T+2 Settlement Market Implementation Group (MIG)

Transcription

1 T+2 Settlement Market Implementation Group (MIG) 19 March 2015

2 1. Introduction & action items

3 1a) Welcome and Presenters Rodd Kingham Senior Manager Clearing Services ASX Rita Thomas Technology Relationship Manager ASX Karen Webb Manager Settlement Services ASX Tony Freeman Head of Industry Relations Omgeo

4 1a) Reminder to submit questions

5 Agenda 1. Introductions & action items a) Welcome & presenters b) Agenda overview c) Action items 2. Project Update a) Project Roadmap b) Key decisions c) Vendor and Participant workshops d) Business & Technical Overview 3. Readiness Update a) Readiness checklist 4. Topics of Interest a) Equivalent changes in Debt Markets b) European experience - Omgeo 5. Q&A

6 1c) Action items Publication of T+2 Settlement documents on Market Implementation Group material recording and presentation slides from December 2014 meeting MIG tips how to get the best experience from attending the webinars Frequently Asked Questions document based on questions from MIG, and other queries Market Notices Implementation material e.g. Business & Technical Overview document Vendor & Participant workshop information

7 2. Project Update

8 2a) Project Roadmap Visit us at the ASX stand at the SAA conference 28,29 May Oct 14 Nov 14 Dec 14 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 Milestones APCA endorsement Batch cut-off Nov 27 COP BC - Batch endorsement Market Implementation Group (MIG) Kick-off MIG MIG MIG External Stakeholder attestation deadline MIG Mar 2016 Go-live date Activities ASX Project planning and commitment Market Implementation Planning - solution design/ development/ testing/ training/ review/ consult - rule book changes Go-live Targeted Industry Consultation (Batch cut-off/ Payment Authorisation period) Stakeholder Bi-lateral readiness discussions/ Consultation on rule changes Quarterly MIGs including topics of interest/ On-going COP Forum and Business Committee updates Deliverables APCA Briefing Paper Business Committee Paper Batch cut-off decision/ Go-live and MIG communication Technical Specifications Available Vendor/ CP check-in Consultation Paper draft rule changes Lodge Rules with ASIC External Testing Available Vendor/ CP check-in

9 2b) Key Decisions No split of delivery batch timing vs T+2 implementation Endorsed by CoP Business Committee 4 March 2015 Cash Market Products subject to T+2 Settlement regime No carve outs; includes Cash Equity products, Hybrid Debt products, ETFs, Warrants/ structured products, CDIs (including AGBs)

10 2c) Vendor and Participant Workshops Scheduled workshops for Vendors & their Participants advised by Market Notice at ASX offices or dial in Bilateral workshops for in-house participants direct contact, upon request Agenda to discuss Business and Technical Overview, readiness, specific questions System Vendor Workshop Date & Time Registration Link Location SecuritEase Mon 16 March pm to 3.00pm Completed ASX, 20 Bridge St, Sydney GBST Wed 18 March pm to 3.00pm Completed ASX, 20 Bridge St, Sydney Broadridge Mon 23 March pm to 3.00pm Click here to Register ASX, 20 Bridge St, Sydney Dion Global Wed 25 March pm to 3.00pm Click here to Register ASX, 20 Bridge St, Sydney

11 2d) Business & Technical Overview Refer Market Notice 3/3/15, Business & Technical Overview document, Overview_updated12Mar2015.pdf

12 2d) Business & Technical Overview Scope of changes: Cash market products: Cash Equity products Hybrid Debt products ETFs Warrants/ structured products CDIs (including AGBs) ASX services, systems: ASX Trade ASX Post Trade CHESS TAS, SFS Corporate Actions ReferencePoint, ASX Online

13 2d) Business & Technical Overview ASX Trade ASX Trade Trade Broadcast/Query - T+2 settlement regime based date for all Cash Market products (DA122, DQ122 response, BU122) For Cash Market products trade cancellation restricted to the day of T only T+1 settlement regime for special markets. Trading Participants may request set-up of a special market for 1 Business Day on the Ex Date, with trades to settle on a T+1 basis (i.e. by the Record Date) ASX Trade external documentation will be updated prior to go live

14 2d) Business & Technical Overview ASX Post Trade Clearing & Settlement Trade Acceptance Service (TAS) - CHESS will calculate a settlement date (for valid MT161 messages) based on a T+2 Settlement regime. This date is then available in MT164, MT184. Netting Netting of Cash market settlement obligations on night of T Trades with an As At Date Not Netted settled on a T+1 timeframe Settlement Funding ensure funding available in respective payment provider bank accounts prior to 11:30am on T+2 Collateral Release - Equity collateral held overnight will be automatically released on completion of that Participants margin settlement in Austraclear. Typically occur prior to the adjusted Settlement Cut-Off at 11:30am.

15 2d) Business & Technical Overview ASX Post Trade Clearing & Settlement Settlement Facilitation Service (SFS) - no change CHESS does not set settlement dates for SFS transactions. ASX ReferencePoint no change to formats ASX Settlement Calendars calendars to show T+3 regime for January to March 2016; T+2 regime from March 2016 onwards

16 2d) Business & Technical Overview ASX Post Trade Clearing & Settlement Settlement Cut-Off time moves from 10:30am to 11:30am mfund - Fund request Cut-Off moves from 10:15am to 11:15am Settlement extension times will change A = Settlement Cut-Off extended to 11:45am B = Settlement Cut-Off extended to 12:00pm C = Settlement Cut-Off extension to be advised Margin Payments for Net Amount payments to ASX Clearing Participants will occur one hour later Change to CHESS Close Out notification timings. ASX Documentation - the CHESS External Interface Specification (EIS) and the ASX Settlement Procedure Guidelines (APG) will be updated

17 2d) Business & Technical Overview Corporate Actions Ex period for corporate actions shortened to 2 days inclusive of ex date and record date) ASX Online Forms Timetable dates for certain corporate actions will be modified ASX ReferencePoint data including Settlement Date or Corporate Action timings Content structure will not change Basis for dates (e.g. T+2, ex period) will change SFS Corporate Actions Service: procedures to be modified, based on the reduced corporate action timetables. Listings, Clearing and Settlement external facing documentation will be updated

18 2d) Business & Technical Overview Target Transition Date weekend 5/6 March 2016 CONSIDERATIONS Q commitment MAR 16 5/6 March 2016 target date Mon 14 March 2016 non-settlement day Contingency 19/20 March 2016 DEC 15 JAN 16 FEB 16 Exact date to be confirmed Easter holiday period in late March

19 2d) Business & Technical Overview Transition Arrangements CHESS netting timeline Trades executed on Friday 4 March 2016 (T+3) and trades executed on Monday 7 March 2016 (T+2) will be netted together on night of Monday 7 March 2016 T+2 Settlement regime Last T+3 trading day will be Friday 4 March 2016, settle Wednesday 9 March 2016 First T+2 trading day will be Monday 7 March 2016, settle Wednesday 9 March 2016 e.g. securities bought on Friday 4 March 2016, sold on Monday 7 March 2016 will settle same day and netted in same batch Settlement Cut-Off (and other cut-off changes) Last day of 10.30am Cut-Off will be Friday 4 March 2016 First day of 11.30am Cut-Off will be Monday 7 March 2016 Corporate Actions ex and record dates Record dates that fall on or before Tuesday 8 March 2016 = 3 day ex period Record dates that fall on or after Wednesday 9 March 2016 = 2 day ex period

20 3. Readiness Update

21 3a) Readiness checklist Questions and considerations around key themes and scope, for example: Regulation: Do ASX Market Rule amendments impact you? ASX will develop a Readiness checklist & educational material for stakeholder groups Customer readiness: Does the change impact your customers/members? Do you have a communication plan for customers about the change? Operations: Do the changes impact your operational systems? ASX will also develop educational material regarding T+2 Settlement implementation available for internal use and to pass to retail customers

22 4. Topics of interest

23 4 Topics of interest forward agendas December 14 (Kick-off) March 15 June 15 October 15 December 15 February 16 Engagement Plan/ Roadmap/ go live period Batch cut-off endorsement and impacts Attestation on readiness Proposed forward topics and timing Other Markets Milestone: Technical specs for ASX changes including Transition Readiness Checklist Special Topics: Update on European experience Debt markets equivalent changes Milestone: ASX Rule changes overview/ consultation Special Topics: Corporate Actions overview ETF s Matching on T+1 Clearing (margins, calls and collateral management) Milestone: Testing readiness Special Topics: Corporate Action testing Fails management Monitoring pre matching Settlement Calendars 2016 NZ market Milestone: Testing progress Special Topics: Trade cancellations Common concerns tracked Readiness attestation Final Milestones: Project update Last Readiness Check Go live readiness including re-cap on transition

24 4a) Equivalent changes on Debt Market AFMA has received an RBA letter suggesting that it proceed to a T+2 settlement environment and is supportive of the change A new AFMA T+2 Fixed Income Steering Committee is now in place and working groups are being established Ideally from an ASX customer perspective the wholesale debt market will move at the same time as cash market Initial analysis suggests that Austraclear requires no changes to move to T+2 AFMA s timing will be subject to further analysis and consultation with stakeholders before a final timeframe is determined

25 Omgeo T+2: Europe and the US ASX Market Implementation Group Tony Freeman 19 March 2015 Version 9 updated 18 March, 2015 tony.freeman@omgeo.com +44 (0) A DTCC Company

26 Europe: A Timeline December Q Global Financial crisis CSD-R announced: T+2 included CSD-R Level 1 text published ESMA publishes draft rulebook October 6 th T+2 Implementation European Settlement Discipline Regime: three cost elements: an administrative charge by CSD a penalty fee interest charge / T2S Launched New regulatory structure emerges T+2 debated, analyzed Level 1 text agreed June 22 nd T2S goes live: Italy in wave 1 February T2S final phase goes live This is a political timetable; it isn t based on market readiness

27 Europe: Obstacles Overcome I Inertia especially amongst buy-side firms II III A very crowded agenda Doubts about processing implications, gaps in legislation Practical issues: Foreign Exchange Securities lending Cash management (subscriptions/redemptions) Time-zones 6 October 2014

28 Europe: Outcome European Central Securities Depositories Association (ECSDA): A very smooth transition despite big-bang migration of unprecedented scale and complexity across so many jurisdictions 29 markets on one day Based on settlement data from 17 CSDs, no country has experienced a significant increase in the number of failed transactions as a result of the move In the majority of these markets, the proportion of failed instructions on 8 October was actually lower than that of the preceding week 6 October 2014 Austria Belgium Croatia Czech Republic Cyprus Denmark Estonia Finland France Greece Hungary Iceland Ireland Italy Latvia Lithuania Lichtenstein Luxembourg Malta Netherlands Norway Poland Portugal Romania Spain (bonds) Slovakia Sweden Switzerland UK Bulgaria, Germany, Slovenia were already on T+2

29 Europe: Lessons Learnt Preparation: Financial institutions implemented project teams and worked with infrastructure providers to understand likely pain points post-go-live Thought Leadership: Many institutions conducted analysis to understand potential unintended consequences, such as impact to FX processes, stock borrow loan, buy-ins etc Lessons Learnt Define the scope OTC buy-side trades Fixed-Income Centralized project management Metrics based analysis X-border flows Focus on behaviours: there are no real operational, legal, technical barriers

30 Europe: What s Next? Target 2 Securities T+ 1.5? New markets (T2S in Asia?) Expansion of role (into asset servicing) Settlement Discipline Regime More cost Re-shaping the European post-trade landscape When is it going to happen?

31 US: Progress on T+2 Rationale for US T+2 for equities, corporate and municipal bonds and unit investment trust trades: Mitigate operational and systemic risk by reducing exposure between the parties to a trade, between the counterparties to the clearinghouse, and for the clearinghouse itself Harmonization with other markets including Europe and parts of Asia that have moved, or are in the process of moving, to T+2 to help global funds better manage cash flows and financing needs Timeline: 1995: US changes from T+5 to T : BCG Cost-Benefit Analysis $550m cost to industry, enabling $170m in annual savings February 2014: Investment Company Institute (ICI) endorses T+2 April 2014: SIFMA Supports Move to Shorten Settlement Cycle October 2014: in collaboration with the financial services industry, DTCC forms Industry Steering Committee Industry Working Group Working Group undertaking analysis to determine a proposed timetable

32 Tony Freeman: Head of Industry Relations (London) +44 (0) America s Ana Lotharius (Boston) ana.lotharius@omgeo.com Europe - Matt Johnson, (London) matthew.johnson@omgeo.com +44 (0) Asia-Pacific - Matt Chan (Sydney) matthew.chan@omgeo.com A DTCC Company

33 6. Q&A

34 6) Q&A Please use webinar facility to post questions We will allow 10min for questions

35

36 Appendix A DTCC Company

37 CSD-R: Settlement Discipline Regime ESMA strongly endorses the theme of Trade Date Confirmation/Same Day Affirmation: ESMA considers that market-wide achievement of STP is essential. investment firms should ensure that they have all the necessary settlement details.. on the business day in which the transaction takes place

38 CSD-R: Settlement Discipline Regime Target for EU settlement efficiency is 99.5% CSD participants could face suspension if their settlement efficiency is 10% below the CSD average over a 12 month period CSD participants must report internalized settlement volumes/values monthly to their regulator CSD s must use LEI codes to identify all legal entities

39 CSD-R: Settlement Discipline Regime Failed trade penalties are compensatory, not punitive and are not as high as expected 1bp for equities (= 1 per day for a failed 10k trade) 0.25bp for high-value/liquid fixed income (= per day for a failed 500k trade) 0.5bp for corporate fixed-income (= 5 per day for a failed 100k trade) Buy-in rules cover all trades/all markets/all participants: no exclusion for repo The standards do not address the scope issue (re: OTC trades) in Level 1 or the sell-side funding of bifurcated T+2/T+3 trades Clients must send allocations and settlement instructions to the broker/dealer on T: the broker/dealer must confirm the allocation within 2 hours.

40 Buy-side trades and the T2S process flow OTC Execution Investment Manager Order Execution Broker / Dealer Execution Exchange Execution Broker / Dealer Confirmation Middle-office Outsourcer Confirmation Confirmation Trade Confirmation System Global Custodian Sub- Custodian CSD Target2 Securities Clearing Broker / CCP Settlement indicates an optional step (the IM may not use an outsourcer, the GC may not use a local sub-custodian)

41 LEI in CSD-R There are 10 types of entity in CSD-R that the draft reporting standards reference where an LEI will be required CSD CSD participant Settlement bank Instructing participant Counterparty of the instructing participant Client of the instructing participant Issuer Issuer CSD Settlement bank of issuer Settlement internaliser A client or participant is specified as follows: ISO Legal Entity Identifier (LEI) 20 alphanumerical character code, or Bank Identifier Code (BIC) for legal persons (with the obligation to convert to LEI for reporting purposes to authorities). Available national identifier for natural persons (50 alphanumerical digits) which allows the unique identification of the natural person at a national level.