Liquidity Management in T2S Info Session T2S Project Team European Central Bank 1
Outline 1. Liquidity Management in T2S Principles and Definitions Setup 2. Liquidity Management - Scenarios Liquidity Transfers A Settlement day including liquidity transfers Handling of liquidity transfers in T2S Examples 3. Monitoring facilities 4. Connection to T2S 2
Settlement in T2S: Principles Principle 9: The primary focus of T2S shall be settlement services in euro Principle 10: T2S shall be technically capable of settling currencies other than the euro. T2S will be technically capable of providing settlement not only in euro central bank money but also in non-euro central bank money. For the activation of this service, the explicit request by the relevant central bank(s) in coordination with the local market community is required. Central banks would be expected to adapt to a harmonised standardised interface. It is a decision of the outsourcing central bank 3
Cash Account Structure in T2S: Setup T2S dedicated cash account (T2S DCA) will be a central bank money account opened in the books of an NCB. The T2S DCA holder are clients of payment/settlement banks or an NCB Cash leg of securities settlement will take place in the T2S DCA in euro/ noneuro currency in central bank money. A T2S DCA holder shall be allowed to hold one or several T2S dedicated cash accounts in the same currency, depending on the set-up preferences of the NCB. As per the rules of the relevant NCBs, the T2S DCA holder must define in T2S, the RTGS account (for the respective RTGS system) to which the T2S DCA must be linked for the EOD liquidity repatriation. 4
Controlling the use of cash in T2S In order to control the use of cash available on a party s T2S DCA a payment/settlement bank can: Define limits to use of cash on a T2S DCA o External guarantee limit o Client collateralisation limit o Unsecured limit Use the cash restriction functionality for specific instructions o Amount of cash restricted (i.e. blocked/ reserved) cannot be used to settle instructions, unless the instruction being settled refers to the initial restriction instruction. An NCB may control the use of cash of its party s T2S DCA by limiting the use of auto-collateralisation to cover lack of cash on the T2S dedicated cash account. 5
Liquidity Management in T2S: Liquidity Transfers A liquidity transfer is an instruction from a cash account holder to transfer a specified amount of money from its cash account to another cash account. Transfer Type Underlying Transfer Type Inbound Liquidity Transfer (RTGS to T2S) Outbound Liquidity Transfer (T2S to RTGS) Internal Liquidity Transfer (Within T2S) Immediate liquidity transfer Yes Yes Yes Predefined liquidity transfer orders No Yes No Standing liquidity transfer orders No Yes No Note UR T2S.12.040 The T2S Interface shall use ISO 20022/ UNIFI (Universal Financial Industry message scheme) as its single standard for all communications, both inbound and outbound 6
Schedule of a Settlement Day 18:45-19:30 19:30-03:00 03:00-05:00 05:00-18:00 18:00-18:45 Start-of-day Night-time settlement period Maintenance Window Daytime settlement period End-of-day period Change of Business Date Static Data Update Instruction Revalidation based on SD maintenance Settlement Eligibility Liquidity transfers (preparation for the nighttime settlement period, such as arrange funding in the T2S DCA) Liquidity Transfers Repeat n Cycle & sequences End of Cycle reporting Static Data Update* Last Cycle: Partial Settlement Multiple Liquidity Provider reimbursement at end of cycle End of Cycle Reports Interface services restricted Other services unavailable Continuous Settlement Liquidity transfers Partial Settlement period Intraday DVP cut-off Intraday FOP/BATM # cut-off Central Bank operations cut-off Release of EoD cash restrictions EoD intraday credit reimbursement EoD Liquidity Transfers (cash sweep) Stop settlement Recycling and purging Securities Accounts consistency check Statement and reports n times: Current proposal is 3 times. But it can be scheduled to have any fixed no. of cycles based on input from the market * Static Data updates are accepted throughout the night-time settlement but are implemented at the end of sequences # BATM: Bilaterally Agreed Treasury Management instructions 7
Handling of liquidity transfers in T2S Immediate liquidity transfer Predefined liquidity transfer orders Standing liquidity transfer orders Creation on behalf From T2S to RTGS (outbound) Between two T2S DCA (internal) Execution Partial execution Frequency of execution No Yes Yes* Immediate No once Yes Yes Yes* Immediate Yes** once Yes Yes No Triggered by Date/Time Event, then immediate Yes Yes No Triggered by Date/Time Event, then immediate Yes (after it is generated as an immediate liquidity transfer) Yes (after it is generated as an immediate liquidity transfer) once on a regular basis * T2S dedicated cash accounts shall be owned by the same T2S party (or) the DCAs are linked to the same RTGS account. ** Partial execution can only take place if the instruction is placed by a T2S Actor (i.e. CSD) acting on behalf of an account owner. 8
Example: Corporate Action Rebalancing Liquidity Setup The T2S dedicated cash account holder receiving the cash proceeds of a corporate action sets up a standing liquidity transfer order with the RTGS account to which the cash proceeds shall be transferred and the business event as Corporate Action rebalancing liquidity (CARL) Processing When a settlement instruction for cash corporate action proceeds are to be processed for settlement, if the receiver of cash proceeds has setup a automated retransfer of these proceeds via a standing liquidity transfer order with CARL event, then the standing order is generated as an outbound immediate transfer order (i.e. T2S RTGS) the settlement transactions are generated for the settlement instruction and the liquidity transfer both the settlement transactions are treated as a collection and settled on an all-or-none basis Note: This solution shall be applicable for the cases where proceeds due to a monetary policy Repo operation is to be transferred to the RTGS also 9
Setup Example: Multiple Liquidity Providers Based on Standing Liquidity Transfer Orders defined in the static data, the Liquidity Management domain facilitates the execution of multiple liquidity providers functionality. Processing During start of settlement day and before start of night time settlement, liquidity can be transferred from different RTGS accounts (i.e. different liquidity providers) to a single T2S Dedicated Cash Account. The multiple liquidity provider functionality caters to the process of refunding the remaining liquidity available in T2S Dedicated Cash Accounts to the different liquidity providers according to the configured priorities in T2S static data, at the end of the night-time settlement phase. T2S makes use of the outbound liquidity transfers based on the standing liquidity transfers for this functionality 10
Category of facility Static data Monitoring facilities related to Liquidity Management Queries/ Reports Party Management/ Limits Management Securities/ Securities Account Management Currency/ Cash Account Management System entity related queries/ Roles & privileges related queries Calendar/ Dairy events/ schedule information queries Settlement Instructions Cash & Liquidity Management Settlement Instruction status queries/ reports Liquidity reservation and reimbursement instructions related queries for settled/ pending statuses Queries on Cash balance/ Cash Forecasts/ Overall liquidity in a T2S dedicated cash account/ Cash postings Current & following settlement day cash forecast reports Collateral Management General Statement of accounts - End of day balance Limit queries/ Limit utilisation query/ limit utilisation journal query Liquidity transfer order queries for immediate/ predefined/ standing liquidity transfer orders Liquidity transfer order queries for multiple liquidity providers Collateral value of stocks/ Outstanding auto collateralisation credit Eligible securities/ Securities valuation/ Close-links Audit & History Queries 11
Connecting Central Bank systems to T2S Eurosystem TARGET2 Payments Module Interface RTGS system1 Interface Network(s) RTGS system2 TARGET2- Securities RTGS system3 12
Thank You Settling without borders 13