DISCLOSURE FRAMEWORK FOR SECURITIES SETTLEMENT SYSTEMS SITEME. Markets and Reserve Management Department

Transcription

1 DISCLOSURE FRAMEWORK FOR SECURITIES SETTLEMENT SYSTEMS SITEME Markets and Reserve Management Department SEPTEMBER 2004

2 DISCLAIMER This document comprises the answers given by Banco de Portugal (the Portuguese Central Bank and the owner of SITEME, one of the Portuguese Central Securities Depositories) to the Disclosure Framework questionnaire forwarded by the joint CPSS and IOSCO Working Group on Disclosure by Securities Settlement Systems. The nature of the Disclosure Framework questionnaire entails that SITEME (and Banco de Portugal) cannot accept responsibility for the completeness, accuracy or updating of the information stated therein or construed with respect thereto and that reference to other sources will be necessary. For further details and verification of the information given in the Disclosure Framework please contact: Banco de Portugal Markets and Reserve Management Department Av. Almirante Reis, 71 4º Lisboa Phone: Fax:

3 BANCO DE PORTUGAL ANSWERS TO THE BIS QUESTIONNAIRE 0. Introduction SITEME started operations in December 1998, replacing SISTEM. SITEME is not an autonomous entity, but simply a system used by the Portuguese Central Bank to settle its own operations, operations on behalf of the Portuguese Government Debt Agency (IGCP) related to Treasury bills, operations between credit institutions, and also any operations with money market securities deposited there. SITEME, as a Securities Settlement System is a notional entity owned by Banco de Portugal (managed by the Markets and Reserve Management Department), including a Central Securities Depository, whose legal framework is defined by the Decree-Law nº 22/99 of January, 28 th. Currently, Portuguese Central Bank paper and Treasury bills are the two types of securities deposited in SITEME. SITEME remains as the issuer SSS for issuances of Treasury bills. Commercial paper and other money market tradable securities may also be deposited in this CSD (including ECB debt certificates). I. Basic information. A. What is the name of the SSS? The name of the SSS is SITEME. B. Where and in which time zone is the SSS located? SITEME is situated in Lisbon. Address: Banco de Portugal 2

4 Markets and Reserve Management Department Av. Almirante Reis, 71 4º Lisboa Portugal The time zone is WET (West European Time) and the local time is GMT (summer = GMT+1). C. What functions does the SSS perform? SITEME provides central securities depository and securities settlement services for all securities deposited there. The main function of SITEME is the settlement of money market operations (including Eurosystem operations). 1. Does the SSS serve as a securities depository and/or provide securities settlement services? The SSS serves as a securities depository and provides securities settlement services. a) What types of instrument are eligible for deposit at the SSS(e.g. debt, equities, warrants, etc.)? SITEME is mainly directed to money market tradable securities, such as Central Bank paper, Treasury bills, Commercial paper, and other money market tradable securities. Currently, Portuguese Central Bank paper and Treasury bills are the two types of securities deposited there. b) What types of instrument are eligible for transfer within the SSS? Any money market tradable securities, namely Central Bank paper, Treasury bills, ECB debt certificates and Commercial paper. c) Please describe whether eligible securities are dematerialised, immobilised or transferred physically. 3

5 Eligible securities are dematerialised. However, the central is able to receive in deposit, register and dematerialise securities with physical existence. d) Does the SSS provide safekeeping for physical certificates? Not currently. It would be possible if needed, in the context of an operation of dematerialisation. In this case, it would be required that all securities belonging to the same issuance would be deposited. 2. Does the SSS provide cash accounts and/or provide funds transfers in conjunction with securities transfers? If so, in what currencies? SITEME provides funds transfers (via the Banco de Portugal s RTGS system) in conjunction with securities transfers and also securities transfers without funds transfers. The currency used is the Euro. 3. Does the SSS provide a trade matching service? Do others provide such services for securities settled at the SSS? Yes. No. 4. Does the SSS provide a trade netting service (as distinct from undertaking the settlement of securities transfers on a net basis)? Do others provide such services for securities settled at the SSS? In either case, what types of netting (bilateral or multilateral), if any, are performed? No. No. 5. Does the SSS offer a securities lending or borrowing programme? No. 6. Does the SSS provide custodial and/or related services such as the collection of interest, dividends, principal or withholding tax reclamations? Which types of service are provided? 4

6 SITEME provides some services, such as payment of interest and principal, as well as withholding tax services. 7. Does the SSS act as a central counterparty or principal to transactions with its participants? No. 8. Other? Please specify. No. D. What type of organisation is the SSS? SITEME is not an autonomous entity, just a system owned by Banco de Portugal (the Portuguese Central Bank) and used to settle its own operations, operations on behalf of the Portuguese Government Debt Agency (IGCP) related to Treasury bills, operations between credit institutions, and also any operations with money market tradable securities deposited there. E. Please describe and provide a diagram outlining the organisational and ownership structure of the SSS. See answer to D. 1. Who are the owners of the SSS? Banco de Portugal. 2. What entity or entities operate the SSS? Which functions of the SSS, if any, are outsourced to third parties? Banco de Portugal. No functions are outsourced to third parties. 3. Does the SSS have a Board of Directors? No. See answer to D. 5

7 F. Please describe the financial resources of the SSS. The SSS does not have own financial resources. However, services related to operations between participants are subject to fees, defined in a specific price list. G. Please describe whether the SSS or its operator is subject to authorisation, supervision or oversight by an external authority. SITEME is subject to internal audits by the Audit Department of Banco de Portugal and to its own Board of Auditors ( Conselho de Auditoria ). The scope of the audit is to control the observance of rules and procedures, and when needed, to propose changes on procedures. SITEME, as a service provided by Banco de Portugal (and Banco de Portugal as a whole), is also subject to the external audit of a specialised audit company (currently Price Waterhouse Coopers). II. Rules and procedures of the SSS A. Does the SSS maintain a complete list of the rules and procedures governing the rights and obligations of participants and the duties of the SSS? Yes. 1. How can participants obtain a copy of the rules and procedures? Consulting the Official Journal ( Diário da República ) where the decree-law ( Decreto-lei ) and the notice ( Aviso ) on SITEME have been published and consulting Banco de Portugal s regulations ( Instruções ) about SITEME, that are also disclosed to the public through the official bulletin of Banco de Portugal ( Boletim Oficial ) and the internet ( Rules and procedures can also be given to institutions when they become participants in SITEME. 6

8 2. Does other documentation provided to participants (e.g. user guides) have the same status as the rules and procedures? Documentation such as the users manual of procedures and the help on line is also available to participants. However, they have a more operational status, compared to the rules and procedures. 3. Describe the process for changing rules and procedures, including any need for regulatory approval. Rules and procedures are changed by Banco de Portugal. a) What authority is required, and how does this differ depending on the type of change involved? The Board of Directors of the Banco de Portugal. b) How are participants notified of changes in rules and procedures? Changes on rules and procedures are included in Banco de Portugal s regulations ( Instruções ). Minor procedural changes may be transmitted by circular letter to participants. c) Is there a procedure for participants or others to comment on proposed rule changes? No. B. Are the rules and procedures binding on the SSS as well as its participants? Under what conditions and on whose authority can written rules and procedures be waived or suspended by the SSS? Yes. There are no conditions defined to waive or suspend the rules and procedures of SSS. The Board of the Banco de Portugal can decide on this matter, but any change to the rules and procedures shall only be enforced after having been communicated to all participants. 7

9 III. Relationship with participants A. Please describe the types of membership offered by the SSS There is only one type of membership of the SSS, i.e., the participant in the SITEME. B. Can participants establish accounts for their customers assets that are segregated from their own asset accounts at the SSS? Yes. C. Please describe participant requirements for each type of membership. Participants in the SITEME are institutions which have access to the monetary policy operations as well as others authorised by the Banco de Portugal. 1. Are participants required to be domiciled or resident in a particular jurisdiction? No. 2. Are participants required to be subject to a supervisory regime? If so, please describe. Supervision by Banco de Portugal to Monetary Financial Institutions (MFI) resident in Portugal. Non-resident MFI must register at Banco de Portugal s Banking Supervision Department. 3. Are participants required to hold an equity stake in the SSS? No. 4. Are there financial, economic, personal or other requirements (e.g. minimum capital requirements, fit and proper tests)? If so, please describe. There are no other requirements apart from those stated in C. 8

10 D. Does the SSS engage in oversight of its participants to ensure that their actions are in accordance with its rules and procedures? If so, please describe. The Banco de Portugal is responsible for the safety of the payment systems in Portugal and has an interest in the regular functioning of the securities settlement systems. In this context, participation in SITEME is covered by the oversight of the SSS. E. Under what conditions can participants terminate their membership in the SSS? Does this mark the end of all liabilities of the participant? If not, please describe what liabilities could remain. Participants can terminate their membership in SITEME whenever they wish, notifying Banco de Portugal about that decision. The end of liabilities of participants is not governed by established rules, but their responsibility remains as regards the operations that have been carried out. If a participant terminates its membership in SITEME the outstanding operations remain to maturity. F. Under what conditions can the SSS terminate a participant s membership in the SSS? Whenever a participant fails to comply with the regulations or becomes financially unsound. G. Please describe the scope of the SSS s liability to participants, including the standard of liability (negligence, gross negligence, wilful misconduct, strict liability or other), the force majeure standard, and any limitation to the scope of liability of the SSS (e.g. indirect or consequential damages). Where are these liabilities and their limitations set out (e.g. in statute or contract)? The general provisions on liability set out in the Portuguese Civil Code are applied. No clauses on exclusion, limitation or standards of liability are set out in the legal framework of SITEME. IV. Relationships with other SSSs and commercial intermediaries 9

11 A. Does the SSS maintain linkages (including sub-custodian or cash correspondent relationship) or other relationships with other SSSs? No. For the moment, SITEME does not have direct links with any other entities. Nevertheless, there are indirect links, with ICSDs, operated by Portuguese custodian banks. B. Does the SSS use securities custodians (other than the SSSs addressed in the previous question) and/or commercial cash correspondents? Please identify the custodians or cash correspondents used and the duties that each performs. Yes. Portuguese custodian banks hold accounts with the ICSDs that are mirror accounts of their accounts in SITEME (only for Treasury bills). C. Please describe the standards used in approving or reviewing relationships with other SSSs, custodians or cash correspondents, including any financial or operational requirements or the presence of insurance or public supervision. All banks holding accounts in SITEME are institutions covered by the Banco de Portugal Banking Supervision Department. D. Does the SSS advance funds or securities to or on behalf of other intermediaries such as issuing or paying agents? If so, please identify the circumstances in which such exposure could arise. No. E. Please describe measures in place to protect the SSS and its members against the failure of other SSSs or commercial intermediaries to meet obligations to the SSS, including risk controls, collateral or alternative sources of funds and securities. Not applicable. V. Securities transfers, funds transfers and linkages between transfers 10

12 A. Please discuss whether and how settlement instructions are matched between participants prior to processing by the SSS. For operations with financial settlement Each participant notifies the SSS by remote terminal (BP Net) of the conditions of the operation that they want to perform. When both notifications are received (and matched), the transaction is closed. Where Banco de Portugal is one of the parties (in monetary policy operations) the Bank either accepts or refuses the operations that are proposed to it by its counterparties. For operations with securities settlement only (with no cash leg) Each participant notifies the SSS by remote terminal (BP Net) of the conditions of the operation that they want to perform. The recipient of the securities must accept the delivery of the securities previously done by the transferor. 1. Is matching required for all transactions without exception? Yes, but with differences according to the type of operation (with or without cash leg). 2. What procedure is used when instructions do not match? Both participants are contacted (by phone) to solve the mismatch. 3. Are matched settlement instructions binding on participants? Yes. In addition, settled instructions are final and irrevocable. a) If so, please describe the consequences of failure by participants to meet obligations (e.g. forced settlement, penalties, short positions). Participants can incur in penalties, namely, warnings, suspensions or even the termination of their membership. 11

13 b) Please describe whether this is a feature of the SSS s rules and procedures or of national law or regulations. This is a feature of the rules of the SSS. c) Please provide a time line indicating the points at which matched instructions become binding, as well as any pre-matching process that takes place. Matched instructions become binding when the second transmission is matched with the first one, by the computer system. B. Are securities transferred within the SSS registered? No, securities are recorded in SITEME as bearer securities. 1. Who is the registrar? Not applicable. 2. Is it normal practice to register the securities in the name of the SSS(or its nominee) or in the name of the beneficial owner? Are there instances in which securities housed within the SSS are registered to neither the SSS (or its nominee) nor the beneficial owner? Not applicable. 3. If the SSS offers custodial services, will it hold securities registered in the name of the beneficial owner? Not applicable. 4. Under what circumstances does the SSS initiate registration of securities in the buyer s name? Not applicable. 12

14 5. How long does the registration process typically take? Are participants notified when registration is complete? Not applicable. 6. Can securities be transferred within the SSS before registration in the buyer s name is complete? If so, do the rules and procedures of the SSS provide for an unwind or reversal of such transfers in case of bankruptcy or other events which result in the buyer s name not being entered on the register? Not applicable. C. Please describe how securities transfers are processed within the SSS. In the securities accounts opened with SITEME in the name of the securities owners, the operations relating to these securities are processed through transfers and the rights of ownership are also recorded. 1. Please indicate whether the transfers are processed as debits and credits to members accounts or via some other method. Securities transfers are made from the seller to the buyer upon debit of the settlement account of the former and credit to the buyer s account opened with SITEME. 2. On a continuous (real-time) basis, or in one or more batches? On a continuous (real time) basis. 3. If continuous, during what hours does the processing occur? If in batches, at what time or times is the processing initiated and completed? From 7:00 a.m. to 5:30 p.m. (local time). 6:00 pm on the last Eurosystem business day of a minimum reserve maintenance period. 13

15 4. Do securities settlements occur daily? Please identify securities for which settlement occurs only on specific days of the week or month. Yes, securities settlements occur every Eurosystem business day. D. Please describe whether final funds transfers in conjunction with the SSS are made as debits and credits to balances held at the SSS, at one or more commercial banks, at the central bank, or via some other method. The cash leg of all operations with financial settlement carried out in SITEME is settled in central bank money. Final funds transfers are made in conjunction with SSS as debits and credits to balances held at Banco de Portugal. 1. Does the SSS maintain cash accounts for its participants? Are these accounts equivalent to deposit accounts at a commercial or central bank or do they serve only as cash memorandum accounts? No, in SITEME there are only securities accounts (cash accounts are held in Banco de Portugal s books). 2. On what entity (SSS or other) does the participant bear cash deposit risk? The participant that sells securities does not bear any cash deposit risk, because settlement accounts (in central bank money) are held with Banco de Portugal (Portuguese Central Bank). 3. Under what circumstances does the SSS provide credit extensions or advances of funds to its participants and thereby expose itself to credit risk? The SSS does not provide any credit extensions or advances to its participants. 4. How long can such credit extensions last? How long do they typically last? See answer to 3. 14

16 E. Is the SSS a DVP system? If so, please describe the DVP model used according to the models outlined in the DVP Report (see the Introduction). Please also provide a diagram indicating the timing of events in the processing of securities and funds transfers in the SSS. Where the SSS provides more than one alternative for settlement processing, please provide a response for each alternative and indicate the relative importance of each alternative. Yes, SITEME is a Model 1 DVP system. Real time DVP. 1. Are funds transfers and securities transfers processed within the same system or in different systems? If different how are they linked? Funds transfers and securities transfers are processed within different systems. They are linked by an electronic communication channel. a) Please describe whether each securities transfer is linked to a specific funds transfer on a trade-by-trade basis or a net basis or via some other method. On a trade-by-trade basis through the Portuguese RTGS system. b) Does the SSS split large transactions into multiple transactions or require participants to do so? No split is needed or required to participants. 2. When do securities transfers and funds transfers become final? Securities and funds transfers become final after the buyer of securities is successfully credited, and the receiver of the funds (for operations with financial settlement) is successfully credited. a) At what time do securities transfers become final? After what event or events? 15

17 At any time during the opening hours of the market (in real time), after the buyer of securities is successfully credited (and the cash leg completed for operations with financial settlement). b) At what time do funds transfers become final? After what event or events? Does this timing allow for same-day retransfer of funds received in exchange for securities? Funds transfers become final when the receiver of funds is successfully credited. Yes, this timing allows for same-day retransfer of funds. c) If final delivery of securities precedes the final transfer of funds, can participants dispose freely of such securities prior to funds finality? If so, what actions will be taken if funds are not received? No, securities will be blocked until final transfer of funds. d) If final delivery of funds precedes the final transfer of securities, can participants dispose freely of such funds prior to securities finality? If so, what actions will be taken if securities are not received? Final delivery of funds can never occur before the final delivery of securities. e) Does the timing of finality differ depending on the type of security transferred or the currency in which payment is to be made? Please describe. The timing of finality does not differ for any type of security settled in SITEME. 3. Please discuss whether participants are notified of securities or funds transfers while they are still provisional, only when they are final, or both. 16

18 Participants can be aware of the state of the operation during the process of settlement. F. Does the SSS itself guarantee funds or securities transfers? No, SITEME does not guarantee the funds or securities transfers but the system guarantees that the securities involved in the generation of the financial settlement are delivered. 1. Under what circumstances and at what point are transfers guaranteed by the SSS? Not applicable. 2. What actions does the guarantee obligate the SSS to take? Not applicable. 3. Please indicate whether the guarantee is a feature of the SSS s rules and procedures or of national law or regulations. Not applicable. VI. Default procedures A. Please discuss the events or circumstances that would constitute default of a participant under the rules and procedures of the SSS or that would lead the SSS to make use of exceptional settlement arrangements or unwind procedures. Events of default (what could only happen for the second leg of a repo operation in case of insolvency or bankruptcy) would be the lack of funds in the cash settlement account of the institution buying the securities or the lack of delivery of the securities by the seller. Failure in payments or deliveries of securities are facts that have never occurred. 17

19 1. Failure by a participant to meet a test of its solvency under the applicable laws of its jurisdiction? No tests of solvency for SSS reasons have been carried so far. 2. Failure to make payments or deliveries of securities within the time specified? If the transfer of funds does not occur in the time specified, the operation is not accepted by SITEME, until the problem is solved. If the transfer of securities does not occur in the specified time (due to the blockage of securities could only happen for the second leg of a repo operation) the participant will be in default. 3. To the extent that the rules and procedures grant discretion in the determination of the use of default or other exceptional procedures, please discuss where the authority to exercise such discretion resides and the circumstances in which this authority would be used. The authority to exercise such discretion resides in the Central Bank Organic Law; this authority would be used in case of a failure in payment or securities transfer. B. What procedures are followed by the SSS once has determined that a default event has occurred or that exceptional settlement arrangements are to be employed? Should a problem in settlement occur the failure participant would be contacted by telephone, to try to solve the problem; if the problem would not be solved, a written notification would be sent to state the default, and identify the consequences. 1. How and at what point are participants notified that this has occurred? 18

20 In the event of default, the operation is suspended and the participants in the operation are informed. The defaulting participant may be forced to terminate its participation in SITEME. 2. Would the SSS be expected to continue to meet all its obligations to participants under these circumstances? Please discuss the resources in place to ensure that this would occur (e.g. collateral, participants fund, insurance, loss-sharing arrangements, etc.). SITEME is not participating in the settlement as a counterpart, therefore all remaining obligations are procedural. There are no resources in place to guarantee the settlement in case of a failure of a participant. 3. Please describe and provide a time line indicating the order in which these resources would be used as well as the timing of participant notifications and important deadlines (e.g. when the SSS s obligations to participants would be met, when participants would need to cover their loss-sharing obligations). Not applicable. 4. Please describe all conditions under which provisional transfers of securities or funds could be unwound by the SSS. Our current system does not consider provisional transfers of securities, all transfers are final. 5. Can bankruptcy or insolvency be declared retrospectively in the SSS s jurisdiction (e.g. under a zero-hour rule), and could this cause provisional securities or funds transfers to be unwound? No, it can t. 6. Please describe any circumstances in which transfers of securities or funds that were defined as final in response to question V.E.2 above would ever be unwound. 19

21 Not applicable. C. Has a participant in the SSS ever been declared in default or become insolvent? Yes. Only one participant has been declared insolvent (in the previous system, i.e., SISTEM), but no losses have occurred to its counterparts as a result of operations settled via the SSS. VII. Securities overdrafts, securities lending and back-to-back transactions A. Is it possible for debit positions (overdrafts) in securities accounts at the SSS to arise? As short selling is not allowed, debit positions in securities accounts are not possible. B. Under what circumstances does the SSS provide for the lending of securities to ensure settlements? The SSS does not provide for the lending of securities. As SITEME is a DVP system without short selling, every institution who wants to sell securities has to hold them previously in its securities account in SITEME. C. 1. Under what conditions are delivery instructions by participants receiving and redelivering securities on the same day under back-to-back transactions settled for same-day value? All transactions in SITEME allow for same-day retransfer of securities. So, the only condition to the seller of securities is to hold them in its account. 20

22 2. Please describe limits or controls in place with respect to any of the above arrangements for the settlement of back-to-back transactions, including limits on amounts involved or related to the liquidity of the underlying securities. The automatic control in place, after the acceptance of the order for the operation, verifies the existence of the securities on the account of the seller. As the system is a real time DVP one and no short selling is allowed, no other limits or controls are necessary. 3. Under what conditions are payment instructions by participants in the SSS under back-to-back transactions settled for same-day value? Can participants use the proceeds of an ondelivery of securities without the need for an extension of credit? Always, since payment instructions relies on a real time gross settlement system. Yes, after the transfer, funds become immediately available. VIII. Risk control measures A. Please describe the roles and responsibilities of those areas of the SSS responsible for risk management and control. As transfers of securities are final and based on securities accounts holdings, whose existence is previously verified, risks are minimised, so there is no specific risk management policy in SITEME. B. Please describe any internal or external audits or supervisory/regulatory examinations that are performed with respect to the SSS. For each such audit or examination, please address the following questions. SITEME is subject to internal audits by the Audit Department of Banco de Portugal and to its own Board of Auditors ( Conselho de Auditoria ). The scope of the audit is to control the observance of rules and procedures, and when needed, to propose 21

23 changes on procedures. SITEME, as a service provided by Banco de Portugal (and Banco de Portugal as a whole), is also subject to the external audit of a specialised audit company (currently Price Waterhouse Coopers). 1. Who performs the audit or examination? The Audit Department of Banco de Portugal, and also the Board of Auditors and an external audit company (currently Price Waterhouse Coopers). 2. What is the scope of the audit or examination? The general objective of the supervision is to control the observance of rules and procedures and the security requirements, and when needed, to propose changes on procedures. 3. What is the frequency of the audit or examination? At least once a year. 4. Are audit or examination reports available for review by participants? No. C. Please discuss whether the SSS has the capacity to value (i.e. mark to market) the securities that it holds. The SSS does not hold securities in its own name. However, the SSS provides such services to the Central Bank for its credit operations as well as for the holders of securities. D. Please discuss whether the SSS has a lien on the securities held in or transferred through it. The SSS does not have a lien on the securities held in or transferred through it. E. Please discuss the circumstances in which the SSS requires collateral to limit or mitigate risks. 22