SUMMARY OF THE SECOND AD HOC MEETING OF THE CONTACT GROUP ON EURO SECURITIES INFRASTRUCTURES (COGESI) ON CCBM2

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1 /2008/ SUMMARY OF THE SECOND AD HOC MEETING OF THE CONTACT GROUP ON EURO SECURITIES INFRASTRUCTURES (COGESI) ON CCBM2 (HELD IN FRANKFURT AM MAIN ON 28 MAY 2008 FROM 1 P.M. TO 3 P.M.) 1. Opening remarks by the Chairperson, Ms D. Russo The Chairperson welcomed participants to the second ad hoc meeting on CCBM2. With reference to the agenda of the meeting, she explained that the main purpose of the meeting was to present the outcome of the public consultation on the draft CCBM2 user requirements. 2. Outcome of the public consultation on the CCBM2 user requirements Mr Carlá (ECB) provided a presentation on the outcome of the public consultation on the CCBM2 user requirements, which closed on 5 May He noted that all respondents confirmed their support of the Eurosystem initiative to develop CCBM2, which had already been expressed in the responses to the initial consultation in 2007 on the CCBM2 guiding principles. He then provided an overview of the main comments arising from the responses to the second consultation, distinguishing the remarks on the draft user requirements (which often provided additional details on the user needs relating to various CCBM2 functionalities) from a few other comments which were not directly related to the CCBM2 user requirements. He announced that, as follow-up to the consultation, a summary of the responses is being prepared for publication on the ECB s website, while the CCBM2 user requirements are being revised to address as many remarks as possible although some comments will be considered in the next project phase, i.e. when defining the User Detailed Functional Specifications. The presentation closed with an indication of a list of issues on which further clarification was requested by respondents and a few open questions addressed to the respondents with reference to four specific requests.

2 The following discussion first addressed the latter questions and clarified that: 1 The CCBM2 fully complies with current provisions of the General Documentation and supports third-party custody via correspondent banks for the Eurosystem s counterparties. Market participants stated that the comments on this issue had sought confirmation that CCBM2 does not foresee any change to current practices; this was confirmed. 2 Although TARGET 2 already provides a liquidity reserve facility for highly urgent payments (such as CLS payments), liquidity managers would welcome an additional facility in CCBM2 to reserve some collateral to create liquidity, e.g. for CLS payments in a contingency situation. The credit freezing functionality would serve this need, in particular, when it could be used to reserve collateral for a liquidity injection in the event of the TARGET2 Contingency Module being activated. 3 The request by counterparties to include forecasting elements in the reporting to counterparties would be satisfied by the inclusion of collateral value adjustments due to transactions in waiting queues (including asset servicing transactions) at current prices. 4 The issue of whether a repo should be processed on the basis of two messages or one single message does not concern the CCBM2 user requirements and relates to T2S. Furthermore, it was explained that even when a single message is used, this will contain two separate instructions (one for the opening leg and the other for the closing leg of the repo). Thus, also with the single message, there is flexibility to change the instruction referring to the second leg, e.g. in a rollover situation. Furthermore, it was also clarified that the CCBM2 user requirements currently address the case where counterparties are indirect participants in TARGET2 (e.g. in ). With reference to the custody services in the settlement module, it was noted that the use of the term corporate actions may be misleading, as the CCBM2 does not deal with equities (which are not eligible for use in the Eurosystem s credit operations). It was then suggested to use the term relevant assets servicing. Thereafter, the Chairperson invited the group to discuss some comments which were not related to the user requirements, in particular: (i) Creating an ad hoc specific group on CCBM2 (besides COGESI) Some respondents to the public consultation asked to create an ad hoc specific group on CCBM2 different from COGESI. In fact, the composition of the participants in the ad hoc meeting on CCBM2 was considerably different from that of participants in the usual meeting of COGESI, which spoke in favour of establishing a separate group on CCBM2. The composition of such a group would resemble that of the current meeting group, subject to some adjustments. In particular, the need to involve liquidity managers in this CCBM2 group was highlighted, as both the views from liquidity managers and collateral managers are relevant for CCBM2. Until now, the views Page 2 of 7

3 of liquidity managers were conveyed by those members of the Money Market Contact Group, who attended the ad hoc meetings of COGESI. The Chairperson then concluded that a separate, more structured market group on CCBM2 could be established once the CCBM2 user requirements were approved and the next project phase was launched. This group would work along the same lines as the TARGET Working Group (TWG). The mandate of this group should also include work on contingency issues, as the contribution of the TWG to the development of contingency solutions for TARGET2 has been precious and was a successful example of cooperation between the Eurosystem and market participants. (ii) Early implementation of CCBM2 before T2S The Chairperson noted that the request to implement CCBM2 as early as possible, independently from the implementation of T2S, may conflict with the request to include the Emergency Module in the first release of CCBM2. Indeed, the current CCBM2 user requirements foresee an Emergency Module in a future release. Having such a module in the first release of CCBM2 would require further work on the user requirements (to be completed with the requirements on such a module) and a refinement of other aspects of the CCBM2 projects (e.g. the use of cash as collateral in a cross-currency environment). This would inevitably delay the submission of the dossier to the ECB decision-making bodies and likely postpone the possible earliest implementation of CCBM2. As a compromise, the Chairperson suggested continuing with the finalisation of the CCBM2 user requirements without adding any further requirements to the Emergency Module, in order to avoid any delay in the implementation of CCBM2, with the understanding that the date of the second release of CCBM2 including the Emergency Module would be brought forward, to the earliest point possible. Market participants were in favour of such a proposal provided that, together with the first release of CCBM2 (or even before), the Eurosystem would define arrangements enabling the use of non-eligible collateral (e.g. foreign collateral) in emergency situations. Market participants stressed the importance of defining such arrangements in the light of the recent turbulence in financial markets. Finally, the Chairperson invited market participants to check whether their responses to the public consultation were adequately reflected in the previous presentation and, in particular, to complement the list of issues for clarification at the end of the presentation with any missing or additional item. 3. Work on harmonisation The Chairperson remarked that work on harmonisation in the securities industry has been launched in many different European and international institutions and fora. Page 3 of 7

4 For instance: The CESAME and the MOG, under the aegis of the European Commission, have been dealing with the removal of the Giovannini barriers and the implementation of the Code of Conduct, aiming at enhancing integration, harmonisation and competition in the securities clearing and settlement industry. The CESAME2 was recently established to continue CESAME s work on dismantling the barriers to cross-border post-trading activities, to continue coordinating the work on establishing common standards in this area, as well as to monitor their implementation. The CESR has also recently established a post-trading expert group focusing on a number of regulatory initiatives going on in the area of post-trading, with the objective of enhancing a level playing-field and the safety and soundness of post-trading activities within the EU. The T2S Advisory Group (with the assistance of its Technical Groups) is also dealing with several harmonisation issues in the field of securities settlement relevant for T2S. The Chairperson then recalled that, at the last ad hoc meeting of the COGESI on CCBM2, market participants identified a list of issues for harmonisation that should complement the implementation of CCBM2 for a full exploitation of the efficiency gain opportunities that such a project can bring. 1 Looking at this list, one can identify three areas of harmonisation for CCBM2: a) harmonisation issues already included in the CCBM2 user requirements; b) other harmonisation issues directly related to the CCBM2, but not part of the CCBM2 user requirements; and c) issues concerning a wider harmonisation of the post-trading environment, which are also beneficial for CCBM2. Then, she noted that the borderline between the work under way in the context of T2S and the work to be launched in the context of the CCBM2 was not clear cut. In various areas, T2S helps harmonisation in CCBM2, while in other areas, CCBM2 helps harmonisation in T2S; moreover, some harmonisation issues are relevant for both projects. In order to proceed smoothly with this work (in particular if the CCBM2 is implemented relatively fast), it is advisable to concentrate the limited resources allocated to the CCBM2 project on those CCBM2-specific harmonisation issues (e.g. credit claims handling procedures), and leave T2S and CCBM2-related issues to the T2S Advisory Group. Furthermore, some of the harmonisation issues relevant for CCBM2 are also addressed by other initiatives and in other European fora, as mentioned above. Consequently, the need for an effective coordination of these multiple initiatives is key, in order to avoid duplication of work and waste of efforts. The ECB is considering launching detailed work on harmonisation in cooperation with the Eurosystem/ESCB and market participants, which should aim at identifying: 1 See summary of the last meeting at: Page 4 of 7

5 What kind of harmonisation is needed for the integration of the securities clearing and settlement industry with clear and consistent priorities; How harmonisation can be achieved, with effective and comprehensive action to be put in place in accordance with a consistent plan; Who should be responsible for the implementation of the actions identified above and who should be monitoring the implementation thereof. The first phase of such work would then consist of a mapping exercise, which would consider the full chain of securities/collateral transactions and identify a comprehensive list of all relevant issues for harmonisation. This list would then be checked against the scope of other undergoing initiatives at the European and international level. In this context, it was suggested to establish a coordination group in order to ensure continuous communication between the various parties involved. The next phase would consist of identifying for each unaddressed issue the relevant action(s) and the appropriate implementation plan to be used for monitoring the whole harmonisation process. It was noted that this work should be carried out by a small group of experts, which should ensure the final outcome of a detailed and comprehensive list of appropriate actions. The Chairperson concluded the discussion by confirming that the ECB would develop a draft programme for harmonisation, which would then be submitted for comments to market participants. 4. Other issues By the end of the meeting, the SWIFT representative offered to provide, on the next occasion, a presentation on the MT-MX Co-existence Framework. The Chairperson welcomed the offer and closed the meeting recalling that, depending on the forthcoming decisions on the CCBM2 project, there may not be any further ad hoc meetings in the forum of the COGESI, should a specific group on CCBM2 be established. Page 5 of 7

6 List of participants 2 nd ad hoc COGESI meeting Participant's organisation Name of participant Eurosystem NCBs Banque Nationale de Belgique Deutsche Bundesbank Mr Alec Schotte Ms Johanna Hammes Central Bank and Financial Services Authority of Ireland Banco de España Banca d'italia Banque centrale du Luxembourg De Nederlandsche Bank Oesterreichische Nationalbank Banco de Portugal Banka Slovenije Suomen Pankki Mr Brian Weekes Mr Javier Bernardo-Rubio Mr Giuseppe Maresca Mr Andreas Duhr Mr Richard Derksen Mr Gerhard Lechner Ms Eva Janeiro Mr Beno Ploj Ms Anna-Maija Tikkanen Banks Banque et Caisse d'epargne BNP Paribas Dexia-Bil Intesa Sanpaolo National Bank of Greece Sociéte Générale Mr Carlo Matagne Mr Marc Tibi Ms Kristin Claessens Mr Emanuele Renati Mr John Avgoustis Mr Eric de Gay de Nexon European Banking Federation Mr Roger Jones

7 Securities Settlement Systems Clearstream Frankfurt Clearstream Luxembourg Euroclear Iberclear Mr Gerd Hartung Mr Jean-Robert Wilkin Mr Cedric Gillerot Ms Maria Angeles Marques Vecino CCPs & Stock Exchanges EuroCCP LCH.Clearnet SA Ms Diana Chan Ms Caroline Collette-Jones Observers Danmarks Nationalbank Bank of England Mr Peter Restelli-Nielsen Mr Bryan Bean Additional invitees British Bankers' Association CRI ERC DZ Bank SWIFT European Securities Services Forum Association of German Banks Bank of New York Mellon Nord/LB Hannover Unicredito Italiano Spa Morgan Stanley UBS AG Schweiz Sociéte Générale Ms Cassandra Kenny Mr Jacques Vanhautere Mr Johan Geeroms Mr Stefan Nagel Ms Banu Apers Mr Werner Frey Ms Iris Quade Mr Steffan Ahlner Ms Ina Steinke Mr Mauro Romaniello Ms Kathy Waldie Mr Gaspare La Sala Mr Didier Bensaid ECB Ms Daniela Russo Mr Giampiero Carlá Chairperson Rapporteur Page 7 of 7