Operational Aspects on the Cash Side T2S Info Session Ljubljana, 10 March 2013 Patrick Papsdorf DG-P European Central Bank 1
Table of Contents 2 1 2 3 4 5 Introduction Fundamentals Procedures in normal situations Procedures in abnormal situations Other aspects
Introduction The focus of the presentation is on operational aspects relevant for the euro cash side. T2 distinguishes operational procedures for: - normal situations; and - abnormal situations. The need to scrutinise T2 operational procedures arose in view of new/changed elements related to: - T2S and T2 interdependencies; - DCAs in euro; and - euro liquidity interrelations. Approach: apply existing and proven T2 operational framework (T2 Information guide) to greatest extent possible. 3
From an operational perspective Introduction T2S and T2 Strongly Interrelated Securities Cash RTGS securities securities sec. settl. DCA DCA liquidity RTGS RTGS securities autocol DCA RTGS Automated reimbursement We will use in the presentation for the euro cash side the terms of DCA holder and TARGET2 RTGS account. 4 4
Table of Contents 5 1 2 3 4 5 Introduction Fundamentals Procedures in normal situations Procedures in abnormal situations Other aspects
Fundamentals Dedicated cash accounts Dedicated Cash Accounts (DCAs) DCAs in euro will be in the TARGET2 perimeter and its operational framework will apply. DCAs are opened and administered by CBs, which hold the business relationship with the DCA holders. Participation requirements identical to opening a TARGET2 RTGS account. DCAs will be used for T2S cash-related operations. In addition to DCAs there are: 1) Dedicated transit account: two accounts at ECB for liquidity flows from/to T2. 2) Central Bank Accounts: used to provide intraday liquidity (autocollateralisation) to its DCA holders, may have a negative balance. 6
7 Fundamentals Dedicated cash accounts Principles applying to DCAs (1) 1) An eligible entity can open one or more DCAs for its own purposes and/or for its clients. Other entities cannot open a DCA. 2) An eligible entity can open a DCA even if it has no TARGET2 RTGS account. 3) A DCA holder has to have a TARGET2 RTGS account itself opened at the same CB if it wants to benefit from auto-collateralisation. Both, DCA and TARGET2 RTGS account, in the books of the credit providing NCB. Necessary for automatic reimbursement. 4) Each DCA must be linked to a single TARGET2 RTGS account. The account holders may differ. The central banks that opened the accounts may differ. Several DCAs can be linked to a single TARGET2 RTGS account. Necessary for liquidity sweeps.
Fundamentals Dedicated cash accounts Cash accounts used for T2S purposes P2: no RTGS DCAH B NCB DCAH A 1 P1: several DCAs DCAH A 2 Links DCAs T2 RTGS TARGET2 RTGS accounts P3: if P3 if autoco autocol than RTGS than RTGS RTGS A NCB NCB B RTGS X Client ABC RTGS Q Uses DCA of Bank B P4: links, more DCAs to one ECB T2 RTGS, diff. acc TRANSIT holder ECB T2S TRANSIT Notation NCB DCAH A DCAH B Client ABC Description National Central Bank DCA holding bank A (with both cash and securities account) DCA holding bank B (provides cash for securities settlements of CSD participant, client ABC) CSD Participant using the services of Bank B Notation NCB RTGS A RTGS X RTGS Q Description National Central Bank T2 RTGS Account holder which would receive liquidity at EoD from DCAH A T2 RTGS Account holder which would receive liquidity at EoD from DCAH B RTGS account holder without T2S business Party Relationship Link for EoD retransfer Central Bank Cash Account Dedicated Cash Account Transit Account T2 RTGS Account 8
9 Fundamentals Dedicated cash accounts Principles applying to DCAs (2) 5. DCAs cannot have a negative balance (exception: CB accounts). 6. DCAs are funded by TARGET2 RTGS account(s). Funding may come from any and several TARGET2 RTGS accounts. 7. Liquidity can be sent from DCAs to any TARGET2 RTGS. 8. No overnight balances are allowed on DCAs, i.e. the end-of day balances must be swept to T2 RTGS accounts. For each DCA, there will be the main T2 RTGS account for purposes of the end-of-day sweep(s).
Fundamentals Dedicated cash accounts Cash accounts used for T2S purposes NCB A TARGET2 RTGS accounts NCB A NCB B DCAH B DCAH A 1 DCAH A 2 P6 Funding Liquidity from (any) relations RTGS RTGS A RTGS X Client ABC P8 EoD sweep RTGS Q Uses DCA of Bank B P7 DCA to (any) RTGS ECB T2 TRANSIT ECB T2S TRANSIT Notation NCB DCAH A DCAH B Client ABC Party Relationship Description National Central Bank DCA holding bank A (with both cash and securities account) DCA holding bank B (provides cash for securities settlements of CSD participant, client ABC) CSD Participant using the services of Bank B Link for EoD retransfer Notation NCB RTGS A RTGS X RTGS Q Central Bank Cash Account Dedicated Cash Account Transit Account T2 RTGS Account Description National Central Bank T2 RTGS Account holder which would receive liquidity at EoD from DCAH A T2 RTGS Account holder which would receive liquidity at EoD from DCAH B RTGS account without T2S business 10
Fundamentals Liquidity Flows DCA liquidity movements - In/outbound and internal liquidity transfers among and between DCAs and RTGS accounts. - Securities settlement related cash transactions. - Auto-collateralisation with NCB: - Auto-Collateralisation is central bank intraday credit that is triggered when a buyer has insufficient funds on its DCA to settle securities transactions. - Any intraday credit provision via auto-collateralisation is fully collateralised using eligible collateral. - Collateralisation either collateral-on-flow via the eligible securities that are being purchased (first) or collateral-on-stock with securities already held by the buyer. 11
Fundamentals Liquidity Flows Cash accounts for T2S NCB TARGET2 RTGS accounts NCB NCB B DCAH B DCAH A 1 DCAH A RTGS A RTGS X Client ABC RTGS Q Uses DCA of Bank B ECB T2 TRANSIT ECB T2S TRANSIT Notation NCB DCAH A DCAH B Client ABC Description National Central Bank DCA holding bank A (with both cash and securities account) DCA holding bank B (provides cash for securities settlements of CSD participant, client ABC) CSD Participant using the services of Bank B Notation NCB RTGS A RTGS X RTGS Q Description National Central Bank T2 RTGS Account holder which would receive liquidity at EoD from DCAH A T2 RTGS Account holder which would receive liquidity at EoD from DCAH B RTGS account holder without T2S business Party Relationship Link for EoD retransfer Central Bank Cash Account Dedicated Cash Account Transit Account T2 RTGS Account Cash Flow T2 to DCA Cash Flow DCA to T2 12
13 Fundamentals DCA numbering Name Format Content Purpose Account type 1 char. exactly C for cash account Helps differentiating between cash and Country code of the Central Bank securities accounts. 2 char. exactly ISO country code Helps identifying the Central Bank in the books of which the account is held. Currency code 3 char. exactly ISO currency code Helps differentiating between accounts in different currencies. Account holder 11 char. exactly BIC Identifies the holder of the account. Sub-classification of the account Dedicated cash accounts DCAs addressed by BIC11 plus BIC of the respective central bank. In addition, the following numbering convention for DCA accounts has been developed by the Eurosystem and TARGET2 user groups: Up to 17 char. Free text Description provided by the account holder for the sub classification of the account. e.g. C DE EUR BICBICBICBI FOROWNOPERATIONS_ 1 1 2 1 2 3 1 2 3 4 5 6 7 8 9 10 11 1 2 3 4 5 6 7 8 9 10 11 12131415 16 17
Table of Contents 14 1 2 3 4 5 Introduction Fundamentals Procedures in normal situations Procedures in abnormal situations Other aspects
Procedures in normal situations TARGET2 Operational Framework 15 TARGET2 operational framework Applies to TARGET2 RTGS accounts and in general to DCA holders as well. RTGS acc holder Users DCA holder Participating central banks National service desk National crisis manager Settlement manager 3CB. SSP service desk SSP service managers SSP crisis managers ECB TARGET2 coordination desk ECB crisis manager TARGET2 coordinator
Procedures in normal situations TARGET2 Operational Framework 16 Communication means Communication features of T2 will also be used for communicating to DCA holders (e.g. broadcast messages, T2 Information System or national means). In addition, T2S communication means (like broadcasts or T2S Info) for DCA holders. TARGET2 community TARGET2 community information information flows flows National Service service Desk desk ICM Broadcasts Local tools SSP Service service Desk desk Users TARGET2 T2 Coordination coordination Desk desk T2IS
Procedures in normal situations TARGET2 Operational Framework Settlement day For euro cash settlement on T2 RTGS accounts and DCAs the TARGET calendar applies. Settlement day in T2S will progress based on a harmonised T2S schedule. T2S will allow to change some specific deadlines individually for the different currencies. T2S Operator is entitled to change timings/ deadlines of settlement day, independently, in exceptional circumstances or contingency situations. A change is valid for the current T2S settlement day only, sequence of events (predecessors and/or successors events) in T2S must remain unchanged. 17
18 Procedures in normal situations TARGET2 Operational Framework Indicative Time 6:45 p.m. 7:30 p.m. 3:00 a.m. 5:00 a.m. T2S Period Start of Day Night-time Settlement Real-time Settlement Maintenance Window Actual Time 6:45 p.m. 7:00 p.m. 10:00 p.m. 1:00 a.m. 6:45 a.m. T2 Period Start of Day* Night-time Settlement* Maintenance Window Night-time Settlement Primary deadlines/ cut-offs 6:00 p.m. 6:45 p.m. Real-time Settlement End of Day 6:00 p.m. 6:45 p.m. Day trade phase End of Day* * Plus 15 min at last day of maintenance period.
Procedures in normal situations TARGET2 Operational Framework DCA related liquidity flows in a T2S settlement day Settlement Schedule 18:45 19:30 Start-of-day 19:30-3:00 Night-time Settlement period 3:00-5:00 Maintenance Window 5:00-16:00 Real time Settlement period 16:00-18:00 Real time settl. Closure Types of Liquidity Transfers Inbound L liquidity transfers (SOs) (preparation for Night-time settlement period) 1. In-/outbound liquidity transfers in all sequences (Inbound: T2 COs)* Last Cycle: 2. Predefined & standing liquidity outbound transfers 3. Multiple liquidity provider reimb. at end of the cycle No Liquidity Transfers service available 1.Continuous Real- Time Settlement 2.In-/outbound liquidity transfers 3.Predefined & standing liquidity transfer orders 1.In-/outbound liquidity transfers 2. Release cash restrictions 3. Autocol auto reimb. 4.Sweeps to T2 Direction Liquidity Transfer T2 RTGS acc to DCA 1. T2 RTGS acc to DCA 2. DCA to T2 RTGS acc 3. DCA to DCA 1. T2 RTGS acc to DCA 2. DCA to T2 RTGS acc 3. DCA to DCA 1. T2 RTGS acc to DCA 2. DCA to T2 RTGS acc 3. DCA to DCA *T2 maintenance window 10 pm 1am 19
Procedures in normal situations TARGET2 Operational Framework 20 Time (CET) T2S Settlement day events/processes 4.00 p.m. DVP cut-off 4.00 p.m. Cash restriction cut-off Release of unused cash restriction 4.30 p.m. Automatic reimbursement Optional cash sweep 1 (standing liquidity transfers) 5.40 p.m. BATM cut-off 5.40 p.m. CBO cut-off 5.45 p.m. Inbound liquidity transfer cut-off Automated cash sweep 2 6.00 p.m. Securities restriction cut-off 6.00 p.m. FOP cut-off
Procedures in normal situations TARGET2 Operational Framework EoD cash management End of Day Cash Management 1) Reimburse of pending auto-collateralisation any time during the day (DCA holder releases held reverse settlement instructions); 2) If not done by 4:30 pm Automatic Reimbursement starts: Enough DCA liquidity? Y Reimburse autocol N Rebalancing among DCAs sufficient? N Relocation and conversion into T2 Intraday credit Y Reimburse autocol 21
Table of Contents 22 1 2 3 4 5 Introduction Fundamentals Procedures in normal situations Procedures in abnormal situations Other aspects
Procedures in Abnormal Situations Existing Procedures in TARGET2 23 TARGET2 abnormal situations TARGET2 with robust procedures in order to cope with any potentially abnormal situations that may arise. The following parties could potentially trigger an abnormal situation in TARGET2. Contain to avoid contagion Central banks CB New aspects to be considered T2S platfor m issues CSDs VANs SWIFT RTGSs
Procedures in Abnormal Situations Existing Procedures in TARGET2 24 TARGET2 incident management measures Fixing the problem/ finding a workaround Business continuity, i.e. full processing capacity 4 sites 2 regions concept Contingency, i.e. limited number of payments Delayed closing Measures will apply for T2 events. For T2S technical platform issues (impacting DCAs) T2S measures apply. Specific measures for liquidity flow issues between T2 RTGS accounts and DCAs. Each entity with own measures in place.
Procedures in Abnormal Situations T2 High Level Principles in view of T2S 25 High-level principles for abnormal situations 1) The TARGET2 operational framework will apply to DCAs. Accordingly, issues impacting DCAs should be dealt within the TARGET2 incident and crisis management structure. 2) Issues of T2S relevance that have been identified/discussed in T2 will be communicated to T2S. 3) Not each incident/crisis in TARGET2 may lead to a communication to T2S as not all events are relevant for T2S (e.g. ancillary system interface issues or insolvency of a bank).
Procedures in Abnormal Situations T2 High Level Principles in view of T2S 26 High-level principles (continued) 4) T2 incident/crisis management structure to manage T2 events. T2 incident/crisis management structure interface with T2S incident/crisis management structure due to T2 events impacting T2S and integrated as DCAs are sitting on T2S technical platform. 5) T2 incident/crisis management structure remains responsible for decisions on TARGET2. Requests can be raised by T2S. 6) A severe incident (e.g. delayed closing) in TARGET2 should be communicated to T2S immediately. 7) T2S delayed closing does not automatically affect TARGET2 closing (depends on DCA liquidity). TARGET2 will need to decide separately if a delayed closing is necessary in TARGET2.
Table of Contents 27 1 2 3 4 5 Introduction Fundamentals Procedures in normal situations Procedures in abnormal situations Other aspects
Others Aspects Operational readiness Operational readiness Operational procedures will be fully elaborated and reflected in the TARGET2 Info Guide and consistent with T2S operational documentation Close cooperation with both T2S and TARGET2 users Non-functional testing and preparation like registration guide T2 services will be available and NCBs ready to open DCAs from first migration wave onwards 28
Other Aspects Case Study 1 How could my cash management set-up potentially be structured in view of T2S?... I am a small financial institution that mainly operates domestically and I only settle securities on my behalf. I only need to monitor my accounts from time to time during the day. I already have my existing T2 RTGS account. One DCA account to be opened with my responsible CB; Access via the T2 ICM could be established to manage the DCA. In case additional services are needed, GUI access via T2. Also possible to authorise third party (such as local CSD) to push liquidity from T2 RTGS account to DCA (e.g. at night time if not enough liquidity should be available). 29
Other Aspects Case Study 2 How could my cash management set-up potentially be structured in view of T2S?... I am a large, pan-european financial institution with cash and custodial operations for both my own account and for my clients. I therefore, have numerous T2 RTGS accounts in different countries. Maybe possible to consolidate T2 RTGS accounts dispersed throughout euro-area for securities settlement purposes; Open various DCAs (own and clients) with home CB, which could be used for auto-collateralisation; Automate T2S/DCA related operations with VAN in A2A; Subscribe to T2 services for facilitating monitoring and use services as a contingency means. 30
31 Thank you for your attention www.t2s.eu www.target2.eu