T2S: Settling Without Borders in Europe

T2S: Settling without borders in Europe

London School of Economics London, March 24 2014

Pierre Beck Vice-Chairman of the T2S-Board 0 Table of Contents T2S: Settling without borders in Europe

1 Purpose and Benefits of T2S

2 Functioning of T2S

3 Project Governance

1 Spot on T2S Purpose and Benefits of T2S

Core-neutral Borderless Single securities settlement IT Platform Harmonised Commoditised DVP in CeBM

Reversed integrated model Entirely New T2S Concept Multi-currency dimension

Solution to Fragmentation

2 Fragmented Infrastructure Purpose and Benefits of T2S

EUROPE UNITED STATES Nasdaq Euronext London MTFs BME Deutsche MTFs e.g. Chji-x/ Borsa Six OMX LU S.E. PT, BE, Stock NYSE e.g. Nasdaq Group Bórse Turquoise Italiana Group Trading Nordic FR, NL Exchange BATS

LCH Eurex Euro- Cassa Di Six-x Clearing EMCF LCH Clearnet SA Clearnet NSCC FICC Clearing CCP Comp Clear Ltd.

Clear Securities stream Euroclear Banking Settlement & Frankfurt Iber Inter Monte VP CSDx SIS DTCC Asset clear Bolsa Titoli Clear servicing stream UK Banking BE FI FR NL SE & Luxemb. IE

FED

Cash ... NCBx ...... Settlement SNB

Target2

3 Current EU Settlement Landscape Purpose and Benefits of T2S

Non-integrated, cross-border settlement

CSD Market Participant

Custodian CSD CSD

CSD CSD CSD CSD CSD CSD

4 Scope of T2S Purpose and Benefits of T2S

A Service offered to CSDs for Settlement only

Registration of issuer Change of ownership indebtedness and investor among investors holdings Notary Settlement Function Function

Custody/ asset-servicing Banking Function Function e.g. coupon payments, e.g. lending and redemptions, stock borrowing only in some splits (I)CSDs

5 Future EU Settlement Landscape Purpose and Benefits of T2S

One integrated settlement process (domestic and cross-border)

Market Participant Market Participant

CSD

CSD CSD

Custodian

Market Participant Market CSD

Market Participant

6 General Principles of T2S

(published in 2011)

. (1) The Eurosystem shall take on the responsibility of developing and operating T2S by assuming full ownership … . (3) T2S shall not involve the setting-up and operation of a CSD, but instead serves only as a technical solution for providing settlement services to CSDs … . (5) The respective CSD customers’ securities accounts shall remain legally attributed to the CSD and the respective central bank customers’ cash accounts shall remain legally attributed to the central bank. …

. (7) Securities account balances shall only be changed in T2S . (8) T2S shall settle exclusively in central bank money … . (12) CSDs’ participation in T2S shall not be mandatory . (13) All CSDs settling in central bank money and fulfilling the access criteria shall be eligible to participate in T2S . (14) All CSDs participating in T2S shall have equal access conditions …

8 T2S Benefits Purpose and Benefits of T2S

T2S will benefit all market participants

Investors

CSDs Custodians

Issuers

9 Market integration A new securities settlement landscape

Three streams shaping the new European securities settlement landscape

CSDR

10 T2S harmonisation Dashboard Status: 15 October 2013

ACTIVITIES – PRIORITY 1 DEFINITION MONITOR COMPL. 1 T2S ISO 20022 messages G G G 2 T2S matching fields G G Y 3 T2S MESSAGES Interaction for registration G G G 4 Interaction for tax info G G G 5 Interaction for CSD ancillary services G G G 6 SCHEDULE OF SETTLEMENT DAY G G Y 7 T2S CORPORATE ACTIONS STANDARDS G G R 8 Settlement finality I (moment of entry) Y x x 9 Settlement finality II (irrevocability of transfer order) G G G 10 LEGAL HARMONISATION Settlement finality III (irrevocability of transfers) G G G 11 Law applicable/Conflicts of Law R x x 12 Outsourcing IT services R x x 13 SETTLEMENT DISCIPLINE REGIME R x x 14 SETTLEMENT CYCLES R x x 15 Availability of Omnibus Accounts G G B CSD ACCOUNT STRUCTURES 16 Restrictions on Omnibus Accounts G G G 17 REGISTRATION PROCEDURES Y x x 18 Securities accounts numbering G G G T2S ACCOUNTS NUMBERING

19 Dedicated cash accounts numbering G G G

DEFINITION MONITOR COMPL. ACTIVITIES - PRIORITY 2 20 CORPORATE ACTIONS MARKET STANDARDS CA market (CAJWG) standards G G Y 21 PLACE OF ISSUANCE R x x 22 Withholding tax procedures G Y x TAX PROCEDURES 23 Transaction tax procedures Y x x 24 CROSS-BORDER SHAREHOLDER TRANSPARENCY Y x x 25 MARKET ACCESS R x x 26 SECURITIES AMOUNT DATA G G G

11 Table of Contents T2S: Settling without borders in Europe

1 Purpose and Benefits of T2S

2 Functioning of T2S

3 Project Governance

12 The Technical Infrastructure

VALIDATIONVALIDATION and MATCHING MATCHING TARGET2

CENTRAL BANK CENTRAL BANK CENTRAL BANK CENTRAL BANK SECURITIES MONEY MONEY MONEYMONEY

CSD A CSD A NCBNCBCSDNCB A A A CSD A ACCOUNTS NCB A ACCOUNTS NCBNCB A ACCOUNTS OPTIMISATION OPTIMISATION ofof SETTLEMENTSETTLEMENT

CSD B NCBCSDNCB BBB CSD B ACCOUNTS SETTLEMENTSETTLEMENT NCB B ACCOUNTS NCB BB ACCOUNTSACCOUNTS andand REALIGNMENTREALIGNMENT

CENTRALCENTRAL BANK BANK MONEYMONEY CSD C NCBCSDNCB CC CSD C ACCOUNTS NCB C ACCOUNTS NCB C A ACCOUNTS ACCOUNTS

Other RTGS

13 Main Functionalities of T2S Functioning of T2S . Optimised settlement model - CSD securities Lifecycle Management and Matching Interface - CeBM cash 1 9 Report Validation . Real-time gross settlement (RTGS), Management Unmatched combined with instructions 10 Queries - Auto-collateralisation 2 Static Data Management - Continuous Optimisation Matched 3 instructions 4 Instructions - Recycling mechanisms Matching Maintenance . In addition, T2S provides i.a. Eligibility - Matching services 5 Settlement - Conditional securities delivery Eligible 8 instructions 6 Recycling & - Automated real-time realignment Sequencing Optimisation of cross-CSD positions 7 - Single account repository Securities Provisioning Dedicated - Standardised interfaces accounts & Booking cash accounts - Message subscriptions & reporting

14 Optimisation Features Functioning of T2S

Reduction of the need Creation of extra for cash and securities on Notary liquidity for settlement transactions to minimize Function via collateral on flow the use of resources and stock Technical Auto- netting collateralisation

Partial Additional settlement optimisation Consideration of all Splitting of Banking transactions with transactions in the case algorithms Function* equivalent ISINs to of limited availability of identify chains of resources transactions, empty circles, etc.

15 CSD Reshaping to T2S Functioning of T2S

CSD infrastructures require adaptations to integrate with T2S

CSD T2S

Lending Reporting

Custody Settlement

Coll. Mgmt. Others…

16 Table of Contents T2S: Settling without borders in Europe

1 Purpose and Benefits of T2S

2 Functioning of T2S

3 Project Governance

17 T2S Governance since 1 July 2012

Status-quo of T2S

Non-euro Making - central banks’ Governors’ ECB Governing

Bodies governors / Forum Council

Central Bank Central boards

Decision

T2S Non-euro Board

Currencies CSD Steering

Level Bodies

Steering Steering Group Group (CSG)

(NECSG)

National User Advisory Group

bodies Market Market

advisory Groups (NUGs) (AG)

ECB

Reporting Operations Project Change Review Escalation Managers Group Managers Group Group (CRG) CRG reporting to CSG (OMG) (PMG)

Technical Groups Technical Technical Groups reporting to T2S Board

18 T2S Community Status-quo of T2S

Icelandic Securities Depository Euroclear SE Euroclear FI

Euroclear UK & IE EVK CSD of Lithuania Euroclear NL Latvian Central Depository Euroclear BE VP Securities A/S

NBB-SSS BNY Mellon KDPW Clearstream Banking

LuxCSD VP LUX SIX SIS OeKB CDAD

Euroclear FR KELER CDCP KDD

Iberclear Depozitarul Central

Interbolsa Monte Titoli HELEX BOGS 24 CSDs signed the T2S Framework Agreement

T2S under development

SP5 SP6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Preparation Phase Specification Phase Development & Internal Testing Phase • User Testing Phase Migration Phase

SP1 SP2 SP3 SP4 SP13 SP17

T2S Go-Live

We are here

Thank you for your attention

www.t2s.eu

@T2SECB