Clearstream s approach to TARGET2-Securities

Transcription

1 Clearstream s approach to TARGET2-Securities FAQs as of 29 August What is TARGET2-Securities (T2S) about? T2S is a central pan-european settlement infrastructure platform for the cross-border and domestic settlement of securities against central bank money. The platform is planned to go live in 2015 and aims to significantly reduce cross-border settlement fees. T2S is a central technical platform for securities settlement in Euro and in foreign currency for central bank money; T2S will be delivered by the Eurosystem (ECB and Euro area national central banks); T2S is to be built and operated by Bundesbank, the Banque de France, the Banca d Italia and the Banco de España (the 4 Central Banks, CBs ); CSDs will remain legally responsible for securities settlement but for technical reasons have to outsource the settlement infrastructure (positions & accounting) to T2S; The global objective is to harmonise domestic and cross-border settlement prices; Customers in the Eurozone strongly support T2S. Further details can be obtained on the website of the European Central Bank (ECB). The key point about T2S is that it will be a single settlement system for Europe delivered by the ECB and the Eurosystem. The system will work by having the CSDs outsource their central bank money settlement operations to the Eurosystem to a public sector body who is also an important regulator. This is unprecedented. When we talk of outsourcing settlements to T2S, there are a couple of implications to understand. First, the CSDs in our case CBF and LuxCSD will remain legally responsible for their functions as today including the settlements which will be outsourced. Second, only settlements are outsourced so custody, collateral management, connectivity and commercial bank money settlement in our ICSD business will remain within our own IT perimeter. 29 August 2012 Page 1

2 2. Which benefits and which issues are expected along with the introduction of T2S? It is expected that T2S will decrease the costs for domestic and especially cross-border settlement. However, the newly built system will of course need time for stabilisation and the project risks associated with any large infrastructure development are also present here. T2S will actually be an enabler of Clearstream s strategy which is about leveraging collateral management to attract custody volumes. This is because T2S makes it both easier and more attractive for customers to consolidate their securities holdings and collateral operations within Clearstream. Ultimately, T2S will create a large and consolidated liquidity pool to which Clearstream will provide access. T2S will remove barriers to settling across markets. Today, customers are often prevented from consolidating holdings and collateral with us because of the cost and frictions of delivering to counterparties in local domestic markets. We believe that customers will take advantage of T2S to consolidate their assets with us because of the attractiveness of our collateral products and because of the sheer scale of the German market which will make us the default choice for anyone seeking to perform central bank money settlement through one single channel. On current volumes, we expect Clearstream to account for nearly 40 percent of all future T2S settlement volume. The key point is that in combining these different elements, Clearstream is very obviously the best positioned infrastructure to leverage the opportunities of T2S. 3. Why has Clearstream decided to join T2S? The Supervisory Board and the Executive Committee have directed CBF to join T2S by 30 April Clearstream has been supporting T2S since the Eurosystem started to evaluate the new settlement platform in June T2S is a transformational project that comes with significant implementation cost and forces the industry to rethink core settlement and custody process. We are in the relatively luxurious position of having a positive business case for this project. T2S will commoditise the prices of European settlement at a price of somewhere between 15 and 25 Euro cents. As a result, many CSDs will be faced with the loss of their settlement revenue which, effectively, they will have to give up to the Eurosystem in the form of T2S charges whilst facing real price competition for the first time. It will be very difficult for any CSD to charge a margin on top of T2S and, actually, we have already stated publicly that we will not do so and simply pass on the ECB s settlement fees to our clients For some CSDs this presents a catastrophic revenue challenge. For us, however, it means a great opportunity. We conservatively estimate that we will be able to increase revenue from custody growth on the European assets and collateral that T2S will enable customers to hold with us in addition to the business they currently write with us. Page 2 29 August 2012

3 4. How will you address the implementation cost that comes with T2S? We will spend low high two digit million Euros adapting our systems, testing them and migrating to T2S between now and our planned migration date in We have started discussions with our customers on their contribution to a portion of the adaptation costs. 5. Do you have a T2S pricing proposal? What does it look like? How will you recover the significant loss of settlement revenues you will be facing with T2S? We will give up our margin on domestic settlement processing a two-digit million Euro revenue figure based on 2011 activity. We do this in order to provide the German clients with the incentive to stay with Clearstream and to motivate others to join us at no marginal cost over T2S prices. In line with Clearstream s strategy, we expect a growth in custody and collateral assets to be held with us. 6. Do you consult with market participants? If yes, in which way? We have maintained a close dialogue with our customers in Germany and globally since the project was first conceived in In Spring 2012, the Advisory Boards of CBF, of Clearstream International and of LuxCSD (the User Commission ) have signaled their strong support for T2S and their strong support for Clearstream s strategy towards it. Specifically, we are in consultation with our customers about our pricing approach and our migration approach. We had received strong support for our decision to sign up for T2S. As part of the National User Group (NUG), we assess the impact of the T2S functionalities on the financial market and act as an intermediary between the T2S Advisory Group (AG) and various national market participants. Clearstream has also set up five Customer Task Forces covering all T2S operational aspects. They were launched in October 2011 and will continue until the migration in Market consultation is further complemented by regular customer roadshows and bilateral meetings with customers. 7. Which markets are expected to providing settlement services and asset servicing support within the T2S environment? We believe that, initially, all Eurozone CSDs might join T2S, some more reluctantly than others. We do not expect CSDs outside to join in the initial phase except for EUR denominated movements. The list of CSDs that have signed in April 2012 is as follows: Bank of Greece System for Greek Government Bonds Clearstream Banking Frankfurt Depozitarul Central of Rumania for Euro business and in a later phase domestic Iberclear LuxCSD Monte Titoli National Bank of Belgium Settlement System for Belgian Government Bonds VP Lux 29 August 2012 Page 3

4 VP Denmark for Euro business and in 2018 for the domestic By end of June 2012, the following CSDs have signed the Framework Agreement, bringing the total number up to 23: AS Eesti Väärtpaberikeskus (Estonia); Centrálny depozitár cenných papierov SR, a. s. (Slovakia); Cyprus Stock Exchange; Euroclear Belgium; Euroclear Finland Oy; Euroclear France; Euroclear Nederland; Interbolsa Sociedade Gestora de Sistemas de Liquidação e de Sistemas Centralizados de Valores Mobiliários, S.A. (Portugal); KDD - Centralna klirinško depotna družba, d.d. (Slovenia); Központi Elszámolóház és Értéktár Zrt. KELER (Hungary); Lietuvos centrinis vertybiniu popieriu depozitoriumas (Lithuania); Malta Stock Exchange; Oesterreichische Kontrollbank Aktiengesellschaft (Austria); and SIX SIS Ltd. (Switzerland). 8. Which connectivity options to T2S will be provided by CBF? CBF will have a direct access to T2S. In general, customers have three options: Option A: Participants acting in the indirect connectivity mode (ICP) via CSDs to T2S. This will reduce their adaptation costs to a minimum as Clearstream will absorb most of the T2S impact. Option B: Participants acting in the direct connectivity mode (DCP) still require a CSD connection for certain settlement services and value-added services. A considerable implementation effort (e.g. ISO compatibility) is expected for CBF customers who decide to connect directly to T2S. Option C: Similar to A) but by choosing one global CSD such as CBF and thereby significantly reducing the number of currently existing links to agents / custodians / local CSDs. Therefore, our customers will benefit hugely from reduced interoperability costs. 9. Will the development impact the customer connectivity arrangements (i.e. interfaces, reportings) or require enhancements by the customers? Clearstream entities are committed to minimise adaptation costs of their clients and to reduce interface changes wherever possible. Additionally, a consolidation of channels in order to provide a harmonised connectivity and log on functionality will have positive effects for customers and will also require slight adaptation regarding customer s current connectivity. 10. Does CBF plan to provide message in ISO towards T2S? The T2S interface will use ISO as its single standard for all communications, both inbound and outbound. The Clearstream T2S implementation project will deliver the required ISO Page 4 29 August 2012

5 message infrastructure but also allow customers to communicate in ISO via existing connectivity channels (MQ, SWIFT or FTP). As regards customer interfaces, CBF s current suite of connectivity solutions will be adapted to the T2S functionality. In particular: CBF plans to continue to support ISO messages from CBF participants via SWIFT, MQ Series and File Transfer; Enhanced support for T2S-specific values including settlement; Report timings will be adjusted to the T2S settlement day; 11. When will you migrate to T2S? What are the details about the T2S migration/adaption plans? What are the methods to minimise migration risks to service levels and customer assets? Clearstream has created an implementation plan which reflects the Eurosystem milestones. The ECB proposes 3 regular migration waves. Clearstream plans to migrate in one of the later waves in order to have the longest possible timeframe for testing; a final decision will be taken after the Feasibility Assessment and once results from market consultation are available (Q3/Q4 2012). We intend to conduct joined community tests which will verify that all market participants have adapted to T2S. In addition, migration and non-functional testing will reduce migration risks. 12. When do you think the daily settlement processing schedule of T2S will be confirmed? Negotiation within different Eurosystem groups is ongoing. According to the latest planning, all functional requirements shall be defined for the next version of UDFS This document is due in September Clearstream will have held all Customer Task Force workshops in relation to Settlement/Lifecycle by the end of Do you foresee significant changes to matching and pre-matching within the T2S platform? CBF will follow the T2S matching rules. The existing passive matching service for the German market will remain. However, the matching will take place in T2S. T2S matching rules apply equally to domestic and cross-border instructions and hence a harmonisation will be achieved. Each new instruction entering T2S will be taken through the matching process. T2S compares mandatory matching fields but also supports additional and optional matching fields. 14. What are the details about managing multi-currency settlement and how will this affect users? T2S is envisaged to be multi-currency. T2S settlement currencies are currencies for which an appropriate arrangement has been put in place between T2S and the Central Bank issuing the currency. This will enable cash settlements in Central Bank Money (CeBM) on T2S Dedicated Cash Accounts denominated in this currency. Only CeBM is accepted as a T2S settlement currency. T2S supports the settlement of T2S eligible securities issued in one currency and 29 August 2012 Page 5

6 settled in another T2S Settlement Currency, e.g. Euro cash settlements are allowed for securities issued in non-euro currencies (and vice versa). 15. Will there be an impact to market deadlines for settlement processing. Specifically, will processing deadlines be shortened? The impact on current settlement processes will be discussed and defined within the customer Task Forces. An outcome will be provided later. 16. In which way will partial settlement (which will be offered in T2S for all markets) be supported? CBF plans to offer partial settlement to its customers as well. 17. Will you be able to offer segregated accounts for settlement / custody? As today, all CBF eligible securities can be kept in one single account or in different sub accounts. Segregation of holdings will be possible in accordance with T2S services. 18. How will T2S impact CBF s future service offering in comparison to the existing products and services (i.e. vault, custody, value-added services)? Current CBF services are under assessment. We expect that existing services will remain available post T2S implementation, with no or minor changes to services encompassing custody, collateral management, Registered Shares and vaults. 19. Can CBF provide an approach how to optimise asset services related to T2S? We performed extensive analysis of our asset services and identified opportunities to enhance our current offering to be closer to market (market advocacy, local deadlines, flexibility in service delivery and breadth of product mix, for example). Details of the service improvements will be communicated soon. 20. What are the impacts on tax processing? The service processing is under clarification and will be conveyed upon conclusion of the related investigation process. Direct impacts as a result of T2S are expected to be minimal. 21. What are the impacts on proxy voting? We do not believe that potential T2S implementation will have any downstream effects on the enhanced proxy voting service rollout through ISS in February What is the impact of T2S on Global Securities Financing Services like Tri-party Repo, CmaX/Xemac service (collateral management)? Currently, there is no foreseeable change to existing tri-party services, which are assumed to remain available with no or minor changes post T2S implementation. Page 6 29 August 2012

7 23. What is the status of LuxCSD joining T2S? LuxCSD has signed the Framework Agreement on 30 April It has in addition joined Clearstream s migration project. As it will be the case for CBF, the outcome of the LuxCSD Feasibility Assessment will provide the basis for the final decision on the migration wave for LuxCSD. 24. What is the new governance structure in place as of July 2012? As from 1 July 2012, a new governance structure has come in place. All CSDs having signed the Framework Agreement before or on 30 June 2012 will be represented in the various steering groups. The main ones are: The CSD Steering Group (CSG) is responsible for articulating and coordinating the views of Participating CSDs within the T2S Governance. Clearstream will have 3 seats in the CSG. It is composed of: - as full members, the CEOs/members of the managing board of Participating CSDs/groups of Participating CSDs. Jesus Benito (Iberclear) was elected chairman of the CSG on 9 July up to six user representatives, as observers, to be nominated by the ECB Governing Council upon proposal of the T2S Board for a renewable term of two years. - the chairperson of the T2S Board and other members of the T2S Board as observers. The T2S Advisory Group (AG) provides advice to the Eurosystem on T2S-related issues, to ensure that T2S is developed and implemented according to market needs. To this end, the AG is made up of representatives from all stakeholders, i.e. participating CSDs, banks and national central banks in equal number. In particular, the AG addresses T2S issues related to policy, pricing, governance, and harmonisation in the field of securities settlement. Clearstream will have 4 seats in the T2S AG. The AG is supported by four sub-groups: the Harmonisation Steering Group (HSG), the Sub-group on Message Standardisation, the Sub-group on Corporate Actions and the Task Force on adaptation to cross-csd settlement in T2S. Clearstream will be represented in all of these sub-groups. There are also three technical groups to support the governance structure: The Project Managers Group (PMG) ensures that T2S and subsequent releases go live and that CSDs as well as central banks are duly and timely prepared. The Change Review Group (CRG) analyses requests for changes to T2S and proposes the priority for which a change should be considered within a particular T2S release. The Operations Managers Group (OMG) prepares the operational procedures and will review the T2S operations after go-live. Clearstream will have at least one representative in each of the technical groups. 29 August 2012 Page 7

8 25. What is the status of the Feasibility Assessment? The Feasibility Assessments were requested from all CSDs participating in T2S in order to confirm that they can adapt their IT systems and processes to T2S and within the agreed timeframe. Both Clearstream Banking Frankfurt as well as LuxCSD have submitted detailed Feasibility Assessments at the end of June The Feasibility Assessment has been performed on the basis of functional, technical, operational and organizational aspects as well as looking at implementation risks. Furthermore, it assesses the feasibility in terms of the implementation planning as well as the user testing and the migration concept. On the basis of the best possible and accurate analysis and evaluation of current scope and user requirement definitions (provided by the Eurosystem in October 2011), the outcome of the Feasibility Assessments of both CBF and LuxCSD are generally positive. However, further clarification of the open points as well as the continuation of workshops and on-going evaluation of the scope defining documents are still required. For those assumptions which cannot be confirmed by the Eurosystem we expect change requests to be agreed after a re-assessment. Those change requests must be timely available before we can join the T2S system. For the critical issues in the Feasibility Assessment that could not be clarified with ECB we drafted CRs that were sent to ECB by end of July The ECB currently analyses the Feasibility Assessments submitted by the CSDs. It is expected that final Feasibility Assessments and reconfirmation of the T2S Programme Plan will be available by the end of How are the migration waves determined? The participating CSDs have started to discuss the composition of the various migration waves by involving the European market representatives and based on the outcome of the CSDs Feasibility Assessments. A more definitive migration plan is expected by the end of Page 8 29 August 2012