Operating rules for Settlement Systems (EXPRESS II) and related activities

Transcription

1 Monte Titoli Operating rules for Settlement Systems (EXPRESS II) and related activities 9 S e p t e m b e r T h e I t a l i a n t e x t s h a l l p r e v a i l o v e r t h e E n g l i s h v e r s i o n

2 Content PART I - GENERAL PROVISIONS... 4 TITLE I - REGULATORY FRAMEWORK AND DEFINITIONS... 4 Article 1 - Regulatory framework and main principles... 4 Article 2 - Definitions... 4 TITLE II - GENERAL CRITERIA OF THE SETTLEMENT SYSTEMS... 8 Article 3 - Characteristics of the Settlement systems... 8 Article 4 - Participants and methods of participation... 9 Article 5 - Requirements for participation Article 6 - Financial instruments admitted to the Settlement system Article 7 - Requirements for agent banks Article 8 - Participation agreement Article 9 - Cases of exclusion, suspension and penalisation Article 10 - Service information notices Article 11 - Settlement system calendar and timetable Article 12 - Eligible transactions PART II - SETTLEMENT SYSTEM TITLE I - NET SETTLEMENT CHAPTER I - STRUCTURE OF NET SETTLEMENT Article 13 - Phases and limitations Article 14 - Irrevocability and finality of transactions Article 15 - Notification of cash availability CHAPTER II - OVERNIGHT NET SETTLEMENT CYCLE Section I - Netting and clearing Article 16 - Calculation of multilateral balances Article 17 - Database for identifying transactions eligible for settlement Article 18 - Activation of the Securities Lending Services overnight cycle Article 19 - Determination of transactions that cannot be settled Article 20 - Calculation of multilateral balances of transactions eligible for settlement.. 24 Section II - Settlement Article 21 - Settlement of securities and cash Article 22 - Information for participants CHAPTER III - DAYTIME NET SETTLEMENT CYCLE Section I - Netting and clearing Article 23 - Calculation of multilateral balances of securities and verification of caps Article 24 - Securities Lending Services daytime cycle Article 25 - Determination of transactions that cannot be settled Article 26 - Calculation of multilateral cash balances Article 27 - Further determination of transactions that cannot be settled Article 28 - Clearing of transactions eligible for settlement Section II - Settlement Article 29 - Settlement of securities and cash Article 30 - Information on process execution TITLE II - GROSS SETTLEMENT CHAPTER I - STRUCTURE OF GROSS SETTLEMENT Article 31 - Phases and limitations Article 32 - Information on process execution Section I - Transaction acquisition Article 33 - Irrevocability and finality of transactions Section II - Clearing Article 34 - Data processing Express II Rules 9 September

3 Article 35 - Queue-management priority criteria Section III - Settlement Article 36 - Cash settlement in euro Article 37 - Cash settlement in currencies other than the euro Article 38 - Cash settlement through agent banks Article 39 - Securities settlement PART III - RISK-LIMITATION MEASURES Article 40 - Technical measures for Information Technology (IT) security and processing continuity Article 41 - Technical standards for data transmission by the X-TRM service Article 42 - Measures adopted for gross settlement Article 43 - Collateral for the granting of financing PART IV - RELATED ACTIVITIES TO CLEARING SERVICES TITLE I - GENERAL PROVISIONS Art Regulatory framework TITLE II - X-TRM SERVICE Article 45 - Participants, requirements, and methods of participation Article 46 - Financial instruments admitted to the X-TRM service Article 47 - Cases of exclusion and suspension from the X-TRM service Article 48 - Phases of the X-TRM service Article 49 - X-TRM service calendar and timetable Article 50 - Risk-limitation measures TITLE III - FINANCING SERVICES CHAPTER I - CASH FINANCING SERVICE Art Services characteristics Art Participants and methods of participation Art Participants and requirements for participation Art Service information notices CHAPTER II - SECURITIES FINANCING SERVICE Art Service characteristics Art Participants and methods of participation Art Requirements for participation Art Service information notices TITLE IV - FOREIGN SETTLEMENT SERVICE Art Service characteristics Art Participants and methods of participation Art Requirements for participation Art Service information notices Express II Rules 9 September

4 PART I GENERAL PROVISIONS TITLE I REGULATORY FRAMEWORK AND DEFINITIONS Article 1 Regulatory framework and main principles 1. The present rules, governing the organisation and functioning of Settlement systems, have been adopted pursuant to Article 46 of the Bank of Italy - Consob Provision, as amended, issued by the Bank of Italy, in agreement with Consob (the Italian authority responsible for regulating the Italian securities), under Article 69(1) of Italian Legislative Decree no. 58 dated February 24, 1998 ( Testo Unico delle disposizioni in materia di intermediazione finanziaria, Consolidated Law on financial intermediation ). 2. Monte Titoli provides the activities under the present Operating rules without discrimination and by means of procedures defined on a general basis. Article 2 Definitions Express II Rules 9 September

5 1. For the purposes of the present rules, the definitions set out below shall have the following meaning: a) «Buyer»: the participant receiving securities; b) «Agent bank»: the subject appointed to carry out cash settlement, by one or more participants (the so-called Intermediaries Using Agent banks ), who do not hold cash settlement accounts or who do not intend to use them; c) «Collateral»: the financial instruments admitted to the Settlement systems, eligible as guarantee of intra-day financing with the Bank of Italy and/or with Monte Titoli and that can be used through the automatic collateralisation facilities described under letter p); d) «Segregated settlement accounts»: the security accounts that have been opened in the centralised administration system, different from the own or third party account, where participants may segregate the activities or one or more clients in connection with both the centralised administration services and the settlement services provided by Monte Titoli; e) «Technical accounts»: transit accounts used by the Settlement systems for the management of cash, securities and collateral in the process of transactions settlement; f) «Central counterparties»: entities that, in the management of a netting and guarantee system for financial instruments, interpose themselves between direct participants in the system, acting as exclusive counterparties with regard to their transfer orders; g) «Cut-off»: the time limit established for securities and cash coverage of the daytime net settlement cycle and/or of the gross settlement; h) «Validity date»: the last day, indicated by participants or market management companies or central counterparties within the limits established by Monte Titoli, on which a transaction that is matched but on hold may be transmitted by X-TRM service to the Settlement services or on which a transaction that has not been settled on the settlement date pre-determined may be resubmitted to one of the subsequent settlement cycles; i) «Italian Legislative Decree 210/01»: Italian Legislative Decree no. 210 of April 12, 2001, entitled Attuazione della direttiva 98/26/CE sulla definitività degli ordini immessi in un sistema di pagamento o di regolamento titoli [ Enactment of Directive 98/26/EC on settlement finality in payment and securities settlement systems ], published in the Gazzetta Ufficiale (the Italian Official Gazette) no. 130 of June 7, 2001; Express II Rules 9 September

6 j) «Cash availability of the intermediary using an agent bank (herein after IUA)»: the difference between the exposure limit of each IUA ("cap") and its actual utilisation; k) «Operating documents»: documents by which Monte Titoli establishes the operating procedures in further detail, in compliance with those defined in these Operating Rules; l) «Daily cap»: the maximum amount assigned by the agent bank to the IUA for a given settlement date; m) «Ordinary cap»: the maximum current amount assigned by the agent bank to the IUA ; n) «Gross settlement»: the service permitting settlement of individually considered transactions concerning non-derivative financial instruments; o) «Net settlement»: the system permitting settlement of balances originating from the multilateral netting of transactions in non-derivative financial instruments; p) «Automatic collateralisation facilities»: the process that, based on instructions given to Monte Titoli by participants, automatically identifies the securities to be used as collateral; q) «Regulated markets»: the markets listed under Article 63(2) of Italian Legislative Decree 58/98; r) «Monte Titoli»: Monte Titoli S.p.A.; s) «NOR»: the sequential order number assigned to each transaction acquired in gross settlement; t) «Transactions eligible for settlement»: the sub-group of transactions acquired by net settlement that can be settled having sufficient coverage of securities and cash; u) «Participant»: the subject adhering to the Settlement systems in its own name and on its own behalf or in its own name and on third parties' behalf; v) «Indirect participant»: the X-TRM participant that, for the settlement of transactions, use a participant to the Settlement service; w) «X-TRM participant»: the subject adhering to the X-TRM service in its own name and on its own behalf or in the name and on behalf of third parties; Express II Rules 9 September

7 x) «Bank of Italy - Consob Provision»: the provision dated 22 February, 2008, published in the Official Gazette no. 54 of March 4, 2008 as amended issued by the Bank of Italy and Consob, enacting Article 69(1) of Italian Legislative Decree no. 58 dated February 24, 1998; y) «Services Regulation»: the Centralised Administration Services Terms and Conditions, the regulation adopted pursuant to Article 81(2) of Italian Legislative Decree 58/98, by Monte Titoli S.p.A. on June 16, 2004, as amended; z) «Liquidity reserve»: the amounts on the accounts of the participants in the TARGET2 System earmarked for coverage of the debit multilateral balance during the overnight net settlement cycle; aa) «Roll-back»: the iterative calculation procedure that, by identifying and subtracting transactions that cannot be settled due to lack of securities and/or cash, optimises the settlement process; bb) «Multilateral balances»: for each type of security and for cash, the sum of the transfers that a participant must receive from other participants in a net settlement system less the sum of the transfers that the same participant must make to other participants in the same system in relation to any account held; cc) «Lack of coverage»: part of the multilateral balance of securities or cash that cannot be settled due to lack of securities or cash in the participants' accounts; dd) «Settlement services»: the services, managed by Monte Titoli, providing netting, clearing and settlement and gross settlement for non-derivative financial instruments that are admitted to the centralised administration system; ee) «X-TRM service»: the system, managed by Monte Titoli, relating to the acquisition, matching, correction and routing of transactions to Net settlement, Gross settlement or to foreign settlement systems; ff) «Securities Lending Services»: the securities lending services for nonderivative financial instruments managed by Monte Titoli within the scope of activities related and instrumental to centralised administration and governed by the Centralised Administration Services Terms and Conditions as well as the securities financing service on non-derivative financial instruments managed by Monte Titoli, governed by these operating rules; gg) «TARGET2 System»: the European automatic system for gross settlement of payments in real time regulated by the European Central Bank s Guideline of April 26, 2007; Express II Rules 9 September

8 hh) «Market management companies»: the companies which organise and manage the regulated markets pursuant to Article 63 and Article 67 of Italian Legislative Decree no. 58/98 as well as the companies which organise and manage the multilateral trading facilities pursuant to Article 77-bis of Italian Legislative Decree no. 58/98; ii) «Seller»: the participant delivering securities. TITLE II GENERAL CRITERIA OF THE SETTLEMENT SYSTEMS Article 3 Characteristics of the Settlement systems 1. The Settlement systems' purpose is: a) net settlement; b) gross settlement. 2. Transaction entry in the Settlement systems is done through the X- TRM service. Other daily matching and routing systems managed by third parties in compliance with the procedures indicated in Article 41 can route transactions to the Settlement systems through a link with the X-TRM service. 3. Securities are settled on the participants' accounts, opened at Monte Titoli or at central securities depositories with which Monte Titoli has specificconnections in place pursuant to Title V of the Bank of Italy Consob Provision.. 4. Cash settlement in euro takes place on the accounts of the participants or agent banks admitted to the TARGET 2 system. Express II Rules 9 September

9 5. Cash settlement in currencies other than the euro takes place on the participants' or agent banks accounts, opened at Monte Titoli or at banks authorised in Italy or EU banks and with which Monte Titoli has stipulated specific agreements. 6. The net settlement and the gross settlement are two separate systems; although they are interoperable, the two systems involve different and not coordinated moments for the finality of the settlement instructions, due to the intrinsic operation differences. Article 4 Participants and methods of participation 1. The following entities may participate in the Settlement systems: a) Italian, EU and non-eu banks, pursuant to article 1, paragraph 1 of Italian Legislative Decree 385/93; b) Italian investment firms (SIM) and EU and non-eu investment firms; c) Italian asset management companies (SGR) provided by article 1, paragraph 1 lett. h) of Legislative Decree 58/98, with the exception of the provisions of article 36 paragraph 2 of Legislative Decree 58/98; d) Stockbrokers entered in the single national roll provided for in article 201 of Legislative Decree 58/98; e) central banks; f) foreign entities offering services analogous to the centralized administration and settlement services and managing systems analogous to financial instruments guarantee systems, as long as they are subject to supervisory measures equivalent to the ones provided in the Italian jurisdiction; g) entities managing the contracts guarantee systems referred to in art. 68, paragraph 1 of Legislative Decree 58/98; Express II Rules 9 September

10 h) central depositories, companies managing settlement guarantee founds and central counterparties, to the limited extent of the activities indicated in article 69 paragraph 2 and 70 of Legislative Decree 58/98; i) financial intermediaries entered in the list provided for in article 107 of Legislative Decree 385/93, authorized to exercise the activities provided for in article 1, paragraph lett. c) and c)-bis of Legislative Decree as well as, to the limited extent of the activity on derivatives, authorized to the activity provided for in article 1, paragraph 5, lett. a) and b) of Legislative Decree 58/98; j) Poste Italiane S.p.a.; k) Cassa Depositi e Prestiti l) Italian Ministry of Finance; 2. Save as referred to in Article 46(3) of the Banca d Italia - Consob Provision mentioned in paragraph 1 above, participation can be in one s own name and on one s own behalf or in the name and on behalf of third parties, using the corresponding securities accounts opened in the centralised administration system. 3. Subjects participating in Settlement systems also on behalf of third parties use, for this purpose, one or more securities accounts opened, within the centralised administration system, for the third parties on behalf of whom they are acting. 4. In the evaluation of admission of the entities referred to in lett. f), Monte Titoli takes into account, where relevant, of the reciprocity principles established at international level as well as of the operational standards safeguarding Monte Titoli s efficiency and the risk of the system it manages. Article 5 Requirements for participation 1. In order to participate in the Settlement system, the subjects as per Article 4(1) must: Express II Rules 9 September

11 a) have a securities account at Monte Titoli and/or at central securities depositories through which financial instruments can be settled; b) for cash settlement in euro, have accounts in the TARGET2 system, or use an agent bank as per Article 7; c) for cash settlement in currencies other than the euro, have a specific account at Monte Titoli or banks authorised in Italy or EU banks with which Monte Titoli has stipulated a specific agreement, or use an agent bank as per Article 7; d) use the X-TRM service, or use daily matching and routing systems managed by third parties; e) use the protocols and technical standards prepared by Monte Titoli for the dispatch of communications concerning transactions to be settled. 2. In order to participate in net settlement, the subjects as per Article 4(1) must also participate in gross settlement. 3. Participants using an agent bank for cash settlement must, in the event of withdrawal, exclusion or suspension of the latter from the TARGET2 system, arrange for prompt substitution, advising Monte Titoli in a timely manner. Article 6 Financial instruments admitted to the Settlement system 1. Financial instruments admitted to the Settlement system are those held in the participants' accounts, opened at Monte Titoli and/or at central securities depositories with which Monte Titoli has specific connections in place. 2. Admission to the Settlement system of financial instruments not yet entered into Monte Titoli s centralised administration system is conditional to the instruments themselves being entered into said system and on their meeting the admission requirements defined in the Services Terms and Conditions. Express II Rules 9 September

12 Article 7 Requirements for agent banks 1. Participants may use an agent bank only one for both Settlement system specifically appointed for this purpose. The agent bank must be a participant in the Settlement system, if appointed for cash settlement relating to net settlement. 2. In the case of cash settlement through an agent bank, the latter must: a) for cash settlement in euro, have accounts in the TARGET2 system, in compliance with the instructions issued by the Bank of Italy; b) for cash settlement in currencies other than the euro, have a specific account at Monte Titoli or banks authorised in Italy or EU banks with which Monte Titoli has stipulated specific conventions; c) confirm to Monte Titoli its acceptance of its appointment by the participant, by means of a letter, with which the agent bank simultaneously undertakes to notify Monte Titoli of any withdrawal with no less than five days' notice; d) establish exposure limits (caps) for its IUAs; e) advise Monte Titoli, by electronic means, of these caps and of any updating of the latter. 3. The Settlement system manage the procedure for utilisation of these caps, which is based on data contained in a specific file. 4. The above mentioned file contains, for each IUA, the following data, which are transmitted and constantly updated upon the agent bank's initiative: a) ordinary caps; b) daily caps. 5. The Settlement system update the cash availability of the IUA according to the transactions settled during the day. Express II Rules 9 September

13 Article 8 Participation agreement 1. For the purposes of participation in the Settlement system, the subjects as per Article 4(1) stipulate a specific written contract, prepared by Monte Titoli. The subjects as per letters f) and h) of article 4 stipulate specific agreements with Monte Titoli, according to Title V of Bank of Italy Consob Provision. Article 9 Cases of exclusion, suspension and penalisation 1. Monte Titoli excludes from the Settlement system: a) participants undergoing an insolvency procedure; b) participants declared insolvent with an order issued by Consob under Article 72 of Italian Legislative Decree no. 58; c) participants no longer belonging to the categories indicated in Article 4; d) participants that, repeatedly, do not comply with the operational procedures set forth in the present operating rules and/or in the operational documents or that conduct themselves in ways incompatible with the normal and proper operation of the Settlement system. 2. An excluded participant may not enter new transactions in the Settlement system. 3. Monte Titoli suspends from the Settlement system any participant subjected to a payment suspension order issued pursuant to Article 74 of Italian Legislative Decree no. 385/93, or to Article 56(3) of Italian Legislative Decree no. 58/ Monte Titoli suspends from the Settlement system participants, other than the Bank of Italy and the Economy & Finance Ministry, who: Express II Rules 9 September

14 a) do not meet the requirements as per Article 5; b) do not comply with the operational procedures laid down in the present rules and/or in the operational documents or who in any case conduct themselves in ways incompatible with the normal and proper operation of the Settlement systems. 5. A suspended participant may not enter new transactions in the Settlement system. 6. In the cases indicated in the above paragraphs, Monte Titoli immediately informs, in the manner specified in Article 10(2), the daily matching and routing systems managed by third parties, the participants, the market management companies, the central counterparties, the Bank of Italy, and Consob. 7. In order to guarantee the proper use of the settlement process and minimise uncovered positions, Monte Titoli has the right to apply penalties to participants, other than the Economy & Finance Ministry and the Bank of Italy, who caused delays to occur in the closure of the daytime net cash settlement cycle due to their failure to settle balances within the cut-off set forth by Article 10(g), or who originated transactions which remained unsettled as of the end the gross settlement cycle on the intended settlement date, due to a lack of either cash and/or securities. The definition of the penalty system and the related start date will be decided by Monte Titoli - in agreement with Bank of Italy and Consob on the basis of evaluations related to the general functioning of the settlement process and to the participants conduct, periodically reported to the aforesaid authorities. The start of the penalty application system will be communicated to participants and market management companies with due notice. Article 10 Service information notices 1. The Settlement system provide, with frequency depending on the type of data, information notices concerning, among other things: Express II Rules 9 September

15 a) financial instruments admitted to the Settlement system; b) financial instruments which can be used as collateral; c) participants; d) currencies other than the euro in which it is possible to make cash settlements; e) central securities depositories where financial instruments can be settled; f) settlement banks where cash settlement in currencies other than the euro can be executed; g) operating times of the start of net settlement cycles and of each phase of the Settlement system and related cut-offs; h) terms of reference and methods of application of the penalties; i) ultimate validity date established by Monte Titoli for transactions to be settled within gross settlement; j) methods and maximum transactions amounts which allow the splitting mechanisms as per Articles 25(4) and 27(3). k) time limits within which market management companies transmit transactions to be settled for entry in the X-TRM service; l) indication of the market management companies or the central counterparties which use the functions referred to in Article 48, paragraph 2, for transactions they entered or concluded in their systems and indication of the market management companies or the central counterparties that do not use such functionalities; m) time limits to obtain the cash financing illustrated in Part IV, Title III, Chapter I. 2. The information is transmitted to participants, the Bank of Italy and to Consob by means of electronic information notices. 3. Information notices concerning the items indicated in letters d), e), f), g), h) and i) of paragraph 1 are sent to the Bank of Italy and Consob with due advance notice. Express II Rules 9 September

16 Article 11 Settlement system calendar and timetable 1. The Settlement system follow the TARGET2 calendar. 2. Monte Titoli establishes the timetable for net settlement, ensuring that it is compatible with that of the TARGET2system and taking into account the requirements of the other systems involved. 3. Gross settlement follows the TARGET2 timetable. Article 12 Eligible transactions 1. The Settlement system receive transactions to be cleared and settled in the form of transfer orders originated by: a) individual contracts; b) bilateral netting of securities and cash balances; c) securities and cash balances, netted via interposition of a central counterparty. Express II Rules 9 September

17 PART II SETTLEMENT SYSTEM TITLE I NET SETTLEMENT CHAPTER I STRUCTURE OF NET SETTLEMENT Article 13 Phases and limitations 1. Net settlement is structured in: a) a transaction acquisition phase during which information is received concerning matched transactions requiring settlement; b) an overnight cycle consisting of netting, clearing and settlement; c) a daytime cycle consisting of netting, clearing and settlement of transactions not settled as at the end of the overnight cycle. 2. Transactions not settled at the end of the daytime cycle are excluded from the net settlement and sent to gross settlement. Express II Rules 9 September

18 Article 14 Irrevocability and finality of transactions The present paragraph 1enters into force on 8 July 2013 with a subsequent notice:: 1. Transactions to be settled shall not be revoked by a participant to the Settlement system, nor by a third party, from the following time limits: a) if they are not guaranteed by central counterparties and transmitted by market management companies, as of their entry into X-TRM service; b) if they are not guaranteed by central counterparties and transmitted by X-TRM participants, as of their matching in the X-TRM service; c) if they are guaranteed by central counterparties, as of the start of the overnight net settlement cycle, notified in accordance with Article 10(1g), on the settlement date, without prejudice to the rules governing the relative systems of the central counterparties. In accordance with Article 10 (1k), Monte provides notification of the time limit within which market management companies transmit transactions to be settled in the X-TRM service. Starting from this entry, the participants, unless they make use of the functions referred to in Article 48, paragraph 2, are required to settle, without the possibility of exemptions resulting from any underlying relationships with the indirect participant on behalf of which they are settling, with the exception of a declaration of insolvency, including the market insolvency, of the latter. 2. The transactions under paragraph 1 above are final, pursuant to Italian Legislative Decree 210/01, as of the determination of the multilateral balances for securities and cash, referred to in Article 20, to be settled in the overnight net settlement cycle on the settlement date. 3. In the event of evident technical errors, upon request and under the responsibility of the market management companies, Monte Titoli executes the transfer orders transmitted, applying error management procedures in compliance with the provisions of Italian Legislative Decree 210/ In the event of the opening of an insolvency procedure against a participant, or an indirect participant, notified to Monte Titoli by the competent authority, non-final transactions are removed from the system. Final Express II Rules 9 September

19 transactions terminate the net settlement cycle. At the end of the net settlement cycle, Monte Titoli shall not send to the gross settlement the transactions, not settled, of the insolvent participant or the insolvent indirect participant. 5. The net settlement process supplies participants and agent banks with preliminary electronic information on transactions to be settled, including the transactions details and the multilateral securities and cash balance to be settled. 6. The net settlement process retains, for a period of ten years, data concerning irrevocable and final transactions, safeguarding their integrity and confidentiality. Article 15 Notification of cash availability 1. Participants enabled to make cash settlements in the TARGET2 system must notify the same system, following the procedures established by the latter, of the amounts they intend to earmark as a liquidity reserve. 2. Net settlement participants, which are enabled to make cash settlements in the TARGET2 system and have notified Monte Titoli of their intention to use automatic collateralisation facilities, must communicate to Monte Titoli, electronically and before the start of the overnight cycle: - the own securities" already available for use as firm collateralisation; - the own accounts, segregated settlement accounts and, subject to approval of IUAs, the IUAs settlement accounts with credit balances in securities coming from the overnight cycle of net settlement which may be used as self collateralisation. 3. The implementation procedures and the start date of the technical functionality related to IUAs as mentioned in the previous paragraph shall be communicated by Monte Titoli with a specific notice. Express II Rules 9 September

20 CHAPTER II OVERNIGHT NET SETTLEMENT CYCLE Section I Netting and clearing Article 16 Calculation of multilateral balances 1. The net settlement process calculates: a) the multilateral securities balances, by type of securities and for each securities account held by the participant; b) the multilateral cash balances, by currency, for each cash account held by the participant or agent bank and IUA. Article 17 Database for identifying transactions eligible for settlement 1. For the purposes of identifying transactions eligible for settlement in a given settlement day, the procedure makes reference: as regards securities: Express II Rules 9 September

21 a) to the available balance in the securities accounts opened by participants at Monte Titoli or other central securities depositories available for settlement; as regards cash in euro: a) to the amounts earmarked as liquidity reserve on participants' accounts in the TARGET2 system and notified to Monte Titoli by the Bank of Italy before the start of the cycle; b) to the amounts that Monte Titoli has to credit to participants, for the same settlement day, on the accounts in the TARGET2 system as payment of interest and repayment of capital on government bonds deposited with Monte Titoli; c) to the maximum amount obtainable by participants from automatic collateralisation facilities; d) to the caps fixed by agent banks for their IUAs; as regards cash in currencies other than the euro: a) to the available balance in accounts opened by participants at Monte Titoli or at banks authorised in Italy or EU banks with which Monte Titoli has stipulated specific agreements, available for settlement; b) to caps fixed by agent banks for their IUAs. 2. The automatic collateralisation facilities can be activated only on securities and/or accounts notified to Monte Titoli by participants as per the procedure established by Monte Titoli pursuant to Article 15(2). Said facilities will use, in the order indicated below: a) securities already held in the participants' own accounts, net of deliveries to be made during the clearing cycle; b) securities receivable originating from the clearing cycle, intended for the own account and temporarily credited to a technical account as collateral. In the case indicated under b) above, the securities used as collateral contribute to calculate the final multilateral balance. 3. Multilateral securities and cash balances payable are compared with the availability as per paragraph 1. In the absence of unsettled positions, the cleared transactions are transmitted for settlement. Express II Rules 9 September

22 Article 18 Activation of the Securities Lending Services overnight cycle 1. In the event of lack of securities, the Securities Lending Services overnight cycle is activated for the participants of said service. 2. The securities lending procedure automatically generates requests for loans equal to the size of the unsettled positions identified. 3. Securities lending transactions are generated on the basis of: a) instructions given by lenders; b) the list of counterparties established by participants; c) availability of securities on the lenders' accounts, net of deliveries to be made in the clearing cycle and of securities receivable coming from the same cycle; d) borrowers' cash availability, taking into account the possible effects of the settlement process. 4. Transactions generated by the Securities Lending Services overnight cycle are added to the group of transactions to be settled. 5. At the end of the Securities Lending Services overnight cycle, multilateral balances are recalculated and once again compared with participants' availability. In the absence of unsettled positions, the transactions are sent for settlement. 6. In the presence of residual securities and cash unsettled positions, the net settlement process activates the roll-back procedure. Express II Rules 9 September

23 Article 19 Determination of transactions that cannot be settled 1. In order to optimise the clearing process, the roll-back procedure within the time limits established by net settlement identifies and subtracts the minimum subset of transactions that cannot be settled, applying the criteria shown below, in the following order: a) minimise the total amount of the counter-value of transactions subtracted; b) minimise the number of transactions subtracted; c) avoid, as far as possible, the generation of further situations of lack of securities and/or cash concerning other participants; d) preserve, if possible, IUAs transactions in case of an Agent bank's situation of lack of cash. 2. If several transactions concur to the utilisation of a participant's securities or cash available balance, the roll-back procedure assigns priority to the settlement of transactions in which the counterparty is the Economy & Finance Ministry, monetary policy transactions and those concerning transfer of collateral by the Bank of Italy and, subsequently, those coming from market management companies. 3. Given parity of priority, the transactions to be subtracted are determined on a random basis. 4. In order to minimise the total value of subtracted transactions, the rollback procedure can determine partial settlement of netted balances relating to transactions guaranteed by a central counterparty. In this case, each balance is replaced by two derived transactions: one which is eligible for settlement and one which is not. 5. The subtracted transactions are transmitted to the daytime net settlement cycle. Express II Rules 9 September

24 Article 20 Calculation of multilateral balances of transactions eligible for settlement 1. At the end of roll-back operations, if any, final calculation of the multilateral balances of transactions eligible for settlement is performed. Section II Settlement Article 21 Settlement of securities and cash 1. Multilateral balances of securities payable are settled on the participants' accounts, transferring the securities to a technical securities account for clearing. If automatic collateralisation facilities have been activated, the securities are transferred from the participants' own accounts and/or from the technical account for collateral to the Bank of Italy's and/or Monte Titoli s collateral accounts, with a procedure and timing such as to assure the granting of financing. 2. The net settlement process activates cash settlement via electronic transmission to the TARGET2 system, according to timetables provided by the rules governing the TARGET2 system of a specific request to transfer cash including both debit and credit movements. The TARGET2 system transfers cash from the participants' accounts with debit positions to a technical cash account registered in the name of the Settlement systems, and, subsequently, credits cash to the partecipants accounts with a credit position, debiting the technical account for clearing. Contextually, the net settlement process settles multilateral balances of securities receivable Express II Rules 9 September

25 debiting the technical securities account for clearing to which the securities were previously transferred. At the end of the aforementioned operations, on basis of Monte Titoli instruction, the TARGET2 system releases the unused liquidity reserve previously created by participants. 3. Cash settlement for transactions in currencies other than the euro is executed through movements on the accounts opened by participants at Monte Titoli or on accounts opened by participants at banks authorised in Italy or at EU banks with which Monte Titoli has stipulated specific agreements. 4. In case of settlement through an agent bank, Monte Titoli updates the IUAs cash availability. 5. In the event of exceptional technical/operational situations, Monte Titoli may communicate to the Bank of Italy and participants the need to transfer to the daytime cycle all transactions originally to be handled by the overnight cycle; in such cases the BI-REL system releases the liquidity reserve created by participants. Article 22 Information for participants 1. At the end of the settlement process, the net settlement sends by electronic means: a) to IUAs and to agent banks, the update of the IUAs cash availability; b) to each participant, as regards its accounts: - accounting movements concerning centralised securities accounts; - the list of settled, not settled, and partially settled transactions; - overnight securities lending transactions; - securities transferred as collateral to the Bank of Italy and/or to Monte Titoli. Express II Rules 9 September

26 CHAPTER III DAYTIME NET SETTLEMENT CYCLE Section I Netting and clearing Article 23 Calculation of multilateral balances of securities and verification of caps 1. The daytime net settlement cycle processes transactions not settled during the overnight cycle. 2. The net settlement process calculates multilateral balances and, on an iterative basis and until a given cut-off time, checks the availability of the securities accounts of participants delivering securities, transferring securities made available by the participants to a technical securities account for clearing. 3. As regards IUAs, the net settlement process calculates multilateral balances for cash and, until the cut-off time mentioned in the previous paragraph, continuously checks caps, updating the cash availability of the IUA. Express II Rules 9 September

27 Article 24 Securities Lending Services daytime cycle 1. Before the cut-off time, the Securities Lending Services daytime cycle is activated for the participants in these services. The securities lending procedure permits the generation of loan requests equal to the amount of residual unsettled positions. Securities lending transactions are generated on the basis of: a) instructions given by lenders; b) the list of counterparties established by the participants in this service; c) availability of securities on lenders' accounts, net of deliveries to be made. 2. The operations generated by the Securities Lending Services daytime cycle are routed to the gross settlement process. Article 25 Determination of transactions that cannot be settled 1. At the cut-off time, the net settlement process, in the presence of residual lack of securities and/or insufficient cash availability of IUAs, activates the roll-back procedure. 2. The roll-back procedure applies the same criteria as those established for the overnight cycle. 3. In order to minimise the total value of subtracted transactions, the rollback procedure can determine partial settlement of netted balances relating to transactions guaranteed by a central counterparty. In this case, each balance is replaced by two derived transactions: one which is eligible for settlement and one which is not. 4. Transactions subtracted by the roll-back procedure are sent to the gross settlement process with the validity date previously indicated, within the Express II Rules 9 September

28 X-TRM service, by the parties or by market management companies. Transactions which cannot be settled are split into multiple transactions according to the methods and the amounts communicated as per Article 10(1)(j). Article 26 Calculation of multilateral cash balances 1. At the end of roll-back processing, the net settlement system calculates multilateral cash balances and sends the Bank of Italy the request for settlement of cash amounts payable to the accounts opened by TARGET2 system participants. The amounts debited are transferred to a technical account for clearing. 2. Balances for which there are insufficient funds in the participants accounts are put in the TARGET2 system's stand-by list. 3. Participants with debit positions settle the cash positions at the latest by a cut-off time established by Monte Titoli, pursuant to Article 10(1)(g). 4. If exceptional situations occur, Monte Titoli, in agreement with the Bank of Italy, can defer the cut-off time for the cash-settlement phase. Article 27 Further determination of transactions that cannot be settled 1. If, at the cut-off time for cash settlement, one or more balances remain on the stand-by list, they are removed from the TARGET2 system's queues. Subsequently, the net settlement process activates the roll-back procedure, applying the same criteria as those established for the overnight cycle. 2. In order to minimise the total value of subtracted transactions, the rollback procedure can determine partial settlement of netted balances related to Express II Rules 9 September

29 transactions guaranteed by a central counterparty. In this case, each balance is replaced by two derived transactions: one which is eligible for settlement and one which is not. 3. Transactions subtracted by the roll-back procedure are transmitted to the gross settlement queues. Transactions which cannot be settled are split into multiple transactions according to the methods and the amounts communicated as per Article 10(1)(j). Article 28 Clearing of transactions eligible for settlement 1. At the end of roll-back transactions, the net settlement process performs the final calculation of multilateral balances of transactions eligible for settlement and determines any returns of securities and/or cash through the relevant technical accounts. 2. Based on this final calculation, the net settlement process sends any cash return instructions to the TARGET2 system and executes any returns of securities. Express II Rules 9 September

30 Section II Settlement Article 29 Settlement of securities and cash 1. The securities, previously set aside on the technical securities account for clearing, are credited to collecting participants' securities accounts with Monte Titoli or with other central securities depositories. 2. At the same time, the net settlement process concludes settlement via transmission to the TARGET2 system of the request to credit cash to collecting participants' accounts, debiting the technical cash account registered in the name of the Settlement system. Article 30 Information on process execution 1. During the daytime cycle, the net settlement process supplies participants with real-time information concerning needs for securities and cash coverage. 2. Upon conclusion of the settlement process, the net settlement process provides: a) IUAs and agent banks with an indication of the updated cash and securities available balances of IUAs; b) each participant, for the relevant accounts, with a list of transactions settled and partially settled, as well as of transactions not settled transmitted to gross settlement queues. Express II Rules 9 September

31 TITLE II GROSS SETTLEMENT CHAPTER I STRUCTURE OF GROSS SETTLEMENT Article 31 Phases and limitations 1. Gross settlement consists of the following phases: a) acquisition of transactions to be settled; b) clearing; c) settlement. 2. Gross settlement does not permit partial settlement of transactions. Article 32 Information on process execution 1. The gross settlement process provides the following electronic information on process execution to: Express II Rules 9 September

32 a) participants, X-TRM service, daily matching and routing systems managed by third parties, and systems performing cash settlement: the NOR (sequential order number); b) participants: all events modifying availability in their securities accounts, providing real-time information on the settlement status of each transaction being processed, all other information useful for monitoring it, plus notification of effective transaction settlement; c) agent banks and IUAs : the IUAs cash availability; d) X-TRM service and the daily matching and routing systems managed by third parties: the various phases of the process and notification of effective transaction settlement. Section I Transaction acquisition Article 33 Irrevocability and finality of transactions 1. Transactions entered solely for gross settlement shall not be revoked by a participant to the Settlement system, nor by a third party, from the following time limits: a) if they are not guaranteed by central counterparties and transmitted by market management companies, as of their entry into X-TRM service; b) if they are not guaranteed by central counterparties and transmitted by X-TRM participants, upon their matching in the X-TRM service; Express II Rules 9 September

33 c) if they are guaranteed by central counterparties, upon their entering into gross settlement without prejudice to the rules governing the related central counterparties systems. In accordance with Article 10 (1k), Monte provides notification of the time limit within which market management companies transmit transactions to be settled in the X-TRM service. Starting from this entry, the participants, unless they make use of the functions referred to in Article 48, paragraph 2, are required to settle, without the possibility of exemptions resulting from any underlying relationships with the indirect participant on behalf of which they are settling, with the exception of a declaration of insolvency, including the market insolvency, of the latter. 2. The transactions entered into gross settlement are final, pursuant to Italian Legislative Decree 210/01, as of the debit of the cash, or of the securities when the settlement of the cash is not due. 3. In the event of the opening of an insolvency procedure against a participant, or an indirect participant, Monte Titoli removes the non final transactions, once notified by the competent authority. 4. Transactions are transmitted by the X-TRM service to gross settlement during the operating hours established by Article 11(3). 5. Transactions received after gross settlement time limits have expired are accepted into the system, with the effects indicated in paragraph 2; they are, however, processed only the next day, if compatible with the validity date stated by participants, as per the provisions of Article 42(5). 6. The Settlement systems retain, for a period of ten years, data concerning irrevocable and final transactions, safeguarding their integrity and confidentiality. Express II Rules 9 September

34 Section II Clearing Article 34 Data processing 1. Gross settlement processes the transactions according to the following procedure: a) it checks the availability of the seller's securities account and, if the outcome is positive, places an accounting block equal to the negotiated quantity, until cash settlement has been completed; b) if the seller's securities account has insufficient availability, the transaction is conveyed to the queue-management system according to the relevant criteria. 2. With exclusive reference to transactions guaranteed by central counterparties, gross settlement may involve the pairing of securities purchased and sold at an equal value, and the consequent netting of the cash balance relating solely to central counterparties. Both the securities settlement and cash settlement of the aforementioned transactions are performed in compliance with the rules set forth in the following articles. Article 35 Queue-management priority criteria 1. For the entire period of daytime gross settlement or within the time limit established by participants, the queue-management process continuously checks the capacity of the accounts with respect to the formation of the securities available balance and, when this occurs, proceeds with the subsequent data processing phases. Express II Rules 9 September

35 2. If more transactions concur to the utilisation of the same seller s securities account balance, the queue-management process is based on the following priority order : a) transactions in which the counterparty is the Economy & Finance Ministry, monetary policy transactions and those concerning transfer of collateral by the Bank of Italy; b) transactions transmitted by market management companies; c) transactions not settled during the daytime net settlement cycle; d) the priority parameter input by the seller into the X-TRM service; e) in the event of the same priority order, the NOR assigned by the gross settlement system, reflecting the chronological order of transaction acquisition (on a first-in/first-out basis); f) if the transaction with the highest priority, according to the criterion indicated under the previous letter, still lacks the necessary coverage, the next transaction is examined according to a method based on the securities account availability (first-available/first-out). 3. Daily, at closing time, gross settlement removes the transactions which, although final, cannot be executed by the system for lack of funds, without prejudice to the provision of Article 42(5). Section III Settlement Article 36 Cash settlement in euro 1. Cash settlement for transactions in euro is performed using the accounts opened by participants or agent banks at the TARGET2 system. Express II Rules 9 September

36 2. Once the relevant securities have been blocked in the seller's securities account, gross settlement activates the cash settlement process via electronic dispatch of a specific request. 3. If there is insufficient availability in the accounts, the transaction is routed to the TARGET2 stand-by lists. If the transaction is cancelled from the TARGET2 system's stand-by lists, gross settlement deletes the transaction and removes the block previously put on the seller's securities account. 4. A transaction that does not involve cash settlement is settled by debiting the seller s securities account and crediting the buyer s securities account, without being sent to the TARGET2 system. 5. In order to reduce financial risk and only in extraordinary situations, the central counterparties, in cases where they cannot deliver securities they have received in the gross settlement cycle due to lack of cash of the counterparty, could request Monte Titoli to suspend all further security delivery transactions to the defaulting counterparty and possibly to suspend security delivering transactions from other counterparties for an amount proportional to the suspended delivery transactions. Monte Titoli gives information about the above mentioned request to the Bank of Italy and Consob. Article 37 Cash settlement in currencies other than the euro 1. Cash settlement for transactions in currencies other than the euro is executed using the accounts opened by participants or by agent banks at Monte Titoli and/or banks authorised in Italy or at EU banks with which Monte Titoli has stipulated specific conventions. 2. Cash settlement through banks that have an agreement with Monte Titoli takes place as per the procedure indicated in Article 36(2). If settlement is executed directly by Monte Titoli, it is carried out through direct movements on the accounts managed by Monte Titoli itself. Express II Rules 9 September

37 Article 38 Cash settlement through agent banks 1. Having placed a block on the securities account, the gross settlement system performs the following controls and activities: a) Identification of the agent bank for each IUA; b) Verification of the daily caps of the buyer IUA, reducing its cash availability. 2. After positive completion of the above controls and activities: a) if the cash creditor and debtor both use the same agent bank, gross settlement does not activate the cash settlement process indicated in Articles 36 and 37 and updates, increasing it, the seller's cash availability; b) in all other cases, gross settlement activates the cash settlement process as per the provisions made in Articles 36 and If the IUA has insufficient cash availability, gross settlement suspends the transaction, pending the constitution of cash availability. 4. If settlement as per letter b) of paragraph 2 above is positively concluded, gross settlement updates, increasing it, the seller's cash availability. 5. If the necessary cash availability is not created by the end of the day or by the established deadline, gross settlement removes the transaction and eliminates the block on the seller's securities account. 6. If settlement as per letter b) of paragraph 2 above is not positively concluded, the settlement procedure restores the buyer's cash position, previously decreased. Express II Rules 9 September

38 Article 39 Securities settlement 1. Immediately after receipt of the positive outcome of cash settlement, gross settlement: a) removes the block placed on the seller's securities account; b) executes securities settlement, debiting the seller and crediting the buyer for the quantity involved in the transaction. 2. If a participant settles within the same account a transaction concerning the same securities and on behalf of two subjects, buyer and seller respectively, gross settlement acquires the transaction pursuant to Article 33 but does not proceed with the operating steps envisaged in Articles 34(1)(a) et seq. PART III RISK-LIMITATION MEASURES Article 40 Technical measures for Information Technology (IT) security and processing continuity 1. Monte Titoli, in order to assure the IT security of data and processing continuity, provides its Information Systems with appropriate technical measures consisting of: a) procedures and security systems designed to guarantee the confidentiality and integrity of data; Express II Rules 9 September

39 b) measures designed to guarantee the systems' processing continuity by assuring: 1. adequate back-up procedures; 2. recovery and restart of operations within 40 minutes in case of temporary unavailability of the processing environment; 3. restoration of data-handling processes within four hours from the time a disaster situation or event concerning the processing site has been declared; c) adequate internal control systems. 2. In order to ensure the orderly and continuous performance of Settlement system, Monte Titoli provides continuous monitoring of the data processing cycles as well as a dedicated support service for participants to meet any information requirements. Article 41 Technical standards for data transmission by the X-TRM service 1. The X-TRM service and other daily matching and routing systems managed by third parties, in order to route the transactions to the Settlement systems or to the X-TRM service, must guarantee: a) the integrity, accuracy and completeness of data concerning the transactions to be settled, adopting appropriate technical measures; b) compliance with the timing schedule established for transmission by X- TRM service to settlement systems managed by Monte Titoli or third parties or by other daily matching and routing systems, managed by third parties, to Settlement systems of information related to the transactions to be settled; c) adoption of technical measures for information security and processing continuity as per Article 40(1), letters a) and b). 2. The X-TRM service and other daily matching and routing systems, as per the previous paragraph, must also ensure: Express II Rules 9 September

40 a) that each individual transaction sent to the Settlement systems, managed by Monte Titoli or third parties, is identified in such a way as to allow the control of its market of origin, its univocal nature, and its correct order; b) authentication procedures are applied by means of transaction check digits that guarantee the correct origin and the integrity of the data received; c) reconcilement procedures with the settlement systems managed by Monte Titoli or third parties records are adopted to ensure the complete and correct processing of the transactions carried out. 3. The X-TRM service retains, safeguarding their integrity and confidentiality, data concerning matched transactions for a period of ten years. Article 42 Measures adopted for gross settlement 1. Gross settlement allows participants to set in the X-TRM service a time limit by which a transaction must be settled. This time limit cannot be lower than the gross settlement minimum cut-off time established by Monte Titoli and communicated as per Article 10(1)(g). 2. Transactions for which securities are not available on the seller's securities account are routed to the queue-management process, which operates according to the criteria indicated in Article Gross settlement provides constant monitoring of the queuemanagement system by ensuring continuous supervision of the process to guarantee the correct execution of gross settlement. If, upon expiry of the time limit, the transaction has not been settled due to lack of securities, it is removed. 4. If, upon expiry of the time limit, the transaction has not been settled due to lack of cash, it is removed and the block placed as per Article 34(1)(a) is eliminated. 5. In the aforementioned cases of transaction removal due to lack of securities or cash, the transaction is automatically resubmitted for settlement if so indicated by the parties or by the market management companies Express II Rules 9 September

41 within the X-TRM service for a number of consecutive days until the validity date. 6. Resubmitted transactions maintain, unchanged, the original data input by participants, with the exception of priority, which can be changed by the seller throughout the transaction's validity period, and the date of validity, which may be reduced at the agreement of the participants involved in the transaction. Monte shall inform the market management companies when the change of the date of validity is referred to non-guaranteed transactions they entered. 7. For risk monitoring purposes, participants notify Monte Titoli of the database of the subjects defined under Article 4, paragraph 1, lett. f), with the exception of entities managing central counterparty guarantee systems, on whose behalf they settle transactions. Article 43 Collateral for the granting of financing 1. The financing services illustrated in Part IV, Title III, Chapters I and II, directed to the settlement of transactions in settlement processes, are provided by Monte Titoli against appropriate collateral in cash and/or financial instruments included in the categories indicated by the Central European Bank, as well as according to valuation criteria and any other applicable procedure provided by the same, or, in the absence of such, in the categories and valuation and administration criteria established by Monte Titoli on the basis of standards and best practices used at the international level. 2. The collateral cited above must be provided at least to the same extent as the financing granted, plus an adequate margin corresponding to a percentage established by Monte Titoli with relation to the specific financial instrument used as collateral. 3. Cash and securities financing illustrated in paragraph 1 usually have an infra-day and/or overnight maturity. 4. Monte Titoli provides appropriate mechanisms or systems to cover the risks resulting from the provision of the financing services cited in paragraph 1. To this end, Monte Titoli organises the necessary supervision in order to avoid and manage the occurrence of any event that may influence the current Express II Rules 9 September

42 level of efficiency and risk related to the provision of the settlement services managed by Monte Titoli. 5. Monte Titoli manages the financing services cited in paragraph 1 according to criteria of accounting and organisational separation. PART IV RELATED ACTIVITIES TO CLEARING SERVICES TITLE I GENERAL PROVISIONS Art. 44 Regulatory framework 1. Pursuant to art. 42 of the Bank of Italy - Consob Provision, Monte Titoli administers the following services governed as follows. Express II Rules 9 September

43 TITLE II X-TRM SERVICE Article 45 Participants, requirements, and methods of participation 1. Participation in the X-TRM service is open to the subjects identified in Article 4(1) and other subjects allowed to trade by market management companies using the telecommunications networks defined by the operating documents governing the systems concerned. 2. The subjects specified in the previous paragraph enter into a specific written agreement prepared by Monte Titoli, either in their own name and on their own behalf or in the name and on behalf of third parties. 3. Monte Titoli acquires the transactions directly from the participants, from the market management companies or from Central counterparties. Operating relationships between Monte Titoli, market management companies and Central counterparties are based on specific agreements. Article 46 Financial instruments admitted to the X-TRM service 1. The request for admission of financial instruments into the X-TRM service must be directed to Monte Titoli. 2. Admission of financial instruments into the X-TRM service is conditional to the acquisition by the issuer or third parties of the essential data pertaining to the characteristics of the financial instruments to be admitted. Express II Rules 9 September

44 Article 47 Cases of exclusion and suspension from the X-TRM service 1. Monte Titoli excludes from the X-TRM service: a) participants undergoing an insolvency procedure; b) participants declared insolvent with an order issued by Consob under Article 72 of Italian Legislative Decree no. 58/98; c) participants no longer belonging to the categories defined under Article 45(1); d) participants that, repeatedly, do not comply with the operational procedures set forth in the present operating rules and/or in the operational documents or that conduct themselves in ways incompatible with the normal and proper operation of the X-TRM service. 2. An excluded X-TRM participant may not enter new transactions in the X-TRM service. 3. Monte Titoli suspends from the X-TRM service any X-TRM participant subjected to a payment suspension order issued pursuant to Article 74 of Italian Legislative Decree no. 385/93, or to Article 56(3) of Italian Legislative Decree no. 58/ Monte Titoli suspends from the X-TRM service the X-TRM participants, other than the Bank of Italy and the Economy & Finance Ministry, who: a) do not meet requirements as per Article 45; b) do not comply with the operational procedures laid down in the present rules and in the operating documents and who, in any case, conduct themselves in ways incompatible with normal operation of the X-TRM service. 5. A suspended X-TRM participant may not enter new transactions in the X-TRM service. 6. In the cases indicated in the above paragraphs, Monte Titoli immediately informs, according to the procedures defined in Article 10(2), X- TRM participants, the market management companies, the central counterparties, the Bank of Italy and Consob. Express II Rules 9 September

45 Article 48 Phases of the X-TRM service 1. The transactions entered by X-TRM participants are processed by the X-TRM service during the following phases, which are detailed in the operating documents: a) acquisition of the transactions undergoing the following processes: 1. validation, by type of transaction entered, which performs automated controls on the format and accuracy of the basic data of each transaction; 2. valuation, carried out only if there were no errors in the validation phase, which calculates the accounting value by transaction type; 3. correction of transactions, which allows the users to change or cancel transactions entered. Correction of transactions, if it involves changes, is again subject to validation and valuation; b) matching, for transactions that have successfully passed the acquisition phase, which verifies the correspondence of data indicated for the same contract by the contracting parties, according to specific matching keys for each type of transaction; c) automatic cancellation of unmatched transactions; d) automatic updates of transactions deriving from corporate actions indicated in the operating documents carried out on the financial instruments being traded; e) at the request of central counterparties, the calculation of securities and cash bilateral balances for transactions guaranteed by the central counterparties, in accordance with the provisions set forth in the agreements referred to in Article 45; f) routing and resubmission of transactions to Net settlement and Gross settlement and to foreign settlement systems. 2. X-TRM service makes available to the participants, for transactions to be settled into the Settlement system only, the following functions: Express II Rules 9 September

46 a) hold, which allows to each participant, within the time limits notified in accordance with Article 10(1)(g), not to sent the matched transactions to the net and/or gross settlement services or not to resubmit to the gross settlement service the transactions not settled until specific release instruction; when the participant does not enter the release instruction the transaction is automatically cancelled once the validity date has passed; b) cancellation, which allows with the agreement of the participants counterparties of the transaction to cancel transactions matched but not final within the time limits notified pursuant to the Article 10(1)(g). Market management companies and central counterparties notify to Monte Titoli if the above functions are available for transactions they entered or concluded in their systems. Monte Titoli provides for notification in accordance with Article 10(1)(l). The above function referred to in letter b) may be activated by central counterparties also on behalf of the counterparty of the transaction, when this is provided by the Rules of the central counterparty and this is notified to Monte Titoli on a general basis. 3. The X-TRM service supplies the X-TRM participants with complete information on the status of their transactions. Such information will be provided automatically, in the cases specified in the operating documents, as well as upon request of the participants themselves. Article 49 X-TRM service calendar and timetable 1. The X-TRM service follows the TARGET2 calendar and operate according to the timetables defined by Monte Titoli and communicated to the Bank of Italy, Consob, and the X-TRM participants. Express II Rules 9 September

47 Article 50 Risk-limitation measures 1. The X-TRM service satisfies the measures of risk-limitation, IT security, and processing continuity as indicated in Articles 40(1) and 41. TITLE III FINANCING SERVICES CHAPTER I CASH FINANCING SERVICE Art. 51 Services characteristics 1. Pursuant to art. 42, paragraph 1, lett. c) of the Bank of Italy - Consob Provision, Monte Titoli manages the service of granting cash financing, on the basis of adequate collateral. 2. Financing is disbursed in accordance with the risk limitation measures set forth in art. 43. Express II Rules 9 September

48 Art. 52 Participants and methods of participation 1. Subjects admitted to settlement services are eligible for financing services. 2. The subjects specified in the previous paragraph enter into a specific written agreement prepared by Monte Titoli. 3. For the purposes of granting the financing, Monte Titoli reserves the right to assess the creditworthiness of participants, on the basis of objective and non-discriminatory criteria. Art. 53 Participants and requirements for participation 1. The service is open to participants who: a) participate in Monte Titoli s centralised administration service; b) for cash settlement in euro, have an account in the TARGET2 System, or use an agent bank as per art. 7; c) for cash settlement in currencies other than the euro, have a specific account at Monte Titoli or banks authorised in Italy or EU community banks with whom Monte Titoli has entered into a specific agreement, or use an agent bank as per art. 7; d) use the X-TRM Service, or use daily matching and routing systems managed by third parties; e) use the protocols and technical standards prepared by Monte Titoli for the dispatch of communications concerning transactions to be settled. Express II Rules 9 September

49 Art. 54 Service information notices 1. Monte Titoli provides, with frequency depending on the type of data, information notices concerning, among other things: a) the type of collateral admissible; b) the prices used over the day for the valuation of the collateral; c) the calculation criteria used for the valuation. CHAPTER II SECURITIES FINANCING SERVICE Art. 55 Service characteristics 1. Pursuant to art. 42, paragraph 1, lett. c) of the Bank of Italy - Consob Provision, Monte Titoli manages the service of granting securities financing, on the basis of adequate collateral. 2. Financing is disbursed in accordance with the risk limitation measures set forth in art. 43. Express II Rules 9 September

50 Art. 56 Participants and methods of participation 1. Subjects admitted to settlement services are eligible for the securities financing service. 2. The subjects specified in the previous paragraph enter into a specific written agreement prepared by Monte Titoli. 3. For the purposes of granting the securities financing, Monte Titoli reserves the right to assess the creditworthiness of participants, on the basis of objective and non-discriminatory criteria. Art. 57 Requirements for participation 1. The service is open to participants who: a) participate in Monte Titoli s centralised administration service; b) for the administration of cash collateral in euro, have accounts in the TARGET2 System, or use an agent bank as per art. 7; c) for the administration of cash collateral in currencies other than the euro, have a specific account at Monte Titoli or banks authorised in Italy or EU community banks with whom Monte Titoli has entered into a specific agreement, or use an agent bank as per art. 7; d) use the X-TRM Service, or use daily matching and routing systems managed by third parties; e) use the protocols and technical standards prepared by Monte Titoli for the dispatch of communications concerning transactions to be settled. Express II Rules 9 September

51 Art. 58 Service information notices 1. Monte Titoli provides, with frequency depending on the type of data, information notices concerning, among other things: a) the type of collateral admissible; b) the criteria for the administration and valuation of the collateral. TITLE IV FOREIGN SETTLEMENT SERVICE Art. 59 Service characteristics 1. Pursuant to art. 63of the Bank of Italy Consob Provision, Monte Titoli may participate in other foreign settlement services to settle transactions on behalf of its participants. 2. The transactions are settled on accounts opened by Monte Titoli in other settlement systems and the payment systems used by the same, or through a bank, according to the rules and modalities of the foreign settlement system. 3. The routing of the transactions to foreign settlement systems takes place only after the cash and securities availability of the participants has been verified; in the event that debit positions are not covered, Monte Titoli activates the financing service set forth in Title III above for subjects that have requested such. Express II Rules 9 September

52 Art. 60 Participants and methods of participation 1. Subjects admitted to settlement services are eligible for the service. 2. The subjects specified in the previous paragraph enter into a specific written agreement prepared by Monte Titoli. Art. 61 Requirements for participation 1. The service is open to participants who: a) participate in Monte Titoli s centralised administration service; b) for cash settlement in euro, have accounts in the TARGET2 System or use an agent bank as per art. 7; c) for cash settlement in currencies other than the euro, have a specific account at Monte Titoli or banks authorised in Italy or EU community banks with whom Monte Titoli has entered into a specific agreement, or use an agent bank as per art. 7; d) use the X-TRM Service; e) use the protocols and technical standards prepared by Monte Titoli for the dispatch of communications concerning transactions to be settled. Express II Rules 9 September

53 Art. 62 Service information notices 1. On conclusion of the settlement, Monte Titoli will electronically transmit the information originating from the foreign settlement systems and regarding the settlement status of the transactions. Monte Titoli will also provide: a) IUAs and agent banks with an update on the cash availability of the IUAs; b) each participant with information regarding the relevant accounts: - the accounting movements relative to centralised securities accounts; - the securities lending transactions; - the securities transferred as collateral to the Bank of Italy and/or to Monte Titoli. 2. Monte Titoli will provide a list of the foreign settlement systems in which it participates. Express II Rules 9 September

54 Monte Titoli S.p.A. Piazza degli Affari, Milano July This document is adopted pursuant to relevant laws. Monte Titoli S.p.A. accepts no liability, arising, without limitation to the generality of the foregoing, from inaccuracies and/or mistakes, for decisions and/or actions taken by any party based on this document. AGREX, BEST VENUE INDICATOR, BORSA ITALIANA and BORSA ITALIANA s logo, BORSA ITALIANA ITALIAN STOCK EXCHANGE, BORSA VIRTUALE, BORSAM@T, CITY FOR GOOD, DDM, ELITE, ETFplus, EUROMOT, EXPANDI, EXTRAMOT, IDEM-THE ITALIAN DERIVATIVES MARKET, IDEX, MARKET CONNECT, MIB, MIB 30, MIBTEL, MIDEX, MINIFIB, MIV, MOT, MTA, MTF, NIS, SEDEX, STAR, STAR SEGMENTO TITOLI CON ALTI REQUISITI, TECHSTAR are registered trademarks owned by Borsa Italiana S.p.A. CC&G is a registered trademark owned by Cassa di Compensazione e Garanzia S.p.A. MONTE TITOLI, X-TRM, MT-X are registered trademarks owned by Monte Titoli S.p.A. MTS, BOND VISION, EUROMTS are registered trademarks owned by MTS S.p.A. PALAZZO MEZZANOTTE CONGRESS CENTRE AND SERVICES, BEST VENUE INDICATOR, MARKET CONNECT are registered trademarks owned by BIt Market Services S.p.A. London Stock Exchange, the coat of arms device and AIM are registered trademarks of London Stock Exchange plc. FTSE is a trademark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. GATElab, Traderpath, Algorithmicpath, Exchangepath are registered trademarks owned by Gatelab S.r.l. The above trademarks and any other trademark owned by London Stock Exchange Group cannot be used without express written consent by the Company having the ownership on the same. The Group promotes and offers the post-trading services of Cassa di Compensazione e Garanzia S.p.A. and Monte Titoli S.p.A. in an equitable, transparent and non-discriminatory manner and on the basis of criteria and procedures aimed at assuring interoperability, security and equal treatment among market infrastructures, to all subjects who so request and are qualified in accordance with national and community legislation, applicable rules and decisions of the competent Authorities.