DTCC SERVICES TARGET2-SECURITIES FOR CENTRAL SECURITIES DEPOSITORY MAY 24, 2018
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CONTENTS Contents 3 Overview 4 Potential Operational Impacts 4 ALERT Implementation 4 Setting up SSIs for an Investor CSD 4 Trade Enrichment and SSI Retrieval 6 CTM Implementation 6 T2S Settlement 7
OVERVIEW TARGET2-Securities (T2S) is a platform that centralizes the delivery-versus-payment settlement in Europe. Intended to integrate and harmonize the fragmented securities settlement infrastructure in Europe into single market infrastructure solution, T2S enables one Central Securities Depository (CSD) to be the CSD for any other T2S market securities. This setup allows settlement of the securities in a different CSD from the issuer, which is generally referred to as the Investor CSD model. When this is the case, it is crucial to use the correct Standing Settlement Instructions (SSIs) and enrich the correct settlement information to the trades to ensure smooth settlement. This document provides guidelines on: setting up the SSI in ALERT to suit the Investor CSD model. on providing sufficient information to CTM trades to ensure settlement. Potential Operational Impacts The T2S Investor CSD model increases the potential number of depositories at which a stock can be held or settled, creating the possibility of operational impacts because instructing settlement requires a combination of: trade information, such as instrument, dates, quantities, cash, and so on. submitter SSIs (settlement agent information, account number, depository, and so on) counterparty SSIs (settlement agent information, account number, depository, and so on) The settlement instructions attached to an CTM trade correspond to a specific depository where the entity intends to settle its trade. In addition, both counterparties' SSIs are part of the "common view," which reflects the final electronic trade confirmation values of a Match Agreed (MAGR) trade. Hence, providing SSI data and consuming counterparties' SSI data can address settlement issues. ALERT Implementation Traditionally, a depository could only be added under the ALERT Country Code if the depository is in the same country as the ALERT Country Code. Because of the option for Investor CSD model for custodians/brokers in the T2S region, ALERT now allows all T2S depositories to be added under each T2S country. This functionality highlights the use of a different CSD within ALERT. Setting up SSIs for an Investor CSD The procedure that follows demonstrates how to set up an SSI for the Investor CSD model scenario using the settlement of a German equity trade in the Italian depository (Monte Titoli as an example) within ALERT. You can also apply this same procedure to other T2S markets. 1. Create the Country Security Method combination under a Model. If the investment manager maintains the SSI on the Access Code level only, create the Country Security Method under the Access Code. Note that Monte Titoli, the Italian depository, is now an allowed option for Germany as the ALERT Country Code (Figure 1). Overview 4
Figure 1 County-Security-Method Combination Example for a T2S Market 2. Provide the SSI details according to the validation rule of the Method (in this example, Monte Titoli) and according to the best practices guidelines for your settlement scenario. Figure 2 shows SSI details for self-clearing brokers. Figure 2 SSI Details for Broker with Self-Clearing Overview 5
Figure 3 shows SSI details for investment managers with one level of clearing. Figure 3 SSI Details for Investment Manager with One Level of Clearing Trade Enrichment and SSI Retrieval When submitting the ALERT keywords for trade enrichment, use Germany EQU Monte Titoli to advise your counterparties of the source of the securities or where they should be delivered. If you are retrieving your counterparty s SSI and your counterparty follows this Investor CSD model, look up the following combination: Germany EQU Monte Titoli. If the custodians/brokers do not use the Investor CSD model, continue to use Germany EQU CLEARGER for trade enrichment and SSI retrieval for settlement of German instruments. Apply the same procedures to other T2S trades' settlement. CTM Implementation CTM can be used as the mechanism to determine both parties' settlement location to ensure a correct instruction for settlement. Overview 6
DTCC recommends that buy-side users of CTM, particularly those who send SWIFT messages from the platform, populate place of safekeeping information using one of the following methods: Include the place of safekeeping fields on the allocation (TradeDetail) messages. Use the subscription CBIC (Copy the PSET BIC to PSAFE). When combined with ALERT enrichment, the CBIC subscription instructs CTM to copy the ALERT SSI PSET BIC to the CTM PlaceOfSafekeepingValue (PSAF) field. As part of this process, CTM only copies the PSET BIC, not the ISO country code. T2S Settlement The T2S system requires both parties' depository information on the settlement instruction message. As a result, both the PSAF and PSET information are required to settle a trade using T2S. In the example herein, the buy-side settlement would need to indicate: its own depository (DAKVDEFFXXX). its counterparty's depository (MOTIITMM) The broker settlement would need to indicate: its own depository (MOTIITMM) its counterparty's depository (DAKVDEFFXXX). CTM can be used to source this information from each counterparties' ALERT enrichment. Figure 4.4 T2S Settlement Flow Table 1 details the information populated by both parties as part of the electronic trade confirmation process. This information is then available for use as part of the settlement process. Overview 7
For example, the buy-side would likely use the following tags for PSET and PSAF as populated in a SWIFT message: :94F::SAFE//NCSD/DAKVDEFFXXX (94 is the PSAFE) :95P::PSET// MOTIITMMXXX (95P is the PSET) Table 1 T2S Settlement Fields Buy-Side Sell-Side Note Settlement Europe T2S Europe T2S ALERT Method CLEARGER MONLETOL The method represents the depository where the counterparty intends to settle. CTM PSET DAKVDEFFXXX MOTIITMM SSI enrichment populates the counterparty's PSET field with the depository BIC. CTM PSAF DAKVDEFFXXX N/A Buy-side has enriched its PSAF field SWIFT Field Counterparties instruct settlement using an MT541/543 message. PSET MOTIITMM DAKVDEFFXXX When instructing settlement, the submitter needs to populate its counterparty's settlement location in the PSET field. PSAFE DAKVDEFFXXX MOTIITMM If the settlement locations are different, then populate the PSAF field with the submitter's settlement location. Overview 8
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