the Collateral Requests. at the acquisition of a Collateral Request of FOP or FOP-R type of Transactions with the Bank of Italy the System automatically generates the Collateral Request on behalf of the Bank of Italy for the automatic acceptance and match of the Collateral Request entered by the Giver (or automatically generated by the System) and creates the relative Collateral Instruction; if the Giver is not included in the list of Participants to the Managing System of the Collateral Pooling, the relative Collateral Request indicates not matched in the matching status; at the acquisition of a Collateral Request of DVP OTC Transactions, the System initiates the matching phase; at the acquisition of a Collateral Request of FOP and FOP-R type between Participants 26

27 entered by the Giver, if the Receiver has set up the automatic or partially automatic option with reference to the interested Giver, the System automatically generates the Collateral Request on behalf of the Receiver which is automatically matched with the Collateral Request of the Giver; both Collateral Requests indicate matched in the matching status; otherwise the System initiates the validation matching phase The matching process has the aim to verify the correspondence of the information present in the Collateral Request entered by the Giver and by the Receiver referred to the same Transaction. In the following table are reported the fields of the Collateral Request that are subject to matching. The non-mandatory fields if set on a value become matching key fields. Instruction field DVP OTC FOP and FOP-R between Participants Mandatory Matching key Mandatory Matching key Transaction type Giver Receiver ISIN Code o Basket ID Transaction amount 7 Quantity Currency of the Transaction Trade date (Trade date)/ date of the collateralisation request Settlement date Closing date Forward ISD Interest rate ID of the Bilateral Exposure At the end of the matching process the System submits the notification on the relevant result (see Annex 4.1) and files in the matched status the Collateral Request that has positively passed the matching phase The Service acquires the Collateral Requests and provides information on the same in the manner specified in the Appendix to the Instructions (see point 7.2) The System When FOP and FOP-R Transactions are assigned the Matched status, the Service generates the related Collateral Instructions, which are passed to the clearing and settlement cycles on the date specified. for each pair of Collateral Requests of FOP and FOP-R type filed in the matched 7 For FOP-R where the quantity field is blank 27

28 status generates a Collateral Instruction whose identification number allows Giver and Receiver (and, if designed, the relevant Settlement Agents) to monitor the 8 settlement status in the settlement process; for each pair of Collateral Request of DVP type filed in the settled status generates two different Collateral Instructions (one for the spot leg and one for the forward leg) whose identifications allows the counterparties Giver and Receiver (and, if designed, the relevant Settlement Agents) to monitor the settlement status in the settlement process; At the time they are created, Collateral Instructions are assigned the settlement status of awaiting settlement (see point 4.1.3) Collateral Requests entered into the System when the Service is closed are set aside. 4.2 Cancellation Collateral Requests for FOP and FOP-R Transactions cannot be cancelled if the related Collateral Instructions have already been settled The cancellation of Collateral Requests not matched has effects only on the Collateral Request, the cancellation of the Collateral Request matched has an effect: for FOP and FOP-R Transactions has an effect on both the Collateral Request and the related Collateral Instruction. for the DVP Transactions: o o o both on the Collateral Request and on the related spot and forward Collateral Instructions, in the case of a spot Collateral Instruction not settled; both on the Collateral Request and on the related spot and forward Collateral Instructions, in the case of a cancellation request both of the spot Collateral Instruction partially settled, for the unsettled part and of the forward Collateral Instruction not settled; only on the spot Collateral Instruction, in the case of a cancellation request only of the spot Collateral Instruction partially settled, for the unsettled part The cancellation of Collateral Requests for FOP-R Transactions can be made provided the related Collateral Instruction does not have the indicator awaiting confirmation showing YES ; in such case in fact one or more Settlement Instructions for the return of financial instruments are awaiting confirmation of return by the Bank of Italy (see point ) If the Collateral Instruction of a Collateral Request has been partially settled, the part not settled of the Collateral Request can be cancelled exclusively by Monte Titoli on the basis of a written request from both Participants or only from the Giver for Transactions with the Bank of Italy to forward by electronic mail to ( xxxxx@xxx.it address). For DVP Transactions 28

29 with spot Collateral Instruction partially settled, the cancellation request shall specify whether the cancellation concerns, beside the not settled part of the Collateral Instruction of the spot leg, the Collateral Instruction of the forward leg, giving in this last case instructions for the management of the connected Bilateral Exposure. from the Giver and only for the part that has not been settled If no part of the Collateral Instruction of a Collateral Request has been settled, the Collateral Request can be cancelled as follow ; in this case the cancellation instruction entered by the Giver a must contain the identifier of the Collateral Request to be cancelled (see the Appendix, point 7.1). for Collateral Transactions with the Bank of Italy, upon request of the sole Giver (as the cancellation request is automatically accepted); for the FOP and FOP-R between Participants, upon request entered by the Giver; the Receiver has to accept it (or refuse it) only if it has set up the manual or partially manual acceptance profile and the Giver is not present in the relevant white list; for the FOP and FOP-R between Participants, upon request entered by the Receiver, in this case after the request of the Receiver the request of the Giver shall follow for the match; for DVP Transactions, if the Participants wants to cancel both the spot Collateral Instruction and the forward Collateral Instruction, upon request entered by both Participants; for DVP Transactions, in the case that the spot leg is not settled for lack of financial instruments 9 and the Participants wants to cancel only the spot leg not settled so that the System manages the settlement of the forward leg (represented only by the interests calculated on the negotiated amount), upon request of both Participants to be sent by electronic mail to ( address of xxxxx@xxx.it), of cancellation of the Collateral Instruction of the sole spot leg so that the System at the forward date will settle the forward leg for the amount indicated above In relation to the moments in which cancellation instructions can be entered into the System, the following rules are valid: cancellation will be possible during the hours the Service is open and, for FOP-R Transactions not settled at the intended settlement date, also subsequently to the that date; it is possible to enter cancellation instructions also from ISD of the Collateral Instruction to which are referred; in this case, if the Collateral Instruction is in the settlement process, the cancellation request is filed as awaiting and is dealt with as soon as possible; as of the settlement date of a Collateral Instruction Request, a cancellation instruction can be entered on the condition that clearing and settlement cycle of the related Collateral Instruction is not under way. Requests for cancellation that arrive during a clearing and settlement cycle of the same Collateral Instruction are rejected and must be re-entered into the Service; 9 State "unregulated" associated with the indication of FAIL (B) 29

30 a request for the cancellation of the Collateral Request of a FOP-R Transaction with the Bank of Italy for which the related Collateral Instruction is awaiting confirmation by the Bank of Italy will be set as awaiting "for cancellation" rejected and must be re-entered into the Service. for the Collateral Request for which is requested the cancellation by both parties, the System does not require the sequentially in the arriving orders of the Collateral Request from the Giver and the Receiver and allows their transmission in different Days Cancellation instructions entered by Participants shall contain the identification of the Collateral Request to be cancelled and are subject to validation. The process refers exclusively to the information needed to carry out the cancellation and to the existence of the Collateral Request to be cancelled, the related matching status and the settlement status of the Collateral Instruction. Consistency checks are not foreseen on the other data present in the original FOP or FOP-R Transaction. It follows that the System does not signal an error if the cancellation instruction contains information that differs from that in the original FOP or FOP-R Transaction The cancellation instructions entered by Participants, if related to Transactions matched, have to be matched. The matching can take place: until the Day before the forward date in the case of cancellation of a Collateral Request FOP (closed); until the Day before the forward ISD for the spot Collateral Request of a DVP Transaction; before a number of Days defined by Monte Titoli and communicated in the manner referred to in section and starting from the entry of the cancellation request by the counterparty in the case of a cancellation of a Collateral Request FOP (open) or FOP-R. At the end of each Day the System automatically cancels the Collateral Request of cancellation not matched in the case that the related Collateral Instructions are in settlement status as settled and partially settled or in the case of a cancellation request not matched before the term foreseen of the matching Cancellation instructions for FOP and FOP-R Transactions with the Bank of Italy are accepted automatically, so that once the validation phase has been successfully completed, the FOP and FOP-R Transactions are automatically matched and cancelled In case of cancellation of a FOP-R Collateral Request referred to a closed FOP Transaction the System transforms the original FOP Transaction from "closed" to "open", consequently updating the Bilateral Exposure between the Giver and the Receiver The DVP Transactions guaranteed by Central Counterparty can be cancelled only by instruction of the Central Counterparty itself The cancellation instructions of the DVP Transactions traded on Markets not guaranteed can be entered by the Market or, according to what stated in the previous paragraph, by Participants counterparties of the Transactions. Monte Titoli informs the Market of such cancellations. With reference to the timing, the entry of the cancellation instructions can be done: 30

31 o o by the Management Company starting from the trading date; by Participants counterparties of the Transactions: in the case of a Transactions with ISD of the spot leg coinciding with the trading date, starting from the Accounting Day following the trading if it does not coincide with the ISD of the forward leg; in the case of a Transaction with the ISD of the spot leg following the trading date, starting from the trading date According to article 20(3) of the Rules, if in case of technical error the Management Company or the Central Counterparty requests in the same trading date the cancellation of a contract with ISD coinciding with the trading date and with the spot Collateral Instruction partially or totally settled, the System automatically generates a Collateral Instruction for the reversal of such settlement (see Annex 5.1) The System performs the auto-cancellation of the following operations: Request the Collateral and related Collateral Instruction type DVP, FOP and FOP-R in the case of settlement failure, according to the criteria outlined in the following Collateral Request the type DVP, FOP and FOP-R and related Collateral Instructions not regulated or partially regulated (in this case for the non-regulated, in case of Settlement Agents withdrawal under Article 7, paragraph 5, letter b) of the Rules; Request the Collateral and related Collateral Instruction type FOP-R in case that at the end of the Accounting Day the relevant Exposure Bilateral reference is zero The Service acquires cancellation instructions and provides information on the cancellation status in the manner specified in the Annexes 4.1 and 4.2. point 7.2 of the Appendix to these Instructions The cancellation statuses that a Collateral Request that is to be cancelled can have are as follows: Rejected, if the cancellation request has been refused because the related Collateral Instruction satisfies one of the following conditions: - the Collateral Instruction is being processed in a clearing and settlement cycle; - the Collateral Instruction has the indicator awaiting confirmation showing YES ; - the settlement status of the Collateral Instruction is settled or partially settled ; Cancelled by Governance, if cancelled by Monte Titoli at the request of the Participant; Cancelled by User, if cancelled on the basis of a cancellation instruction entered by the Participant. 31

32 5. 4. Clearing and settlement of Transactions 5.1 Clearing The transactions managed by the clearing and the status that the same can assume during the process are listed in the Annex The clearing takes place during the times indicated in the Service Communications and entails the ordinary phase in which they are cleared and settled all transactions and collateral management operations The acquisition of the transactions to be cleared takes place: I. at the start of the process (i) for the FOP, FOP-R and DVP Transactions and the substitution transactions of the Collaterals entered by the Giver with ISD or execution date equal to the Day, already in the -COM System; (ii) for the transactions automatically generated by the System between the opening of the Day and the start of the process (FOP-R Transactions of closure of FOP "closed", Transactions for the Collaterals Management), as well as for (iii) the Transactions not settled in the previous days; II. during the Accounting Day for (i) the Transactions entered with equal ISD and the substitution transactions on request of the Giver with equal execution date; (ii) the Transaction of Collateral Management automatically generated by the System The Transactions acquired undergo the processing according to an order based on the following criteria: priority level assigned to the Transactions by the System on the basis of: o o o type of Collateral Instruction (see Annex 5.1.A); type of Operating Section, limited to Collateral Instruction DVP, FOP, FOP-R; type of Collateral Instruction DVP (that is spot Collateral Instruction DVP, forward Collateral Instruction DVP, reversal Collateral Instruction DVP). Priority levels assigned to Transactions are listed below in decreasing order (where the priority level zero coincides with maximum priority). 0. Priority level zero: o o o Allocation and refund Transactions with the Bank of Italy (Collateral Instruction FOP and FOP-R); Transactions automatically generated by the system in the context of the mark to market process for the top up or return of collateral missing or exceeding with reference to the exposure amount (Collateral Instruction ACS and CER); Transactions automatically generated by the system for the return of securities not eligible with or without simultaneous substitution (Collateral Instruction ICC, ICM, ICR and COR); 32

33 o o Transactions automatically generated by the system for the refund of securities subject to corporate action (Collateral Instruction CAS); Transactions for the refund of securities and cash (Reversal Collateral Instruction DVP) generated by the system following the cancellation of transactions settled on the request of the Central Counterparty or the Management Company due to technical error; 1. Priority level one: o o Closing transactions of the Section of transactions guaranteed by Central Counterparty (forward Collateral Instruction DVP); Refund transactions, with simultaneous substitution, of securities recalled on request of the giver (Collateral Instruction CRE and); 2. Priority level two: o o o Allocation transaction of the Section transactions guaranteed by Central Counterparty (spot Collateral Instruction DVP); Closing transactions of the Section transactions traded on the market not guaranteed by Central Counterparty (forward Collateral Instruction DVP); Closing transactions of the Section transactions traded out of the market (forward Collateral Instruction DVP); 3. Priority level three: o o o Allocation transaction of the Section transactions guaranteed by Central Counterparty (spot Collateral Instruction DVP); Closing transactions of the Section transactions traded on the market not guaranteed by Central Counterparty (forward Collateral Instruction); Closing transactions of the Section transactions closed out of the market (forward Collateral Instruction DVP) the FIFO criteria (First In First Out) that foresees that in case of Collateral Instructions having the same priority, they are dealt through the clearing and settlement procedure starting with the ones having the remotest date and time of creation; are considered available for processing the Collateral Instructions that: o o do no entail the selection of securities from the same securities account as the one from which is undergoing the securities selection for another Collateral Instruction; do not have the same counterparty Receiver and the same Eligibility Set as of another Collateral Instruction under settlement, in order to guarantee the correct application of the concentration limits. The clearing procedure manages the Transactions at the same time as they are entered for processing according to the criteria above The Transactions acquired are settled one by one verifying before the capacity of the securities account in order to define the possibility to proceed with settlement, that can be 33

34 total or partial as stated in paragraph The DVP Transactions deriving from the interposition of the Central Counterparty following the conclusion of guaranteed contracts are managed in an unitary method in order to minimise the risks for the Central Counterparty by guarantying the simultaneous settlement of the Transactions, included the Collaterals Management Transaction related to such Transactions The -COM System provides, according to the modalities as of Annex 5.1, provisional information on the Transactions that will be settled the following accounting day. The provisional clearing and settlement information is provided: to Participants in relation to the Transactions to be settled belonging to them; to Settlement Agents taking in consideration all the Transactions to be settled on their behalf (if Participants) and/or on behalf of the Participants for whom they operate The -COM System provides to Participants and/or to their securities Settlement Agent, according to the modalities as of Annex 5.1, the information on the availability of financial securities that can be used for collateral transactions as follows: 1. amount and value (by ISIN) of financial instruments accepted as collateral by the Bank of Italy, on the basis of the prices applied by the Bank of Italy including accrual, pool factor and net of haircut, that are present on the Giver; 2. amount (by ISIN) and global value (flat price) of the financial instruments available for -COM, on the basis of the last available market or theoretical prices, available on the Giver-account; 3. amount (by ISIN) and global value (flat price) of the financial instruments available on the giver-account eligible for: the Market Transactions guaranteed by Central Counterparty; the Market Transactions not guaranteed The -COM System in order to optimise its own functioning provides that shall not be available for allocation transactions: until the term stated by the System, the securities balances available on the giveraccount of the same issue as the ones to be returned in execution of a recall transaction on request of the Giver or automatically generated by the System for the refund of a specific ISIN (including the balances deriving from the processing of a recall upon request of the Participant in order to make available securities for the settlement of DVP or FOP Transactions); until the ISD term of the FOP-R for a specific ISIN the securities balances available on the giver-account - of the same issue as the ones that are refunded; the balances of the financial instruments subject to corporate action starting from the third Accounting Day before the record date of the corporate action until the end of the Day before the payment date. Are not available for recall transactions (with or without substitution) ineligible financial 34

35 instruments, as already the object of a refund transaction to the Giver In the clearing phase are: identified the Collateral Instructions that can be settled; automatically selected the financial instruments to be transferred as collateral or to be returned; created the Settlement Instructions to be processes in the settlement phase. The amount that can be settled of a Collateral Instruction of DVP type spot leg, FOP and FOP- R is determined on the basis of the financial instruments available (to be transferred as collateral or to be refunded). The amount that can be settled of a Collateral Instruction of DVP type forward leg is determined by the financial instruments available to be refunded and by the interests amount. The absence of such financial instruments to return the amount set is equal to the interest. In the context of the financial instruments available the selection of financial instruments takes place according to the following order: in placement (spot DVP transactions; opening FOP transactions and other collateral management transactions): - in ascendant order by financial instrument quality (structured bonds, corporate, agency, supranational, governmental); - in ascendant order by rating; - in ascendant order by securities balance available; in refund (forward DVP Transactions; closing FOP Transactions and other Collateral Management Transactions): - in descendant order by financial instrument quality (governmental, supranational, agency, corporate, structured); - in descendant order by rating; - in descendant order by securities balance available. Once identified the financial instruments the System generates the Settlement Instructions for each financial instrument to be settled and, for DVP Transactions, generates the instructions for the cash settlement to be sent to the TARGET2 System. The value of the securities to be transferred as collateral shall not exceed the defined percentage of the value of the Collateral Position and the Exposition Bilateral. the amount of the DVP Collateral Instruction (spot leg) or FOP or for replacement operations of Collateral Substitution, the Exposition Bilateral over the thresholds set and notified as specified in paragraph The Settlement Instructions can assume the status indicated in the Annex

36 5.2 Settlement The settlement takes place as indicated in art. 21(4) of the Rules The transactions not settled or partially settled are resubmitted in the same Day (before the limit as of paragraph for the collateral top up and refund transactions generated by mark to market processes) and in the Days after as reported below. The DVP, FOP and FOP-R transactions not totally or partially settled at the end of the ISD are indicated as fail. The resubmission in the following Days does not apply to Collateral Management transactions. The DVP Transactions acquired by the Central Counterparty are resubmitted until the cancellation request by the Central Counterparty, according to its rules. The DVP Transactions acquired by the Market are resubmitted until the cancellation request by the Management Company or by Participants. DVP Transactions: if the Collateral Instruction of the spot leg is not totally or partially settled by the ISD, it is indicated as fail and resubmitted to settlement not after the Accounting Day before the ISD until the total settlement or cancellation. At the relative ISD the Collateral Instruction of the forward leg is submitted to settlement for an amount equal to the settled part of the Collateral Instruction of the spot leg plus the interests and at the end of that Day the spot Collateral Instruction is automatically cancelled for the not settled part; if the Collateral Instruction of the forward leg is not settled at the ISD it is classified as fail and resubmitted to the settlement in the following days until the total settlement or the cancellation by counterparties; if the Collateral Instruction of the forward leg is partially settled at the ISD it is indicated as fail and for the not settled part it is resubmitted to settlement in the following days until the total settlement or the cancellation by Monte Titoli, upon request of Participants. Closed FOP Transactions: if the Collateral Instruction is not totally or partially settled by the ISD it is indicated as fail and resubmitted to settlement in the following days not after the Accounting day before the closing date. If there is no term, such At the closing Accounting Day, the Collateral Request and the connected Collateral Instruction of the FOP-R transaction (of closure) are generated in a number equal to the sum of FOP closed that are included in the the Bilateral Exposure Open FOP Transaction and FOP-R: if the Collateral Instruction is not totally or partially settled by the ISD it is indicated as fail and it is resubmitted to settlement in the following days until the total settlement or the cancellation; if the Collateral Instruction FOP-R amount is superior to the value of the Bilateral 36

37 Exposure, it is settled within the limits of the Bilateral Exposure value, even if it is not foreseen the partialisation option as of paragraph 2.1.2; FOP-R Transaction for the refund of a specific issue (ISIN): if the Collateral Instruction is not totally or partially settled by the ISD it is automatically cancelled by the System. For the cancellation of non-settled transaction it applies what stated in paragraph With specific reference to the Transactions with Bank of Italy: the Settlement Instructions that entail the debiting of the Bank of Italy accounts are settled only upon reception of the Bank of Italy confirmation; the Settlement Instructions that entail the crediting of the Bank of Italy accounts can only be recalled by the Bank of Italy, in the cases foreseen in the Framework Contract on Collaterals for Financing Transactions ; in this case a Settlement Instruction is generated by the System for the refund of the each financial instruments interested and it is updated the amount settled of the transaction to which the refund is related and, if the refund has as object financial instruments placed for the settlement of a FOP transaction, the related Bilateral Exposure In the case of Collateral substitution transactions it shall be noted that: Between substitute financial instruments placed are firstly searched those present on the Participants accounts and then in the Bank of Italy account; among the financial instruments placed towards the same Receiver, are recalled firstly the one placed as a collateral to the Bilateral Exposure with the closest end date; the substitution transactions of Collaterals placed to the Bank of Italy are submitted to the acceptance/refusal by the Bank of Italy and therefore can result in greater or smaller Collateral placement (for example in the case of refusal of the Substitution Collaterals placement) At the end of each clearing and settlement cycle and in relation to the processing of Settlement Instructions for the return of Collateral in the intervals between settlement cycles, as described in point , the System sends: settlement information on the Collateral Instructions settled or partially settled; information on the state of the Settlement Instructions; with confirmed status (ISIN, quantity transferred and securities accounts involved) and on those with awaiting confirmation status. At the end of the accounting day, the System also provides information on the Collateral Instructions not settled Participants will also receive the usual settlement information from the Central Securities Depository Service on the amounts credited and debited to their Giver GCA and RCA accounts (information provided in real time and end of day statement). 37

38 The information referred to above and the information on Collateral Instructions that have not been settled is made available in the manner specified in Annex 5.2. point 7.2 of the Appendix to these Instructions The following types of clearing and settlement cycles are foreseen during the course of Accounting Days: settlement of FOP Transactions; settlement of FOP-R Transactions; settlement of Collateral Recalls; settlement of Collateral One Way Recalls; settlement of Collateral Autosubstitutions; mark to market process. 4.1 Common features of the clearing and settlement processes In the processes for clearing and settling of Collateral Transactions with the Bank of Italy, the financial instruments are valued on the basis of information that the Bank of Italy sends to Monte Titoli (prices referring to the close of the preceding Day already adjusted for accrued interest, pool factors and indexation coefficients, and net of haircuts) For the purposes of settlement the System generates special Collateral Instructions that are processed in dedicated clearing and settlement cycles. In particular the System generates: FOP and FOP-R Collateral Instructions on acquiring Collateral Requests for FOP and FOP-R Transactions; CRE Collateral Instructions in the Collateral Recall clearing and settlement cycle (see point 5.2); CAS Collateral Instructions in the Collateral Autosubstitution clearing and settlement cycle in connection with a corporate action (see point 5.3); COR Collateral Instructions on finding financial Instruments that are no longer accepted as Collateral by the Bank of Italy (see point 5.5); Every Collateral Instruction has an identifier assigned by the System, which is contained in the settlement information Collateral Instructions can have the settlement and cancellation statuses shown in the table below. Type of status Status Description Settlement Awaiting settlement Settlement under way Not settled Collateral Instruction not yet entered into any clearing and settlement cycle Status assigned temporarily to a Collateral Instruction while a clearing and settlement cycle is under way Collateral Instruction totally not settled. At the end of the Day this status is associated with the FAIL indicator showing YES Final status No No No Production of a notice No No Yes 38

39 Type of status Status Description Cancellation Final status Production of a notice Settled Collateral Instruction totally settled Yes 10 Yes Partially settled Collateral Instruction partially settled No Yes Cancelled by User Cancelled by Governance Collateral Instruction cancelled (status assigned when the related Collateral Request has been cancelled by the Participants by means of a cancellation instruction) Collateral Instruction cancelled by the Manager of the Service (Monte Titoli) at the request of the Participant Yes Yes Yes Yes The Service manages the clearing and settlement of Collateral Instructions by means of the following types of clearing and settlement cycle: Cycle Transactions Frequency Settlement BoI Cycle (allocation) FOP Collateral Instructions (transfer of Collateral) with the Bank of Italy as Receiver Cycle repeated several times a day Gross BoI Cycle (closing) FOP-R Collateral Instructions (return of Collateral) with the Bank of Italy as Receiver Cycle repeated several times a day Gross BoI Recall Cycle Collateral Recalls of financial instruments Cycle repeated several times a with simultaneous substitution (search on day the Bank of Italy s account) Gross BoI Autosubstitution Cycle Substitution of financial instruments subject to a corporate action (search on the Bank of Italy s account) Cycle performed once a day at the end of the Day Gross BoI COR Cycle automatic recall of financial instruments no longer accepted as Collateral (without substitution) Automatic return of Collateral that no longer meets the Bank of Italy s eligibility criteria Cycle performed once a day at the start of the Day Gross Mark to market Valuation of collateral Cycle performed at the end of the Day and, at the Manager s choice, at the start of the Day. n.a At the start of each clearing and settlement cycle a message is sent to the Central Securities Depository System to block the financial instruments on GCA securities accounts dedicated to the Service Each clearing and settlement cycle is divided into two phases: the clearing phase and the settlement phase. 10 The settled settlement status can be changed only if the Bank of Italy issues a Reversal Instruction. 39

40 4.1.7 The clearing phase comprises: the identification of the Collateral Instructions that can be settled; the automatic selection of the financial instruments to be transferred as Collateral or returned; the creation of the Settlement Instructions to be processed in the settlement phase As regards the identification of the Collateral Instructions that can be settled and the selection and valuation of the financial instruments provided as Collateral: the rules established by the Receiver will apply; the financial instruments eligible for Collateral Transactions with the Bank of Italy are selected by the System on the basis of the list of eligible financial instruments; the partial settlement option will apply if it is foreseen by both parties to the transaction; the following are to be excluded from the list of financial instruments transferable as Collateral: financial instruments re-credited to GCA accounts in the event of substitution, as described in point , and financial instruments involved in corporate actions starting from the third Accounting Day preceding such actions, as specified in Article 26 (1) of the Rules. the quantity of financial instruments to be transferred is determined taking account of the minimum lot transferable with the amount rounded up After identifying the Collateral Instructions that can be settled, the System generates the Settlement Instructions for each financial instrument (ISIN) to be transferred (from the Giver to the Receiver or vice-versa) In the settlement phase the financial instruments are transferred, in the Central Securities Depository System accounts, from the Giver s GCA account to the Bank of Italy s account (or viceversa) on the basis of the Settlement Instructions received from the System At the end of each clearing and settlement cycle: a message is sent to the Central Securities Depository System to unblock the financial instruments on GCA accounts; Settlement Instructions can have the statuses shown in the table below: Status Awaiting confirmation Refused Description Settlement Instruction for the return of the Collateral from the Bank of Italy, found to be awaiting confirmation by the Bank of Italy at the end of the cycle in which it was generated Settlement Instruction not settled because of refusal to settle by the Central Securities Depository System or refusal to return the Collateral by the Bank of Italy Final status No Production of a notice Confirmed Settlement Instruction settled Yes Yes Cancelled Settlement Instruction for a financial instrument that is to be substituted, generated in a recall cycle or an autosubstitution cycle not sent for settlement owing to the Central Securities Depository System refusing the Settlement Instructions of the substitute financial instruments Yes Yes Yes Yes Yes 11 Except that for the BoI Recall and BoI Autosubstitution Cycles, in which, if the substitution can be made only partially, the quantity of financial instruments to be substituted is rounded down to the nearest minimum lot and the quantity of substitute financial instruments is rounded up to the nearest minimum lot. 40

41 the settlement status of the related Collateral Instruction is updated on the basis of the status of the related Settlement Instructions; in the case of Settlement Instructions having the status of awaiting confirmation, the related Collateral Instructions and, if in relation to a substitution process (requested or automatic for corporate actions) or the automatic return of financial instruments that are no longer eligible, the related Collateral Recalls, Collateral Autosubstitutions and COR Collaterals have the indicator awaiting confirmation showing YES, the Bilateral Exposures are updated (see point 5.1) FOP and FOP-R Collateral Instructions that are not settled or are only partially settled: are re-entered into the subsequent clearing and settlement cycles of the Accounting Day of the settlement date and, if they are not settled or are only partially settled at the end of the settlement date, they are managed as specified in point ; Collateral Instructions that have the indicator awaiting confirmation showing YES are an exception in this respect; they are not re-entered into the subsequent clearing and settlement cycles until the indicator shows NO Settlement Instructions that have awaiting confirmation status at the end of a clearing and settlement cycle are processed in the intervals between clearing and settlement cycles after being confirmed or refused by the Bank of Italy, with simultaneous updating: of the status of the Settlement Instruction; of the settlement status of the Collateral Instruction and the related awaiting confirmation indicator, which is set to NO ; of the awaiting confirmation indicator set to NO of the Collateral Recall, Collateral Autosubstitution or COR Collateral, when a Settlement Instruction was generated in the Recall or Autosubstitution Cycle or in the process of returning financial instruments that are no longer eligible; of the Bilateral Exposure in the case of a Settlement Instruction with confirmed status Upon receipt of the message specifying the closure of the Collateral Pooling and Securities Deposits Management System, the Settlement Instructions that have awaiting confirmation status are considered not to have been confirmed by the Bank of Italy and acquire refused status; simultaneously the System updates the awaiting confirmation indicator to NO : of the related Collateral Instruction; of the related Collateral Recall, Collateral Autosubstitution or COR Collateral, if the Settlement Instruction was generated in the Recall or Autosubstitution Cycle or in the process of returning financial Instruments that are no longer eligible With regard to Transactions with the Bank of Italy, it should be noted that: the participation profile of the Bank of Italy in its capacity as Receiver provides for partial settlement; in the settlement cycles with the Bank of Italy, the application of partial settlement does not provide for the application of minimum lot of partialization. 41

42 Management of Transactions that are not settled or are only partially settled by the end of the settlement date: Open FOP Transaction (opening) 1. if the Collateral Instruction is not settled by the end of the settlement date, it is reported as a Fail and re-entered into the clearing and settlement cycles on the following days until it is fully settled or cancelled at the request of the Participants. 2. if the Collateral Instruction is partially settled by the end of the settlement date, the Collateral Instruction for the part that has not been settled is re-entered into the clearing and settlement cycles on the following days until it is fully settled or cancelled at the request of the Participants. FOP-R Transaction (closing) in relation to open FOP Transactions 1. if the Collateral Instruction is not settled by the end of the settlement date (corresponding to the entry of the FOP-R Collateral Return instructions), it is reported as a Fail and re-entered into the clearing and settlement cycles on the following days until it is fully settled or cancelled at the request of the Participants. 2. if the Collateral Instruction is partially settled by the end of the settlement date, the Collateral Instruction for the part that has not been settled is re-entered into the clearing and settlement cycles on the following days until it is fully settled or cancelled at the request of the Participants. Closed FOP Transactions (opening) 1. if the Collateral Instruction is not settled by the end of the settlement date, it is reported as a Fail and re-entered into the clearing and settlement cycles on the following days until the Accounting Day preceding the closing date and, if the instruction has still not been settled within this time limit or has still not been cancelled at the request of the Participants, it is cancelled automatically by the System. 2. if the Collateral Instruction is partially settled by the end of the settlement date, the Collateral Instruction for the part that has not been settled is re-entered into the clearing and settlement cycles on the following days until the Accounting Day preceding the closing date and, on the closing day, a Collateral Request is generated for the closing transaction (FOP Collateral Return) for an amount corresponding to the settled part of the opening FOP Transaction. FOP-R Transaction (closing) in relation to closed FOP Transactions 1. if the Collateral Instruction is not settled by the end of the settlement date (corresponding to the closing date), it is reported as a Fail and re-entered into the clearing and settlement cycles on the following days until it is fully settled or cancelled at the request of the Participants. 2. if the Collateral Instruction is partially settled by the end of the settlement date (corresponding to the closing date), the Collateral Instruction for the part that has not been settled is re-entered into the clearing and settlement cycles on the following days until it is fully settled or cancelled at the request of the Participants. The provisions of point 3.4 apply to cancellation at the request of the Participants. 42

43 At the end of each clearing and settlement cycle and in relation to the processing of Settlement Instructions for the return of Collateral in the intervals between settlement cycles, as described in point , the System sends: settlement information on the Collateral Instructions settled or partially settled; information on the Settlement Instructions with confirmed status (ISIN, quantity transferred and securities accounts involved) and on those with awaiting confirmation status Participants will also receive the usual settlement information from the Central Securities Depository Service on the amounts credited and debited to their GCA and RCA accounts (information provided in real time and end of day statement) When Mark-to-Market cycles are processed information is produced on the Bilateral Exposure, complete with the valuation of the Collateral while during the Accounting Day information is made available on the intraday Bilateral Exposure, updated as specified in point The information referred to above and the information on Collateral Instructions that have not been settled is made available in the manner specified in point 7.2 of the Appendix to these Instructions. 4.2 Clearing and settlement cycles for FOP and FOP-R Transactions with the Bank of Italy (the Bank of Italy cycle) Collateral Instructions regarding FOP and FOP-R Transactions with the Bank of Italy are cleared and settled on a gross basis in two separate cycles: the closing Bank of Italy cycle, or the BoI Cycle (closing) ", for the clearing and settlement of closing FOP-R Transactions; the opening Bank of Italy cycle, or the " BoI Cycle (allocation) ", for the clearing and settlement of opening FOP Transactions. The main closing and allocation cycles are those carried out at the beginning of each Day. These cycles handle respectively all the FOP-R and FOP Collateral Instructions present in the System with settlement date equal to the date of the Accounting Day or re-entered into the settlement because they were not settled or were partially settled at the close of the previous Accounting Day. The subsequent cycles during the day are dedicated to the settlement of the Collateral Instructions that were not settled or were partially settled in the previous cycles and of the Collateral Instructions generated during the Accounting Day with settlement date equal to the date of the Accounting Day In the BoI Cycle (closing) "the settlement of Settlement Instructions for the return of Collateral (closing of the Transaction) leads to the debiting of the Bank of Italy's securities account and the crediting of the Giver Participant's GCA securities account In the " BoI Cycle (allocation) " the settlement of Settlement Instructions for the allocation of Collateral (opening of the Transaction) leads to the debiting of the Giver Participant's GCA securities account and the crediting of the Bank of Italy's securities account The model for interaction with the Bank of Italy provides: that Settlement Instructions requiring the Bank of Italy's securities account to be credited may, after their entry in the accounts, be the subject of a Bank of Italy Reversal Instruction. 43

44 that Settlement Instructions requiring the Bank of Italy's securities account to be debited are only to be settled upon receipt of confirmation from the Bank of Italy. Accordingly, Settlement Instructions for the return of financial instruments sent to the Bank of Italy and refused by the same are not settled; this may result in a Collateral Instruction for a FOP-R Transaction being partially settled if the Bank of Italy confirms only part of the Settlement Instructions related to that Collateral Instruction, even if the Giver has not opted for partial settlement Reversal Instructions received from the Bank of Italy are processed in the intervals between clearing and settlement cycles, as follows: a Settlement Instruction is generated for the return to the Giver of the financial instruments covered by the Reversal; the settlement status is updated together with the amount settled of the Collateral Instruction to which the Settlement Instruction for crediting the Bank of Italy with the financial instruments covered by the Reversal refers; the Bilateral Exposure is updated. 44

45 6. 5. Management of Collateral Management of Bilateral Exposures Every Bilateral Exposure comprises the following information: Participant A Participant B Closing date (end date) The Transaction settlement currency 12 Type of Exposure (FOP, DVP) Eligibility Set Basket (if foreseen) Source of the eligibility requirement, which can be: - Bank of Italy for Transactions with the Bank of Italy - Receiver, for Transactions closed out of the Market - Central Counterparty (and relevant identification), for Transactions guaranteed by Central Counterparty - Market (and relevant identification), for Transactions closed on not guaranteed Markets The sign of the position, indicating the relationship between the two Participants: Participant A is exposed towards Participant B if the sign of the position is positive (so that A is the Giver) and vice-versa if the sign of the position is negative (in which case A is the Receiver) Amount of the Exposure The value of the position (indicates the amount of the balance); Identification (ID) of the Bilateral Exposure Contract reference (only for Bilateral Exposures related to a contract deriving from a Market guaranteed by CCP) Transactions with the same closing date are included in a single Bilateral Exposure. Each DVP Transaction contributes to the constitution and the update of a single Bilateral Exposure Open FOP Transactions are included in a single Bilateral Exposure with no closing date. FOP Transactions between Participants or with the Bank of Italy with the same closing date or without a closing date, same Eligibility Set, counterparty and Transaction Currency contribute to the constitution and update of the same Bilateral Transaction. 12 At the start of the Service the settlement currency will only be the euro. 45

46 6.1.4 Bilateral Exposures towards the Bank of Italy (as Receiver with reference to the Management System of the Collateral Pooling) are updated: after total or partial settlement of Collateral Instructions FOP and FOP-R, on the basis of the settled amount; (at the end of each clearing and settlement cycle and in the intervals between cycles after the processing of confirmations of the return of Collateral by the Bank of Italy in the cases described in points , paragraph 3, and ). or of Bank of Italy Reversals of credits (see point 4.2.5); after the return of financial instruments given to the Bank of Italy or generated by the System (see paragraph 5.2) on the basis of the amount of the Settlement Instruction subject to reversal. as Collateral, as specified in point 5.4. at the beginning of each Accounting Day through the revaluation of Bilateral Exposures to align them to the Collaterals value, calculated applying valid prices for the Day, net of the capital refund related to the Collaterals placed and of the Collaterals that are not eligible; at the end of the Accounting Day, because of the cancellation of FOP-R Transactions, automatically generated for the closing of closed FOP Transactions, not settled or partially settled (see paragraph 4.2.9); in correspondence of instructions received by the Bank of Italy for the management of insolvency cases of the counterparties; Bilateral Exposures different from the ones as of paragraph 6.1.4, are updated: at total or partial settlement of the Collateral Instructions of DVP, FOP and FOP-R type, on the basis of the amount settled; at the end of the Accounting Day due to the cancellation required by Participants or executed by Monte Titoli of a FOP-R Transaction, automatically generated for the closing of a closed FOP Transaction, not settled or partially settled (see paragraph 4.2.9); in correspondence of an instruction received by the Participant according to article 10(6) of the Rules, in correspondence of an instruction received by the CCP in the context of the management of the non-fulfilment procedure; in correspondence of an instruction received by the Authority in the cases of notification of a Participant insolvency; in the context of the management of the suspension and exclusion provisions foreseen by the Rules The information on Bilateral Exposures is available as in the Annex 6.6: at the end of each intraday mark-to-market process and of the mark-to-market at the end of the Accounting Day; in real time following the transactions settlement and in the other cases of update of the Bilateral Exposures; The Bilateral Exposures calculated at the end of the last clearing and settlement cycle are referred to for the assessment of the adequacy of the Collateral in the end-of-day mark-to-market process, 46

47 while the Bilateral Exposures calculated at the start of the Day, after the processing of the returns and the Identification of the financial instruments provides as Collateral in the Bank of Italy s account that are deemed no longer eligible, are referred to for the assessment of the adequacy of the Collateral in the start-of-day mark-to-market process (if provided for by the Manager of the Service), 6.2 Management of Collateral Positions The System registers the Collaterals placed as coverage of each Bilateral Exposure in the Collateral Positions. For each financial instrument placed the Collateral Positions provide the following information, necessary for the execution of the collateral management transactions described in the paragraphs of this chapter: Bilateral Exposure ID Contract ID (where applicable) Eligibility Set and source of Eligibility criteria Giver and Receiver ISIN Code amount placed allotted quantity valuation (on the basis of the last price used in the financial instrument valuation) Currency identification of the placement Collateral Instruction and type identification of the Settlement Instruction and type (FOP, DVP, Substitution Transaction, Collateral top up) date of the Settlement Instruction Collateral Positions are updated: at the settlement of a Collateral Instruction connected to the relevant Bilateral Exposure; at the elaboration of a crediting reversal disposed by the Bank of Italy; due to the refund of a financial instrument; due to the update of the Bilateral Exposure following the provisions as of article 10(5) and (6) and article 11 (4) of the Rules. at the moment when a financial instrument is no longer eligible; during the mark to market process due to the effect of the update of financial instruments prices on the basis of the last available prices The information on Collateral Positions is made available together with the information on Bilateral Exposures. 47

48 Substitution of Collateral The substitution of financial instruments provided as Collateral (Collateral Recall) can be upon request carried out only by of the Participant original owner that entered the financial instruments into the System through the enter of a "Collateral Recall" or automatically according to article 25 of the Rules, on the basis of the options set up as foreseen in paragraph and must be carried out for an amount equal to a multiple of the minimum lot of the financial instrument to be substituted. Substitution transactions automatically generated by the System are deleted, for the unexecuted part, at the end of the day in which they were created, together with the relevant Collateral Instruction Collateral Recall: Substitution upon request of the Participant ("Collateral Recall") Without prejudice to the valuation criteria as of Annex 3.2, the Collateral Recall entered by the Participant: shall indicate the ISIN of the financial instrument subject to substitution; shall specify the amount that can be "all" (the entire nominal value placed of the financial instrument) or part of what is placed (expressed in nominal value) equal or a mutiple of the minimum denomination transferable foreseen for such financial instruments); shall specify the settlement date that can be subsequent to the entering date; shall specify whether the recall is aimed at the settlement of another Transaction, in which case it shall specify the type of Transaction (DVP or FOP) and the Participant counterparty of the Transaction. may be requested to the System exclusively in the manner specified in point 7.2 of the Appendix to these Instructions. may refer to a given quantity (specified in nominal value) of the financial instrument (ISIN) or the entire quantity of the financial instrument (ISIN) entered into the Service The System executes the Collateral Recall in the context of the clearing and settlement procedure with the modalities illustrated in chapter 5 and if: the same Participant has entered more than one Collateral Recall on a specific ISIN and with the same execution date they are executed on the basis of the First In, First Out criteria (FIFO); the minimum denomination has been modified after the acquistion of the Collateral Recall, the System attempts the processing for a multiple quantity of the new minimum denomination that is closest to the required quantity and, if indicated in the Collateral Recall, automatically updates the minimum quantity to be executed with the same criteria In the case of no or partial execution the Collateral Recall is resubmitted to the clearing and settlement procedure. 48

49 The Collateral Recall can be cancelled by the Participant for the part not yet executed. A partially or not totally executed Collateral Recall before the preview settlement date is automatically cancelled by the System for the non settled part A Participant may enter only one Collateral Recall on a given financial instrument (ISIN) during an Accounting Day Once they have successfully passed the validation process, Collateral Recalls acquired by the System are given awaiting settlement status until they are carried out in special clearing and settlement cycles (Recall Cycles), as specified in point As long as a Collateral Recall has awaiting settlement status, both the quantity and the ISIN indicated can be changed Collateral Recalls are carried out provided the GCA account of the requesting Participant contains financial instruments that comply with the rules for the acceptance of Collateral established by the Receiver (the Bank of Italy) If the GCA account of the Participant that requested the substitution does not contain enough eligible financial instruments for the substitution, the Collateral Recall may either not be carried out or be carried out only partially (see point 2.2.1), satisfying the requirement that the value of the substitute financial instruments must be at least equal to the value of the quantity of the financial instrument recalled When the Service first starts operations, Collateral Recalls acquired by the System will be processed in the Bank of Italy Recall Cycle In the BoI Recall Cycle: 1. the financial instruments to be substituted are looked for in the Bank of Italy s securities account and, up to the limit of the substitute financial instruments available in the GCA account, the Collateral Instruction and related Settlement Instruction for the substitute financial instruments and the Collateral Instruction and related Settlement Instruction for the financial instrument subject to substitution are generated and settled on a gross basis. If the financial instruments to be substituted were transferred to the Bank of Italy in more than one collateral transaction, with different closing dates or no closing date, the financial instruments to be substituted are looked for starting from financial instruments allocated on Bilateral Exposures with the nearest closing date. 2. the Settlement Instruction of the financial instrument to be substituted is sent for settlement provided the Central Securities Depository System confirms the settlement of all the Settlement Instructions of the substitute financial instruments; if this is not the case, the Settlement Instruction of the financial instrument to be substituted is given cancelled status; 3. if the Bank of Italy or the Central Securities Depository System refuses the settlement of the return of the financial instrument to be substituted before the end of the cycle, Settlement Instructions are generated for the reversal of the crediting of the substitute financial instruments, the confirmations or refusals of which, received from the Bank of Italy, are processed in the intervals between clearing and settlement cycles in the manner specified in points and ; 49

50 4. if for the same Participant more Collateral Recalls are under clearing and settlement, these Collateral Recalls are settled (totally o partially) provided that substitute financial instruments not subject to any Collateral Recall are available on the Participant's GCA account At the end of the Bank of Italy Recall Cycle: Collateral Recalls can have settled, not settled or partially settled status and the related Collateral Instructions and Settlement Instructions can have, respectively, the settlement statuses referred to in point and the statuses referred to in point if the return Settlement Instructions have the status awaiting confirmation, the related Collateral Recalls and Collateral Instructions have the indicator awaiting confirmation of settlement showing YES ; the Bilateral Exposures of the parties involved are updated Collateral Recalls that are not executed in full or in part are not re-entered into any subsequent Recall Cycle on the same Day but are automatically cancelled by the System at the end of the Day (in cases of partial execution only the unexecuted part is cancelled). Collateral Recalls cancelled by the System have a special indicator of cancellation Settlement Instructions for the financial instrument to be substituted with awaiting confirmation status at the end of the Recall Cycle are managed by the System as specified in points and If the Bank of Italy refuses the return of the instruments and the refusal does not arrive in proximity to the closing message of the Collateral Pooling and Securities Deposits Management System, the System automatically generates Settlement Instructions for the reversal of the crediting of substitute financial instruments; the receipt of the related confirmations or refusals by the Bank of Italy is processed in the intervals between pre-settlement and settlement cycles and managed as specified in points and Instructions for the Reversal of the crediting of substitute financial instruments received from the Bank of Italy are managed as specified in point Participants are informed of the results of Collateral Recalls as specified in the Appendix to these Instructions Financial instruments credited on a GCA account following the execution of a Collateral Recall are not available for new Transactions until the expiry of the time limit established by the System and communicated as specified in point

51 Autosubstitution Management of financial instruments provided as Collateral subject to corporate actions The System automatically activates the procedure for the substitution of Collateral subject to a corporate action according to article 26 of the Rules if the Giver Participant has chosen this option in its participation profile Collateral is substituted in compliance with the rules for the acceptance of Collateral established by the Receiver (the Bank of Italy) and up to the limit of the financial instruments available in the GCA accounts The automatic substitution procedure takes place starting from the third Accounting Day prior to the payment day of the corporate action, 13 excluding the payment day itself The automatic substitution transaction Collateral Autosubstitution is carried out in the context of the clearing and settlement procedure according to the modalities as of chapter 5. provided that financial instruments are available in the GCA account of the requesting Participant complying with the rules for the acceptance of Collateral established by the Receiver (the Bank of Italy) and that their value is at least equal to the value of the quantity of financial instruments that is actually being recalled If the GCA account of the Participant on whose behalf the System has generated the request for substitution does not contain enough eligible financial instruments, it may not be possible to carry out the The automatic Collateral Autosubstitution or it may only be possible to carry it out partially (see point 2.2.1). In case of no or partial execution, the "Collateral Autosubstitution" is resubmitted to the clearing and settlement procedure of the same Accounting Day in which it has been generated In the absence of automatic substitution of Collaterals: a) the CSD resets to zero or decreases the nominal value of the financial instruments totally or partially refunded on the RCA Accounts or on the Bank of Italy account and the Collateral Management System updates the Collateral Positions as indicated in paragraph ; b) the CSD provides to the Collateral Management System the information on the payment of the relevant amounts disposed in favour of the Participant current owner (or the relevant Settlement Agent) by the CSD; c) for financial instruments placed with the Bank of Italy, it applies what foreseen in article 26(4) of the Rules; and the System updates the relevant Bilateral Exposure ad indicated in paragraph 6.1.4; d) for financial instruments different from letter c), the Collateral Management System provides to the CSD the indication for the remittance of payments for interest and 13 Provided the special transaction that is created for the management of the corporate action is already available in the Central Securities Depository System; otherwise, the autosubstitution procedure runs from the Day at whose opening such information is available. 51

52 capital refund in favour of the Giver original owner with debiting of the Receiver, without prejudice to the fact that the remittance of payments for capital refund takes place only if the connected Bilateral Exposure is adequately covered (also taking into account the applicable gap percentages of the mark-to-market as of paragraph 6.6) The remittance of payments matured on financial instruments placed is done on the cash accounts of the interested Participants or the relevant Settlement Agents, For currency payments different from euro, the Participant shall communicate to the System the cash account on which he wants to receive the payment. If it has a Settlement Agent, the last one can perform such duty The provisional and definitive information on payments owed on financial instruments placed as well as on their re-crediting to the owner is provided by the System and by the CSD (see Annex 6.4) At the launch of the first stage of the Service, Collateral Autosubstitutions are processed in the Bank of Italy Autosubstitution Cycle The System manages the Bank of Italy Autosubstitution Cycle and the results for the return of the financial Instruments to be substituted received from the Bank of Italy after the end of that cycle in the same way as specified for the process of substituting collateral (the recall process) in points 5.2.8, and In the event of the failed or partial execution of a Collateral Autosubstitution, it is re-entered into the Autosubstitution Cycle until the Accounting Day preceding the payment day, at the end of which it is cancelled by the System Reversal Instructions for the crediting of substitute financial Instruments received from the Bank of Italy are managed in the manner specified in point At the end of the Autosubstitution cycle, the Bilateral Exposures of the Participants involved in the automatic substitution process are updated Participants in the Service are informed of autosubstitutions in the manner specified in the Appendix to these Instructions After the corporate action has been carried out, the financial instruments that had previously been substituted and re-entered into the GCA account are available for other collateral transactions In the absence of autosubstitution, the Bank of Italy transfers income and redemptions deriving from the financial instruments transferred to it as Collateral as provided for in the Pooling Framework Agreement. 5.4 Redemption of financial instruments transferred as Collateral If financial instruments transferred as Collateral are redeemed, at the start of the Accounting Day of the payment day: the Central Securities Depository System sets equal to zero or reduces the nominal value of the financial instruments totally or partially redeemed present on the Bank of Italy's account and credits the redemptions payment to the Bank of Italy as Receiver. 52

53 the Bank of Italy, as indicated in point , transfers the redemption payment of such financial instruments to the Giver; the -COM System decreases the Bilateral Exposures with the Bank of Italy as Receiver, to which the financial instruments subject to redemption have been allocated, on the basis of the value of the financial instruments to be redeemed Management of financial instruments no longer eligible accepted as Collateral by the Bank of Italy At the start of the Accounting Day the System verifies that the financial instruments placed are still eligilble., after identifying the financial instruments on the Bank of Italy's account that the Bank of Italy no longer accepts as Collateral, generates the COR Collaterals and the related Collateral Instructions for the return of the financial instruments (without simultaneous substitution) to the Givers concerned A financial instruments is no longer eligible if: it does not respect anymore the eligibility criteria applicable to the reference Bilateral Exposure; it has been excluded by the System, in the case as of article 10 of the CSD Rules or in the case of the opening of a bankruptcy procedure towards the issuer; in addition to the preceeding points and limited to the Collaterals placed in the context of Transactions with the Bank of Italy, such financial instrument has been subsequently included in the list of financial instruments not eligible for Transactions with the Bank of Italy on the basis of the information provided by the Participant to Monte Titoli according to article 23(2) of the Rules If a financial instruments is no longer eligible, the System at the beginning of the Accounting Day: resets to zero the value of the financial instrument placed in the Collateral Positions; this is limited to the Bilateral Exposures for which the financial instruments is to be considered not eligible or in whatever Collateral Position if the financial instrument has been excluded by the System; creates the return transaction to the Giver original owner with simultaneous substitution, with the exception of the case in which the financial instrument is no longer eligible for the Bank of Italy in which case it is disposed the return Transaction without simultaneous substitution According to the source of the eligibility criteria (see paragraph 6.1.1), the return transaction can be represented by: a. "Collateral One Way Recall or Collateral COR" (source of eligibility Bank of Italy ): its execution entails only the return of the financial instrument from the Bank of Italy account to the Participant counterparty of the Bank of Italy without simultaneous substitution; b. "Ineligible Collateral Return for CCP or Collateral ICC" (source of eligibility criteria 53

54 CCP ): its execution entails the return of the ineligible financial instrument by the Receiver to the CCP and by the CCP to the Giver with simultaneous transfer of the substitute financial instruments by the Giver to the CCP and by the CCP to the Receiver; c. "Ineligible Collateral Return for Market or Collateral ICM" (source of the eligibility criteria Market ): its execution entails the return of the ineligible financial instrument by the Receiver to the Giver with simultaneous transfer of substitute financial instruments by the Giver to the Receiver; d. "Ineligible Collateral Return o Collateral ICR", (source of the eligibility Receiver ): the execution entails the return of the ineligible financial instrument from the Receiver to the Giver with simultaneous transfer of substitute financial instruments from the Giver to the Receiver The transaction as of a) is executed in the clearing procedure as of chapter 5 similarly to a Transaction of FOP-R type related to a Transaction with the Bank of Italy, in case of negative result by the Bank of Italy side, it is resubmitted in the clearing procedure within the limits of the Day of constitution, at the end of which it is cancelled by the System for the non settled part. Such transaction can assume the execution and cancellation status as of Annex 6.3 (D) The transactions as of b), c) and d): can assume the execution and cancellation status as of Annex 6.3 (F); are executed in the clearing procedure as of chapter if they are not totally or partially executed, are resubmitted to the clearing procedure during the same Accounting Day in which they have been generated, at the end of which they are cancelled by the System for the non settled part The COR Collaterals are processed in the special BI COR Cycle during which the related Settlement Instructions are generated for the return of the financial instrument. The value of the financial instrument to be returned is calculated by referring to the last price used by the System for its valuation The BoI COR Cycle takes place as specified in point 4.1 and in accordance with the model for interaction with the Bank of Italy referred to in the second indent of point If the Bank of Italy does not confirm the return of the financial instruments recalled in the BoI COR Cycle: the Settlement Instruction acquires the status of awaiting confirmation and is managed as specified in points and ; the related Collateral Instruction and COR Collateral have the indicator awaiting confirmation showing YES COR Collaterals and related Collateral Instructions that are not settled are automatically cancelled at the end of the Day on which they were generated and then generated again at the start of the following Accounting Day in order to make another attempt to return the financial instruments no longer accepted as Collateral. 54

55 5.5.6 The Givers shall verify the eventual insurgency of close links on the balances of the financial instruments provided, through the Service, as collateral of the credit operations with the Bank of Italy and in such case they shall provide for the substitution of the collateral according to the modalities referred to in paragraph Updating of the valuation of Collateral (mark to market) The System updates the Collateral valuation in the context of the mark-to-market process which is executed more then once during the Accounting Day in order to verify that the value of the Collaterals placed in Collateral Positions is adequate to the coverage of the Bilateral Exposures The first mark-to-market of the Accounting Day is executed after the System has observed financial instruments no longer eligible as of paragraph 6.5. The mark-to-market process done at the end of the Accounting Day is executed for information purposes (detailed list of the ISIN placed as collaterals) and do not originates top up or refund requests of the Collaterals placed In the context of System the valuation of financial instruments takes place according to two different modalities, whether the financial instruments are the object of Transactions between the Participants or of Transactions with the Bank of Italy, as stated in Annex For Collateral Transactions with the Bank of Italy the valuation of Collateral the mark-tomarket process is carried out on the basis of information that the Bank of Italy makes available to Monte Titoli (prices referring to the close of the preceding Day, accrued interest, haircuts, pool factors and indexation coefficients) according to article 15(4) of the Rules. For Transactions between Participants the valuation of Collaterals is done on the basis of the prices traced by Monte Titoli from the sources communicated according to the modalities as of paragraph 1.2.1, applying the haircut as of paragraph The process of updating the value of the collateral, mark-to-market, is carried out at the end of each Day for the Bilateral Exposures outstanding between the Participants in the Service and, at the Manager's choice, at the start of the Day as well. If the gap between the value of the Collaterals placed and the Bilateral Exposure exceeds the gap percentage applicable to the Bilateral Exposure, defined for each Operating Section and communicated as indicated in paragraph 1.2.2, the System generates in the context of the mark-to-market process the Collateral Instructions for the top up or the return of the Collaterals and, afterwards, informs the Participants as described below If following the mark to market process, The results of the mark-to-market process can be as follows: the Collateral is insufficient with respect to the Bilateral Exposure. In such case the System: Service sends the Giver a request to top up the Collateral (a margin call); 55

56 verifies if the gap between the Collaterals and the Bilateral Exposure exceeds the gap percentage applicable; if so, it creates the Collateral Instruction of the Automatic Collateral Search (ACS) type for the top up of the Collaterals for an amount equal to the gap observed and submits it to the clearing and settlement procedure as of chapter 5; if the Collateral Instruction of ACS type is not settled totally or partially before a cut-off subsequent to the mark to market process, it sends a top up request of the Collateral for the part not settled by the Giver (margin call), simultaneously informing the Receiver; against a margin call the Giver shall make available adequate financial instruments on its account (through the Settlement Agent if present) and the Receiver, if the Giver has not accomplished with his duty, can request to Monte Titoli to take the appropriate action for the management of the Bilateral Exposure with the modalities as of paragraph If following the mark to market process, the Collateral is in excess with respect to the Bilateral Exposure, In such case the Service the System sends the Receiver a request to return some Collateral (a margin excess) verifies if the gap between the Collaterals value and the Bilateral Exposure exceeds the gap percentage applicable; if so, it creates the Collateral Instruction of Automatic Excess Return (CER) type for the return of the Collaterals to the Giver for an amount equal to the observed gap and sends it to the clearing and settlement procedure; if the Collateral Instruction of the CER type is not totally or partially settled before a cut-off subsequent to the mark-to-market process, sends a request for return of the Collateral (margin excess for the non settled part) to the Receiver with the indication of the identification of the Bilateral Exposure giving simoultaneous information to the Giver; The margin call and margin excess requests are made as specified in Annex 6.6 point 7.2 of the Appendix to these Instructions The Transaction of Automatic Collateral Search type (ACS) and Automatic Excess Return type (CER) are executed in the clearing and settlement procedure until the next mark-tomarket process or, if it is not foreseen, until the closure of the clearing and settlement procedure. If not totally settled, the part not settled is automatically cancelled by the System before the next mark-to-market process or, if foreseen, at the end of the Accounting Day The System does not apply automatic mechanisms to top up or return Collateral for Collateral Transactions with the Bank of Italy. In case the Participant counterparty of the Bank of Italy needs to top up the Collaterals placed to Bank of Italy it shall give a FOP instruction whose settlement determines a decrease in the Bilateral Exposure towards the Bank of Italy. In case the Participant counterparty of the Bank of Italy needs to release the Collaterals placed through the Collateral Management System as coverage of a Bilateral Exposure, it shall give a FOP-R instruction whose settlement determines a decrease in the Bilateral Exposure towards the Bank of Italy. 56

57 57

58 7. 6. Criteria for the cancellation of Transactions by the System At the end of the Accounting Day the System cancels for dismissal the transactions that are no longer managed in relation to the status they have acquired (cancellation, settlement, execution), without prejudice to the following exceptions: the closed FOP Transactions (Collateral Request and Collateral Instruction) are cancelled at the end of the closing date; the Collateral Instruction of the spot leg of DVP Transactions are cancelled at the end of the ISD of the Collateral Instruction of the forward leg. as shown in the table below. The cancellation indicator of cancelled transactions is set to YES and in some cases the System sends a notification to the Participant. Object Type Status Cancellation (at the end of the Day specified) Collateral Request FOP FOP-R FOP FOP-R - Rejected The Day on which it was rejected owing to the negative result of the validation process - Cancelled by the User - Cancelled by the Manager The Day on which it acquired Cancelled status Open FOP - Matched The Day on which the related Collateral Instruction was settled Closed FOP - Matched The Day before the closing day if the status of the related Collateral Instruction is not settled or awaiting settlement Notification of the cancellation sent to the Participant NO NO NO YES (except for Collateral Instructions with settled status) Collateral Instruction (and related Settlement Instruction) Collateral Recall (CRE) (and related Collateral Instruction and Settlement Instruction) Collateral Autosubstitution (CAS) Open FOP FOP-R Closed FOP Closed FOP The same Day as the closing date if the status of the Collateral Instruction is settled or partially settled - Settled The Day on which it acquired settled status - Settled - Partially settled - Awaiting settlement - Not settled The closing Day The Day before the closing Day NO - any status The Day it was created NO - any status The Day before the payment day of the corporate action YES (except for Collateral Instructions with settled status) YES NO 58

59 Collateral Instruction - any status The Day it was created NO and Settlement Instruction related to Collateral Autosubstitution (CAS) Collateral One Way Recall (COR) (and related Collateral Instruction and Settlement Instruction) - any status The Day it was created NO Bilateral Exposure Closed The Day equal to or later than the NO closing day on which the balance of the exposure = 0 Bilateral Exposure Open The Day on which the balance of the exposure = 0 NO The indicator of the Transactions cancelled for dismissal is set as that have their cancellation indicator showing YES and can be consulted on the MT- platform though the functions related to each type of transaction in a special section dedicated to the transactions that have been archived. The time these data are kept for consultation is communicated by Monte Titoli the Manager in the manner specified in point

60 7.Appendix [the appendix in force is entirely substituted as follow) 8. Annexes Annex 2.2 A. Participation Profile: entry/changes and visualisation Flow Content MT- Sender Recipient Entry/Changes Acceptance Rules (eligibility rules) Entered by the Participant as Receiver and confirmed by the Participant as Giver MT -COM Entry/Changes Concentration Rules (concentration limits) Entered by the Participant as Receiver and Confirmed by the Participant as Giver Entry/Changes Haircuts Entered by the Participant as Receiver and confirmed by the Participant as Giver Entry/Changes Entry/Changes Entry/Changes Entry/Changes Acceptance of FOP Transactions Acceptance of FOP-R Transactions Cancellation of FOP Transactions Cancellation of FOP-R Transactions Entry/Changes Partial Settlement Option Participant Participant as Receiver Participant as Receiver Participant as Receiver Participant as Receiver MT -COM MT -COM MT -COM MT -COM MT -COM MT -COM MT -COM Entry/Changes Collateral autosubstitution option for corporate action Participant as Giver MT -COM B. Financial Instruments to be excluded from the collateralisation with the Bank of Italy Flow Content MT- Sender Recipient Entry/Changes Financial Instruments excluded from the collateralisation with the Bank of Italy: ISIN Securities of Issuers Participant (or his Securities Settlement Agent) MT -COM 60

61 with residence in specific Countries C. Calculation of Composite rating a. The MT composite rating is calculated as the average of the ratings assigned by rating agencies, as shown below: the ratings agencies are led back to the rating normalized Monte Titoli as per the table below each of these ratings is associated normalized score as per the table below is calculated by the arithmetic mean of the scores, with rounding up if> = 0.5 or down if <0.5. The result of the average is brought back to the rating normalized Monte Titoli. S&P S&P alternative Moody's Moody's alternative Fitch AAA AAAu Aaa Aaa AAA AA+ AA+u Aa1 Aa1 AA+ AA AAu Aa2 Aa2 AA MT AAA AA+ AA Punteggio AA- AA-u Aa3 Aa3 AA- AA- 4 A+ A+u A1 A1 A+ A+ 5 A Au A2 A2 A A 6 A- A-u A3 A3 A- A- 7 BBB+ BBB+u Baa1 Baa1 BBB+ BBB+ 8 BBB BBBu Baa2 Baa2 BBB BBB 9 BBB- BBB-u Baa3 Baa3 BBB- BBB- 10 BB+ BB+u Ba1 Ba1 BB+ BB+ 11 BB BBu Ba2 Ba2 BB BB 12 BB- BB-u Ba3 Ba3 BB- BB

62 S&P S&P alternative Moody's Moody's alternative Fitch MT Punteggio B+ B+u B1 B1 B+ B+ 14 B Bu B2 B2- B B 15 B- B-u B3 B3 B- B- 16 CCC+ CCC+u Caa1 Caa1 CCC CCC+ 17 CCC CCCu Caa2 Caa2 CC CCC 18 CCC- CCC-u Caa3 Caa3 C CCC- 19 CC CCu Ca Ca RD CC 20 R Ru C C D C 21 SD SDu WR WR WD NR 22 Annex 3.1 A. Collateralisation profile: entry/changes Flow Content MT- Sender Recipient Entry/Changes Collateralisation Profile to be set as follows availability of all financial instruments present in the account availability of all financial instruments except those expressly specified (with the indication of the ISIN and of their quantity) availability only of the financial instruments with the indication of the ISIN and of their quantity unavailability of all financial instruments Participant (or his Securities Settlement Agent) MT -COM 62

63 Annex 3.2 A. Types of transactions that can be entered: cancellation Type of Transaction Description Code Sender DVP Collateral transactions against payment between Participants, traded on Markets, guaranteed or not guaranteed by CCP or traded out of the market, including the information of the spot leg and of the forward leg PCT 14 Market CCP Participants FOP Transactions for the opening of collateral transactions against payment between Participant or with the Bank of Italy FOP Participants FOP-R Transactions for the refund of Collaterals for the total or partial closure of a collateral transaction against payment between Participant or of a Collateral Transaction with the Bank of Italy FOR Participants CRE Collateral Recall Transactions for the substitution of Collaterals placed on request of the Participant. CRE Participant 14 Repo Transactions. 63

64 B. Rules to be complied for the Transactions entered into the System A description is given below of the main information present in the different types of Transactions, separately for source, and in the Collateral Recall (CRE) with the indication if they are mandatory, the indication of their validation rule and the possible default value automatically assumed by the System if they are not valued. of the rules to be complied with when entering Collateral Requests for FOP and FOP-R Transactions into the System with regard to the manner of entering values for specific information. Reference should be made to the Technical Documentation for additional rules to be complied with for the SWIFT and MT- transmission channels. Entry of Collateral Requests Information Obligatory Default value Notes Execution Day NO (trading day) Settlement Date (planned) If not assigned a value by the Participant, the System assigns a value coinciding with the entry Accounting Day It must be a business day for the Service and may be before or equal to the Accounting Day of the Transaction's entry YES n.a. It must be a business day for the Service For FOP Transactions it must be after or equal to the Accounting Day of the Transaction's entry For FOP-R Transactions it must be equal to the Accounting Day of the transaction's entry Closing Date NO n.a. To be assigned a value only for closed FOP Transactions It must be a business day according to the TARGET2 calendar and it must be after the (planned) Settlement Date Cancellation of Collateral Requests Information Obligatory Default value Notes ID of the transaction to be cancelled Yes n.a. Instructions to cancel a FOP or FOP-R Collateral Request that the Participant entered must show the ID assigned to the Collateral Request by the transmission channel when it was entered (i.e. the ID referred to in point 3.3.6) Instructions to cancel a FOP-R Collateral Request generated automatically by the System (on the closing date of a "Closed" FOP Collateral Requests) must show the ID assigned to the Collateral Request by the System when it was generated (i.e. the ID referred to in point 3.3.6, letter b) 64

65 Field Request type Transacti on type DVP Market guaranteed and not guaranteed by CCP DVP OTC FOP between Participants and with the Bank of Italy FOP-R between Participants or with the Bank of Italy Mandatory Mandatory Mandatory Mandatory Mandatory CRE Notes Alphanumeric. Admitted values I = entry C = cancellation. Mandatory Mandatory Mandatory Mandatory Mandatory Values taken Giver Mandatory Mandatory Mandatory Mandatory Mandatory Receiver Mandatory Mandatory Mandatory Mandatory ISIN Code o Basket ID Mandatory For DVP Transactions (PCT Transaction type) traded on Markets not guaranteed identifies the Basket of the financial instruments accepted as Collateral as defined by the Market For DVP Transactions (PCT Transaction type) traded on Markets guaranteed by CCP identifies the Basket of financial instruments accepted as Collateral by the CCP Mandatory for Collateral Transactions with the Bank of Italy for the identification of the Basket of the Bank of Italy Mandatory for Collateral Transactions with the Bank of Italy for the identification of the Basket of the Bank of Italy. Identifies the Basket Bank of Italy in the case that the FOP-R indicates the amount of the Bilateral Exposure to be decreased or closed Identifies the ISIN to be return in case of FOP-R with ISIN Mandatory for the CRE Transactions for which it identifies the issue of financial instruments for which it has been requested the return with substitution, if simultaneously it has been valorised the field Quantity (financial instruments) PCT, FOP, FOR, CRE. Values admitted for type of requiring code: C = SIA code A = ABI code B = BIC code M = MTS code = default C. Values admitted for type of requiring code: C = SIA code A = ABI code B = BIC code M = MTS code = default C 65

66 Field DVP Market guaranteed or not guaranteed by CCP DVP OTC FOP between Participants or with the Bank of Italy FOP-R between Participants or with the Bank of Italy CRE Notes Amount of (financing) Transaction Mandatory Mandatory Mandatory Mandatory for the FOP-R transactions between Participants Mandatory for the FOP-R Transactions with the Bank of Italy (if not valorised in the Field Quantity ) Not admitted Amount of the Transaction financing Quantity (financial instruments) Not admitted Not admitted Not admitted Can only by valorised as an alternative to the field Amount of the Transaction for the FOP-R Transactions with the Bank of Italy where it is required the return of a specific financial instrument (ISIN) Mandatory Quantity in nominal value of the specific ISIN foe which the return is required It shall be a multiple of minimum denomination of the financial instrument. Transaction Currency Admitted values: EUR = euro; = default EUR. Date of execution (Trade date)/date of the request of the financing Transaction It shall be an Accounting Day for the Service; it cannot be greater than the Accounting Day of entry in the System; if it is not valorised by default is the Accounting Day of entry in the System 66

67 Field DVP market guaranteed and not guaranteed by CCP DVP OTC FOP between Participants or with the Bank of Italy FOP-R between Participants or with the Bank of Italy CRE Notes Preview Settlement Date Mandatory The Settlement Date shall be greater or equal to the Accounting Day of entry in -COM and indicates the Preview Settlement Date of the spot leg Mandatory The Settlement Date shall be greater or equal to the Accounting Day of entry in -COM and indicates the Preview Settlement Date of the spot leg Mandatory The Settlement Date shall be greater or equal to the Accounting Day of entry in - COM Mandatory The Settlement Date shall be greater or equal to the Accounting Day of entry in -COM with the exception of the FOP-R Transactions for the return of a specific ISIN (for type of FOR Transaction with the Bank of Italy), the Settlement Date shall coincide with the Accounting Day of entry in -COM Mandatory The Settlement Date shall be greater than or equal to the Accounting Day of the entry in - COM For any type of Transaction it shall be an Accounting Day for the Service. Closing date Not admitted Not admitted It is indicated in the FOP Transactions of closed type to indicate the closing date of the Transaction; in this case it shall be greater than the ISD It shall be an Accounting Day for the Service Not admitted Not admitted Forward Settlement Date Mandatory Indicates the Settlement Date of the forward leg that shall be grater than the Settlement Date of the spot leg and an Accounting Day for the Service Mandatory Indicates the Settlement Date of the forward leg that shall be grater than the Settlement Date of the spot leg and an Accounting Day for the Service Not admitted Not admitted Not admitted Interest Rate Mandatory Mandatory Not admitted Not admitted Not admitted 67

68 Field DVP market guaranteed and not guaranteed by CCP DVP OTC FOP between Participants or with the Bank of Italy FOP-R between Participants or with the Bank of Italy CRE Note Recall for another placement ID Bilateral Exposition Not admitted Not admitted Not admitted Not admitted Can assume the following values Mandatory NO: the financial instrument recalled is not available for the placement in - COM. This is the default value if there is no indication YES: with the indication of the type of Transaction and of the counterparty (to be selected between DVP/FOP) and in this context with the indication of the ID code of a specific counterparty. This last option allows to recall a financial instrument given as collateral in order to make it available for another Transaction 68

69 7.2Electronic communications Annex 4.1 A. Information Acquisition and match Acquisition and match of Collateral Request (or cancellation request) entered by Participants or generated by the System on their behalf Flow/Information SWIFT message or other channel MT- Sender Recipient Entry/cancellation of the Collateral Request of FOP, FOP- R and DVP type MT527 (also FOP-R with ISIN) Participant (or operational agent) Monte Titoli - -COM Information on the validation status of the entered Collateral Request MT558 (only for negative result) Monte Titoli -COM Participant or related operational delegate Information of the Collateral Request to be matched MT558 Monte Titoli -COM Participant counterparty of the Participant who has sent the Collateral Request Information on the entry/cancellation of the Collateral Request to the Participant counterparty MT527 (copy) Monte Titoli -COM Participant counterparty or related operational delegate Monte Titoli -COM Information on the matching status of the instruction (matched, not matched, refused, entry/cancellation) MT558 Monte Titoli -COM Participants counterparties of the Collateral Request (or related operational delegate) Securities and cash Settlement Agent Automatic generation of the Collateral Request FOP-R on behalf of the Giver or Receiver (closed) MT558 Monte Titoli -COM Participants counterparties of the Transactions or related operational delegates Information on the change of the cancellation status of the Collateral Request MT558 Monte Titoli -COM Participant counterparty or related operational delegate Securities and cash Settlement Agents in case of final cancellation status assumed by a Collateral Request matched and connected Collateral Instructions 69

70 NOTES: as regards the identification of the Collateral Requests: - the information on validation and matching forwarded via SWIFT sent to the Giver shows the ID of the Collateral Request assigned by the transmission channel at entry, while the one forwarded to the Receiver Bank of Italy shows the ID assigned by the System at passing the acquisition phase; - the information on validation and matching made available through MT- to the Giver shows the ID of the Collateral Request assigned by the transmission channel and, if the Collateral Request has already passed the acquisition phase, also the ID assigned by the System, while the one made available by the Receiver Bank of Italy shows the ID assigned by the System. The information of validation (only in case of negative result) of the Transaction is provided by the System to the Participant via SWIFT only if the Participant has used this channel for the entry of the Transaction in the System. Acquisition/cancellation of contracts of Collateral by Market not guaranteed (DVP Transaction by market not guaranteed by CCP) Flow Content Channel Sender Recipient Information Generation 15 of Collateral Request (and of the related Collateral Instructions) for the counterparties of the contract Cancellation of the Collateral Request and/or of the related Collateral Instructions (following the cancellation of the contract by the Market or the request for cancellation of the Collateral Request upon request of the Participant or of cancellation by the System) MT558 and /or MT- web MT558 and/or MT- web -COM Participants Settlement Agent Participants Settlement Agent Acquisition/Cancellation of contracts of Collateral by Central Counterparty (DVP Transaction by market guaranteed by CCP) Flow Content Modality Sender Recipient Information Acquisition and generation 16 of the Collateral Request (and of the related Collateral Instruction) for the counterparties of the contract MT558 -COM CCP The message provides the reference to the market contract, the identification assigned by the CCP and the identification assigned by - COM to the Collateral Request and to the Collateral Instruction. MT558 and/or MT- web Participants Settlement Agent Cancellation of the Collateral Request and/or of the related Collateral Instruction (upon request of the CCP or of the System) MT558 e/o MT- web CCP Participants Settlement Agent 15 Including the generation of Collateral Request compensated in case of cancellation at the trading date of a contract with the spot leg having as preview settlement date the trading date. 16 Including the generation of the Collateral Requests compensated in case of cancellation at TD of a contract with spot leg with ISD=TD. 70

71 Annex 4.2 A. Cancellation of Transactions Status and information of cancellation The cancellation status that can assume the contracts and the Collateral Request (and the related Collateral Instructions) subject to cancellation are the following: Cancellation Status Description Final Status Notification Cancelled by Monte Titoli Cancellation by Monte Titoli upon written request by the Participant(s), by the Market or the CCP YES YES Cancelled by User Cancelled by System Cancellation on the basis of a instruction for cancellation entered by a Participant YES YES Automatic cancellation by the System YES YES Cancelled by Market Cancellation on the basis of a instruction for cancellation entered by the Market YES YES Cancelled by CCP Cancellation on the basis of a instruction for cancellation entered by the CCP YES YES Awaiting cancellation Request for cancellation matched of a Collateral Request set on hold as the related Collateral Instruction is under clearing and settlement Request for cancellation of a Collateral Request having the related Collateral Instruction with the indicator awaiting confirmation set as YES, as the related to one Settlement Instruction is awaiting confirmation of release by the Bank of Italy NO NO Cancellation rejected Request for cancellation that has not passed the validation process NO YES Cancellation denied The Status can be assumed by a Collateral Request previously set in the cancellation to be matched status if the System has cancelled the request for cancellation due to expiry The Status can be assumed by a Collateral Request previously set in the awaiting cancellation status if the Collateral Instruction has assumed the status of settlement settled NO YES Cancellation refused Request of cancellation of a Collateral Request FOP or FOP-R refused by the counterparty Receiver NO YES Cancellation to be matched Request for cancellation of a Collateral Request of DVP type (in the matched matching status) entered by a counterparty and for which the System is waiting to receive an analogous request for cancellation by the counterparty Request for cancellation of a Collateral Request of FOP or FOP-R type (in the matching status matched ) entered by the Giver and for which the System is waiting to receive the acceptance by the Receiver Request for cancellation of a Collateral Request of FOP or FOP-R type (in the matching status matched ) entered by the Giver and for which the System is waiting to receive an analogous request for cancellation by the Giver NO YES The Collateral Request DVP can assume the status of final cancellation only if both the related Collateral Instructions have a status of final cancellation. The System provides information on every change of the cancellation status. 71

72 The Collateral Instructions of the Collateral Request in the cancellation status cancellation to be matched are in any case submitted to the clearing and settlement processes. Annex 5.1 A. Clearing: types of transactions managed in clearing Type Transaction Type Collateral Instruction Modalities and timing of creation Collateral Transaction FOP or FOP-R with Counterparty Bank of Italy FOP and FOP-R A Collateral Instruction is created at the acquisition of Collateral Request of FOP and FOP-R type related to Collateral Transactions with the Bank of Italy entered by a Participant and automatically matched with the Collateral Request created by the System on behalf of the Bank of Italy DVP Transaction by Market or Central Counterparty DVP Different Collateral Instruction, respectively for the spot leg and the forward leg, are created simultaneously to the generation of Collateral Request of DVP type to the acquisition of contracts (already matched) by Market and by central Counterparty A reversal Collateral Instruction is generated for the compensation of the spot leg of a DVP Transaction with ISD=Trade Date cancelled upon instruction of the Market or of the CCP at the Trade Date DVP Transaction by Participants (OTC) DVP Different Collateral Instructions, respectively for the spot leg and the forward leg, are generated for the matching of Collateral Requests of DVP type (OTC) entered by Participants Collateral Request FOP or FOP-R between Participants FOP or FOP-R A Collateral Instruction is generated at the matching of Collateral Request of type FOP and FOP-R between Participants In case of FOP-R for the recall of a quantity (nominal value) of a specific issue (ISIN) the Collateral Instruction is generated for an amount equal to the countervalue of the requested quantity for that ISIN. 72

73 Type Transaction Type Collateral Instruction Modalities and timing of creation Recall of Collateral with substitution Collateral Recall Collateral Autosubstitution CRE CAS Two different Collateral Instruction, respectively for the refund of the financial instrument recalled and for the placement of the substitute financial instruments, are Collateral Recall Express II CR generated for each Bilateral Exposure and, in case of FOP Bilateral Exposure, for each original FOP Transaction of placement of the financial instrument to be recalled. Optimisation of Collateral Substitution OCS In the optimisation process of the concentration limits are generated Collateral Instruction: to substitute financial instruments placed exceeding the concentration limits with other financial instruments available on the giver-account (a Collateral Instruction for the recall of the financial instrument and another Collateral Instruction for the placement of the substitute financial instruments) in order to guarantee a better placement of Collaterals in line with the concentration limits Type Transaction Type Collateral Instruction Modalities and times of creation Refund of ineligible Collateral Collateral Oneway-recall COR The Collateral Instructions are generated at the beginning of the Accounting Day at the observation of the financial instruments no longer accepted as collateral by the Bank of Italy for their refund to the interested Givers Refund of ineligible Collateral with simultaneous substitution Ineligible Collateral Return Ineligible Collateral Return for CCP ICR ICC Two different Collateral Instructions, respectively for the refund of the financial instrument ineligible and for the placement of the substitute financial instruments, are generated for each Bilateral Exposure and, in case of FOP Bilateral Exposure, for each original FOP Transaction of placement of the financial instrument to be recalled. Ineligible Collateral Return for market ICM Top up and return of Collateral Automatic Collateral Search and Automatic Collateral Excess Return ACS and CER B. Clearing: status of the Collateral Instructions In the mark to market process are generated Collateral Instructions for the top up and the return of Collaterals, according to the Rules of the System 73

74 The Collateral Instructions can assume two types of status, respectively of settlement and cancellation, as in the table below. Status type Status Description Final Status Production of a notice Awaiting settlement Collateral Instruction not yet undergoing any clearing and settlement process NO NO Under settlement Temporary status assigned to the Collateral Instruction while it is undergoing the clearing and settlement NO NO Settlement Not settled Collateral Instruction totally not settled At the end of the Preview Settlement Day to this status it is associated the fail indication NO YES (for DVP Transactions reports the reference leg) Settled Collateral Instruction totally settled YES 17 Transactions reports YES (for DVP the reference leg) Partially settled Collateral Instruction partially settled At the end of the Preview Settlement Day to this status it is associated the fail indication NO YES (for DVP Transactions reports the reference leg) Awaiting cancellation The Collateral Instruction having the under settlement settlement status if the System has acquired a request for cancellation NO NO Cancellation denied Cancellation rejected by the System if the settlement of the Collateral Instruction does not allow its cancellation NO NO Cancelled by User Collateral Instruction cancelled (status assigned when the related Collateral Request are cancelled upon instruction entered in the System by Participants) YES YES (for DVP Transactions reports the reference leg) Cancelled by Market Collateral Instruction cancelled (status assigned when the related contracts and Collateral Request have been cancelled upon instruction entered in the System by the Market) YES YES (reports the reference leg) Cancellation Cancelled by CCP Collateral Instruction cancelled (status assigned when the related Collateral Request are cancelled upon instruction entered in the System by CCP) YES YES (reports the reference leg) Cancelled by System Collateral Instruction cancelled automatically by the System YES YES (for DVP Transactions reports the reference leg) Cancelled by Monte Titoli Collateral Instruction cancelled by (Monte Titoli) upon written request of Participants, the Market or the Central Counterparty YES YES (for DVP Transactions reports the reference leg) Le Collateral Instruction also assumes an indicator awaiting confirmation that can be set on NO or YES. It is set on YES only in the case of Collateral Instruction of FOP-R type for the return of financial instruments from the Bank of Italy account in connection with the activity with the Bank of Italy if the return instruction is waiting for confirmation by that Bank of Italy. 17 The settlement status settled can be modified only following a Reversal Instruction by the Bank of Italy. 74

75 C. Clearing: Provisional information Provisional information of settlement to Participants (including CCP) and to Settlement Agents (FOP, FOP-R, DVP Collateral Instruction to undergo the clearing and settlement procedure) Flow/ Information Content Timing MT- Sender Recipient Provisional information of securities settlement Collateral Instruction to be settled and bilateral balance net of countervalue Day before the Preview Settlement Date MT -COM Participant and Settlement Agent (securities) Provisional information of cash settlement Collateral Instruction (availability of cash necessary on a net multilateral basis) Day before the Preview Settlement Date MT -COM Participant and Settlement Agent (cash) D. Clearing: information on the availability of financial instruments Information on financial instruments that can be collateralised by the Bank of Italy present on the giver account Information Content MT- Recipients Information on financial instruments that can be used as Collateral available Balances of the financial instruments available for Collateral Transactions with the Bank of Italy (by ISIN) and related valorisation (by ISIN and total) Participants and related securities Settlement Agents - separately by securities account (ISIN, nominal value and valorisation) - global availability - all securities accounts (total valorisation) Information on financial instruments that can be collateralised for Transaction between Participants present on the giver account Information Content MT- Recipients Financial instruments that can be used as Collateral present in the giveraccount Balances of the financial instruments available for Collateral Transactions between Participants (by ISIN) and related valorisation (only total) Indication of the giver-account and total valorisation for: - each Basket market Participants and related securities Settlement Agents 75

76 - each Basket CCP - without Basket E. Clearing: status of the Settlement Instructions The Settlement Instructions can assume the status as indicated in the following table: Status Description Final Status Production of a notice Awaiting confirmation Settlement Instruction of refund of Collaterals by the Bank of Italy which appears as awaiting confirmation by the Bank of Italy NO YES Refused Settlement Instruction not settled due to the refusal of settlement by the CSD or due to the refusal of refund of Collaterals by the Bank of Italy. YES YES MT-) (through Confirmed Settlement Instruction settled YES YES Suspended Settlement Instruction related to a financial instruments for which it has been suspended the availability on the securities account by the CSD NO YES MT-) (through Suspension not confirmed Settlement Instruction related to a financial instruments for which the CSD has not confirmed the suspension YES YES MT-) (through Unsuspended Settlement Instruction related to a financial instruments for which it has been removed the suspension on availability due to the missing confirmation of the cash settlement in TARGET2 YES YES MT-) (through The status Awaiting confirmation, Suspended or Suspension not confirmed is assumed by the Settlement Instruction during the clearing settlement. The status Refused or Unsuspended is assumed by the Settlement Instruction during the settlement phase, respectively, due to negative result of the securities settlement or due to negative result in the cash settlement. The status Confirmed is assumed at the reception of the positive result of the securities settlement by the CSD. 76

77 Annex 5.2 A. Settlement: information to Participants and to Settlement Agents (Collateral Instructions of all types and Reversals of credits disposed by the Bank of Italy) Flow Contents Timing Message MT- Sender Recipient Settlement information Collateral Instruction (settled or partially settled and awaiting confirmation) and related Settlement Instructions (ISIN and quantity transferred) At settlement of each Transaction in the clearing and settlement procedure on a gross basis SWIFT MT558 MT - COM Participant and Settlement Agent (securities and cash) Detailed settlement information Settlement Instruction (YES): confirmed, ISIN of the financial instruments transferred and securities account concerned awaiting confirmation by the Bank of Italy At settlement of each Transaction in the clearing and settlement procedures on a gross basis RNI File G90 MT - COM Participant and Securities Settlement Agent Information on the suspension/unsuspension of securities upon disposition of -COM Suspension/unsuspension of securities upon disposition of -COM Real time RNI71N MT- CSD Participant or relevant Settlement Agent Information of debiting and crediting of Accounts in the CSD Debiting and crediting of giver-accounts and RCA accounts (with reference to -COM in the payment details) Real time RNI 71N SWIFT MT - CSD Participant or relevant Securities Settlement Agent MT544/MT546 Information on Collateral Instruction not settled Collateral Instruction not settled (DVP, FOP and FOP-R) Via SWIFT at the end of the Day Via MT- in real time SWIFT MT558 MT - COM Participants counterparties of the Transactions an Settlement Agents (securities and cash) 77

78 Daily Statement Daily statement At the end of the day RNI 706 SWIFT MT MT - CSD Participant or relevant Securities Settlement Agent 78

79 Annex 6.3 A. Transaction of substitution of Collaterals: status and indicators Status type Status Description Final Status Production of a notice Awaiting execution Transaction not yet submitted to settlement NO NO Under execution Transaction under settlement NO NO Execution Not executed Transaction totally not executed NO YES Executed Transaction totally executed YES YES Partially executed Transaction partially executed NO YES Cancelled by user Transaction cancelled by the Participant YES YES Cancellation Cancelled by System Transaction cancelled by the System YES YES Cancelled by Monte Titoli Transaction cancelled by Monte Titoli YES YES Awaiting cancellation Request for cancellation of a Transaction set as suspended as under settlement NO NO Cancellation denied Cancellation of Transaction denied by the System YES YES with the following specifications in relation to the cancellation status: the cancellation status Cancelled by user can be assumed only by the Collateral Recall; These Transactions also present an indicator awaiting confirmation that can be set on NO or YES. It is set on YES only in the case of Settlement Instruction of recall of the financial instrument by the Bank of Italy having the awaiting confirmation status as the return instruction is awaiting confirmation by the Bank of Italy. 79

80 B. Collateral Recall: request for substitution of Collaterals, cancellation, information Flow Content MT- SWIFT Sender Recipient Collateral Recall Request of substitution of financial instruments given as collateral MT527 Participant (or operational representative) MT -COM Information on the validation phase Result of the validation MT558 -COM Participant Securities settlement Agent Information on the execution of Collateral Recall Information on the execution of the Collateral Recall with the indication of the financial instrument substituted and of the substitute financial instruments MT558 Monte Titoli -COM Participant (or operational representative) Securities settlement Agent Cancellation Collateral Recall Request for cancellation of a Collateral Recall MT527 Participant (or operational representative) MT -COM Information on the cancellation of Collateral Recall Information on the cancellation of the Collateral Recall (upon request of the Participant or by the System) and on the cancellation of the related Collateral Instructions by the System (limited to the not settled part) MT558 Monte Titoli -COM Participant (or operational representative) Securities settlement Agent C. Transactions of automatic substitution: information - Collateral Auto-substitution (substitution of Collaterals for corporate action) and related execution - Collateral Recall Express II (substitution for recall of fail securities or transactions queuing up in Express II) and related execution - Optimization Collateral Substitution Flow Content MT- SWIFT Sender Recipient Information on the generation, execution and cancellation of the substitution Transaction Information on the generation and execution of the substitution Transaction with the specification of the financial instrument MT558 MT -COM Participant (or operational representative) Securities settlement Agent 80

81 substituted and the substitute financial instruments Information on the cancellation by the System of the substitution Transaction (limited to the not executed part) and of the related Collateral Instructions (for the not settled part) D. Collateral COR: status and indicators Status type Status Description Final Status Production a notice of Awaiting execution Collateral COR not yet submitted to settlement NO SI NO Execution Under execution Temporary status assigned to the Collateral COR while it is undergoing clearing and settlement Not executed Collateral COR totally not executed NO YES NO NO Executed Collateral COR totally executed YES YES Partially executed Collateral COR partially executed NO YES Cancellation Cancelled by Monte Titoli Collateral COR cancelled by Monte Titoli YES YES E. Collateral COR (recall of Collaterals ineligible for the Bank of Italy): information Flow Content MT- SWIFT Sender Recipient Information on the generation, execution and cancellation of Collateral COR Information on the generation and execution of the Collateral COR with the specification of the financial instrument to be recalled. Information on the cancellation by the System of the Collateral COR and of the related Collateral Instruction (for the not executed part) MT558 MT -COM Participant (or operational representative) Securities settlement Agent F. Transactions of recall of financial instruments with simultaneous substitution 81

82 Status type Status Description Final statue Production of notification Awaiting execution Transaction not yet submitted to settlement NO YES Execution Under execution Temporary status assigned to the Transaction while it is under clearing and settlement Not executed Transaction totally not executed NO YES NO NO Executed Transaction totally executed YES YES Partially executed Transaction partially executed NO YES Cancellation Awaiting execution Cancelled by Monte Titoli Request for cancellation set as suspended as under settlement Transaction cancelled upon written request by the Participant NO YES NO YES Cancelled by System Transaction cancelled by the System YES YES G. Recall Transactions of financial instruments ineligible with simultaneous substitution: information Ineligible Collateral Return for CCP Ineligible Collateral Return for Market Ineligible Collateral Return for Receiver Flow Content MT- SWIFT Sender Recipient Information on the generation, execution or cancellation of the substitution Transaction Information on the generation and execution of the recall with substitution with the specification of the substituted financial instrument and of the substitute financial instruments Information on the cancellation by the system of the Transaction (for the not executed part) MT558 MT -COM Participant (or operational representative) Securities settlement Agent 82

83 Annex 6.4 A. Information on payments of proceeds from corporate actions Flow/Information Content Timing Message MT- Sender Recipient Provisional and definitive information Payments of interests and capital refunds on financial instruments credited on giver-accounts and on RCA account Before payment At payment RNI Msg 7B2 SWIFTMT566 MT - CSD Participant (current owner, original owner and, relevant Settlement Agents Information (provisional and definitive) Crediting of interests and capital refunds to the Participant original owner and debiting of the same to the current owner or Provisionally two days before the payment and definitely at the payment date (or, in case of capital refund, as soon as the interested Bilateral Exposure is adequately collateralised) RNI Msg 7B2 MT - CSD MT -COM Participant (or operational representative) Participant and relevant Settlement Agent 83

84 Annex 6.6 A. Valuation methods of financial instruments In the context of the System the valuation of financial instruments takes place according to different modalities, depending whether the financial instruments are the object of Transactions between Participants or of Collateral Transactions with the Bank of Italy for the constitution of Collaterals in the Management System of the Collaterals Pooling. For Transactions between Participants the valuation of financial instruments takes place according to the European valuation method, as for the following formula: N = total number of bonds identified as admissible M = total number of shares identified as admissible 18 N i1 M CB i CE j1 CB i = countervalue of the Collaterals constituted by the i-part of the selected bond, calculated according to the following formula: j For bond securities (different from ABS and index-link BTP) Quantity * (price + Accrual) For ABS Securities (100 + Haircut) Quantity * (price + Accrual) * Pool Factor (100 + Haircut) For index-link BTP securities Quantity * (price + Accrual) * indexation coefficient (100 + Haircut) CE j = countervalue of the Collateral composed by the j-part of the selected share, calculated on the basis of the following formula: Quantity * (price) (100+Haircut)/100 Price = market price (flat price) or theoretical price; for the constitution of the Collaterals the System applies the price according to the Eligibility Set applied to the Transaction or to the Bilateral Exposure subject to collateralisation, for the recall of Collaterals (even if ineligible) it applies the last available price 18 Not applicable for phase 2. 84

85 price sources used by the system are indicated in the Service Communications. With regard to market prices: are used, in order, the bid price, the mid-price, the ask price and the contract price; in the case of financial instruments listed on several stock exchanges: o o prices for intra-day, reference is made to the most recent price or, when prices are presenting the same time, the lower price; for end of day prices, reference is made to the price that was recorded on the stock with the highest volume traded or, if not available this information to all the bags concerned, the average price. If theoretical prices have a score Monte Titoli uses the price provided that the relative score is not less than that indicated in the communications service. The System -COM uses the order, the bid price, the mid-price, the ask price. Haircut = sum of the haircut foreseen in the Eligibility Set applied to the Transaction or to the Bilateral Exposure subject to collateralisation. For the Collateral Transactions with the Bank of Italy for the constitution of Collaterals in the Managing System of Collateral Pooling, the financial instruments are valued in euro on the basis of the prices communicated by the Bank of Italy and valid for the Accounting Day. The prices of the Bank of Italy are in euro, tel quel, already rectified by the Pool Factor and net of haircut. With regard to the refund of financial instruments (also ineligible) that requires the valuation of financial instruments, the System refers to the last price available communicated by the Bank of Italy. B. Information on Exposures, Collaterals placed and margin call and margin excess Flow/Information Contents Timing Message MT- Sender Recipient Information of margin call and margin excess Value of the Collaterals insufficients or exceeding with regard to the Bilateral Exposure After the processing of the mark to market processes -- -COM Participant (or operational delegate) Bilateral Exposures mark to market process and Collaterlas placed Value of the Bilateral Exposures for each role (Giver, Receiver) Balance of the financial instruments transferred as collateral to cover the Bilateral Exposure with the indication of: After the processing of the mark to market processes SWIFT MT569 -COM Participant (or operational delegate) sepratly for each role (Giver, Receiver) value of the Collateral expressed in the Currency of the Transaction in the price currency and in the information currency 85

86 Intraday Bilateral Exposure Value of the Bilateral Exposure During the Accounting Day on the basis on the last update of the Bilateral Exposures -- -COM Participant (or operational delegate) 86

87 Participation profile Flow Content MT- Sender Recipient Entry/Changes Partial settlement option Participant (or operational agent) Monte Titoli -COM Collateral autosubstitution for corporate actions Acquiring and matching Collateral Requests and related cancellation Flow/ Information SWIFT message MT- Sender Recipient Entry/cancellation of (closed and open) FOP Collateral Requests and (open) FOP-R Collateral Requests Information on the entry of (closed and open) FOP Collateral Requests and (open) FOP-R Collateral Requests by the counterparty Participant Information on the acquisition of Collateral Request instructions (validation) Automatic generation of (closed) FOP-R Collateral Requests on behalf of the Giver Information on the completed matching of FOP or FOP-R Collateral Requests NOTES: MT527 Participant (or operational agent) MT527 (copy) MT558 (for both (only if result negative is negative) and positive results) Monte Titoli -COM Monte Titoli -COM Participant or operational agent Monte Titoli -COM Participant or operational agent MT558 Monte Titoli -COM The Participants that are parties to the Transaction (Giver and Receiver) or their operational agents MT558 Monte Titoli -COM The Participants that are parties to the Transaction (Giver and Receiver) or their operational agents As regards the IDs of Collateral Requests referred to in letters a) and b) of point 3.3.6: - the information on validation and matching sent to the Giver via Swift shows the ID of the Collateral Request referred to at letter a), while that sent to the Receiver (the Bank of Italy) shows the ID referred to at letter b); - the information on validation and matching made available to the Giver via MT- shows the ID of the Collateral Request referred to at letter a) and if the Collateral Request has already passed the acquisition phase, the ID referred to at letter b) as well; while that made available to the Receiver (the Bank of Italy) shows the ID referred to at letter b). If the result of the validation of the transaction is negative, the information is sent to the Participant via SWIFT only if the Participant used this channel to enter the transaction into the System.

88 Acquisition of Collateral Recalls (requests to substitute collateral) Flow Content MT- Sender Recipient Collateral Recalls Request to substitute financial instruments given as Collateral Participant (or operational agent) Monte Titoli -COM Information on the execution of a Collateral Recall Information on the execution of a Collateral Recall with the details of the financial instrument substituted and the substitute financial instruments Monte Titoli -COM Participant (or operational agent) Collateral Autosubstitution (substitution of Collateral for corporate actions) and related execution Flow Content MT- Sender Recipient Information on the generation and execution of Collateral Autosubstitutions Information on the generation and execution of Collateral Autosubstitutions with the details of the financial instrument substituted and the substitute financial instruments Monte Titoli -COM Participant (or operational agent) COR Collateral (return of Collateral no longer accepted by the Bank of Italy) and related execution Flow Content MT- Sender Recipient Information on the generation and execution of COR Collaterals Information on the generation and execution of COR Collaterals with the details of the financial instrument returned Monte Titoli -COM Participant (or operational agent) Information on GCA accounts (Giver Collateral Accounts) Information Content MT- Recipients Giver Collateral Balances of the financial instruments Participants (or operational agents) Accounts entered into -COM (by ISIN) Balances of the financial instruments available in -COM for collateral transactions (by ISIN) and related valuation (by ISIN and in total) Balances of the financial instruments transferred as Collateral (by ISIN) and related valuation (by ISIN and in total) 88

89 Settlement information (Collateral Instructions and Settlement Instructions for FOP, FOP-R, Recall, Autosubstitution for corporate actions, CORs for the return of financial instruments that are no longer eligible and Reversals of credits ordered by the Bank of Italy) Flow of Information Content Timing Message MT- Sender Recipient Settlement information Detailed settlement information Information on the crediting and debiting of custody accounts Information on Collateral Instructions that have not been settled Daily statement Settled and partially settled Collateral Instructions and related Settlement Instructions (ISINs and quantities transferred) Settlement Instructions (Yes): confirmed, ISIN of the financial instruments transferred and account of the financial instruments concerned awaiting confirmation by the Bank of Italy Debiting or crediting GCA and RCA accounts (with reference to -COM in the payment details) Collateral Instructions that have not been settled Daily statement After each SWIFT settlement cycle MT558 and the processing of the results of return transactions carried out in the intervals between cycles After each SWIFT (Yes settlement cycle confirmed) and the processing of the results of RNI File G90 return transactions (Yes carried out in the confirmed or intervals between awaiting cycles confirmation) Real time Via SWIFT at the end of the Day Via MT- after each settlement cycle and the processing of the results of return transactions carried out in the intervals between cycles At the end of the Day RNI 71N SWIFT MT566 SWIFT MT558 RNI 706 SWIFT MT535 MT536 Monte Titoli - -COM Monte Titoli - -COM Monte Titoli - Central Securities Depository System Monte Titoli - -COM Monte Titoli - Central Securities Depository System Participant (or operational agent) Participant (or operational agent) Participant The Participants that are parties to the transaction (or their operational agents) Participant (or operational agent) 89

90 Information on Bilateral Exposures and margin call and margin excess reports Flow/ Information Content Timing Message MT- Sender Recipient Margin call and Margin excess reports Bilateral Exposure Mark-to-market cycle Intraday Bilateral Exposures Value of the Collateral deficiency or excess with respect to the Bilateral Exposure Value of the Bilateral Exposure and of the Collateral backing that exposure Value of the Bilateral Exposure After the processing of the mark-to-market processes After the processing of the mark-to-market processes During the Accounting Day on the basis of the last updating of the Bilateral Exposures -- Monte Titoli - -COM SWIFT MT569 Monte Titoli - -COM -- Monte Titoli - -COM Participant (or operational agent) Participant (or operational agent) Participant (or operational agent) 90

91 7.3 Model for interaction with the Bank of Italy Request for an increase in Collateral 91

92 Request for Collateral return 92

93 93