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III. Project Organisation IV. T2S Benefits

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III. Project Organisation IV. T2S Benefits I. What is T2S and why does Europe need it? II. How will T2S work? III. Project organisation IV. T2S benefits 1 2 A single IT Core technical Neutral Borderless platform securities settlement Harmonised Commoditised DvP in CeBM A solution An entirely to the current new concept Reversed integrated fragmentation model Multi-currency dimension Market participants Custodians CSD A CSD B CSD C CSD x direct access One technical platform used by CSDs for securities settlement One integrated settlement process (domestic and cross-border) 4 The Eurosystem had to choose between the two possible ways of settling securities in central bank money: • Interfaced model Two platforms: clients’ cash accounts are held with central banks and the clients’ securities accounts are held with the CSDs • Integrated model One platform: both central bank cash accounts and securities accounts are held within the same platform T2S will be based on the integrated model and ensure real- time DvP settlement in central bank money 5 Type of intermediation Registration of Notary function issuer indebtness and investor holdings issuer / investor Custody and asset- e.g. coupon payments, servicing function redemptions, stock splits Settlement Change of ownership buyer / seller function among investors e.g. lending Banking function* and borrowing lender / borrower *only in some (I)CSDs 6 NBB-SSS CIK SITEME INTERBOLSA Clearstream Banking Ffm NEGICEF OeKB KDPW Iberclear – BME Group SIX SIS LTD Clearstream Banking Lux EVK Euroclear UK and Ireland BOGS VPS Euroclear Sweden AB HELEX Monte Titoli S.p.A. Euroclear Finland Oy KDD CDCP CSD of Lithuania, plc Euroclear France S.A. VP SECURITIES Malta Stock Exchange plc Cyprus Stock Exchange Latvian Central Depository Depozitarul Central S.A. KELER Icelandic Securities Depository 7 I. What is T2S and why does Europe need it? II. How will T2S work? III. Project organisation IV. T2S benefits 8 VALIDATIONVALIDATION and MATCHING TARGET2 CENTRALCENTRAL BANK BANK CENTRAL BANK CENTRAL BANK SECURITIES MONEY MONEY MONEYMONEY CSD A CSD A NCBNCB AA CSD A ACCOUNTS NCB A ACCOUNTS NCB A A ACCOUNTS OPTIMISATIONOPTIMISATION of SETTLEMENT CSD B CSD B ACCOUNTS SETTLEMENT NCB B ACCOUNTS NCB B ACCOUNTS NCBNCB BB NCB B ACCOUNTS and REALIGNMENTREALIGNMENT CENTRALCENTRAL BANK BANK MONEY CSD C MONEY NCBNCB C C CSD C ACCOUNTS NCB C ACCOUNTS NCB CA ACCOUNTSACCOUNTS T2S Other RTGS T2S will bring on one technical platform all securities and cash accounts to settle all securities transactions in central bank money 9 . Optimised settlement model • CSD securities • CeBM cash . Real-time gross settlement (RTGS), combined with • Auto-collateralisation • Continuous optimisation • Recycling mechanisms . In addition, T2S provides e.g. • Matching services • Conditional securities delivery • Automated real-time realignment of cross-CSD positions • Single account repository • Standardised interfaces • Message subscriptions and reporting 10 18:45-19:30 19:30-03:00 03:00-05:00 05:00-18:00 18:00-18:45 Night-time Maintenance Daytime Start-of-day End-of-day period settlement period Window ** settlement period • Change of Business Date • Interface services • Release of EoD cash • Liquidity Transfers • Continuous real time restrictions • Static Data Update restricted Settlement • Repeat n • EoD intraday credit • Instruction Revalidation • Other services Cycle & sequences • Liquidity transfers reimbursement based on SD maintenance unavailable End of Cycle • Partial Settlement window • EoD Liquidity Transfers • Settlement Eligibility reporting • Intraday DVP cut-off 16:00 (cash sweep) + forced • Liquidity transfers Static Data Update* • Intraday FOP/BATM/ RTGS Liquidity Transfers (preparation for the night-time Central Bank operations • Technical bookings settlement period, such as cut off 18:00 arrange funding in the T2S • Stop settlement DCA) • Recycling and purging Last Cycle: • Securities Accounts • Partial Settlement consistency check • Multiple Liquidity • Statement and reports Provider reimbursement at end of cycle • Predefined/Standing Liquidity Transfer Orders • End of Cycle Reports • Statement and Reports * Static Data updates are accepted throughout the night-time settlement but are implemented at the end of cycle sequences if they impact the settlement process ** There are considerations to align the maintenance window to the maintenance window timeline in T2 11 Technical Netting Partial settlement Additional Optimisation Algorithms (Identification of chains of transactions) Auto-collateralisation Optimisation Features Features Optimisation • Technical netting reduces the need for cash and securities on transactions to minimise the use of resources. • Partial settlement splits transactions if only limited resources remain available. • The additional optimisation algorithms look at all transactions in different ISINs to identify chains of transactions, empty circles, etc. • Auto-collateralisation creates extra liquidity for settlement via collateral on flow and on stock. 12 • Definition: An automated intraday credit operation in central bank money duly collateralised aiming at facilitating the settlement of securities-related transactions and triggered when cash is insufficient on the buyer’s side. Auto-collateralisation should be available • To all participating markets • During the whole settlement day at zero interest • In repo and in pledge environments Substitution of auto-collateral operations • If securities used for auto-collateral operations are needed for a securities transaction, T2S will automatically release the securities for an equivalent amount of cash, or automatically substitute them for other securities. Closing of auto-collateral operations • Settlement banks will have the choice to close all or part of their auto-collateral operations on request. • Dedicate liquidity to close their auto-collateral operations. • All auto-collateral operations will be closed automatically at the end of day. 13 CSDsCSD in T2S in T2S Indirect connection T2ST2S Parties Party T2S CSDsCSD in T2S in T2S Direct connection T2ST2S Parties Party Technical connection Contractual relationship 14 • T2S brings de facto harmonisation to settlement (single settlement procedure and schedule, ISO 20022 messages, etc.) and also indirectly fosters further harmonisation of market practices throughout Europe • Harmonisation progress is defined in association with T2S stakeholders and builds on market initiatives • The Eurosystem co-operates with other relevant EU bodies and groups, like CESAME2, to align market participants and public authorities for the implementation of harmonised standards within European local markets T2S represents a unique opportunity to dismantle Giovannini barriers and stimulate European harmonisation in post-trading 15 I. What is T2S and why does Europe need it? II. How will T2S work? III. Project organisation IV. T2S benefits 16 17 Tariff Structure Investment Volume cost estimates PLUS TIMES Running costs Prices 18 Preparation Specification Development User Testing Operational phase phase phase phase phase July 2006 July 2008 February 2010 January 2014 September 2014 Go-live 19 Development phase User Testing phase Preparation phase phase Preparation Specification phase Feb 2010 4Q 2011 1Q 2012 2Q 2013 June 2010 1Q 2011 3Q 2011 3Q 2011 3Q 2011 Announcement User UDFS Publication Publication UDFS Expected Expected UDFS July 2006 July of chosen Handbook version 2.0 of frozen of final GFS Draft signature Signature Version URD network version 1.0 version 4.0 version Currency Framework 1.2 providers version 5.0 Participation Agreement Agreement 20 User Testing phase Operational phase Preparation phase phase Preparation Specification phase Specification phase Development phase Development January September 2014 2014 Start of July 2006 July user testing Go-live Migration planned in 3 waves of CSDs 21 I. What is T2S and why does Europe need it? II. How will T2S work? III. Project organisation IV. T2S benefits 22 T2S Benefits Investors Custo- T2S CSDs dians Issuers Benefits of T2S 23 • access to a technologically advanced, state-of-the-art, and highly robust settlement engine • savings from no longer needing to invest in costly and risky IT projects to update their settlement infrastructure • ability to take advantage of economies of scale from pooling together settlement volume across the whole of Europe • new business opportunities and access to new markets for asset-servicing 24 • significantly lower settlement fees for domestic and, in particular, cross-border transactions • Possibility to access all securities from potentially one CSD • possibility to optimise collateral and liquidity management • reduced back-office costs by streamlining interfaces and centralising settlement activity • new business opportunities and access to new markets for asset-servicing 25 • fostering a higher level of competition in Europe’s post-trade industry • contributing to harmonisation of clearing and settlement in Europe, thereby promoting a Single Market for financial services • reducing the cost of capital for firms, thus contributing to economic growth • positively impacting financial stability by reducing settlement risks on cross-border transactions • offering easy portfolio diversification to investors • enabling issuers to easily reach European investors 26 Reduced users´ collateral/liquidity needs Cross-border Harmonising settlement as settlement to inexpensive as make Europe a domestic true Single Market Users will only need an account at one Create new CSD to settle any opportunities for transactions in competition securities within T2S 27 28 29 .
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