Implementation of T+2 standard settlement cylce on Swiss market of 2 September 2014
Table of Content 1. Introduction... 5 1.1. Purpose and Scope... 5 1.2. Definitions and Abbreviations... 5 1.3. References... 5 1.4. Contacts... 6 1.4.1. Trading SIX Swiss Exchange and SIX Structured Products Exchange... 6 1.4.2. Settlement... 6 1.4.3. Clearing... 6 2. General... 7 2.1. Why is SIX moving to T+2 settlement?... 7 2.2. Which markets are affected?... 7 2.3. What is the CSDR timeline for implementation of T+2?... 7 2.4. Who is coordinating the T+2 implementation activities for the Swiss market?... 7 2.5. When will the Swiss market implement T+2?... 7 2.6. Is there a working group within market infrastructure for the preparation and roll-out of T+2?... 7 2.7. What is the T2S T+2 Task Force and what is the group s assignment?... 8 2.8. How will the recommendations of the T+2 Task Force be enforced?... 8 2.9. What are the implications for market participants when moving to T+2?... 8 2.10. Will other markets move to T+2 at the same time as Switzerland?... 8 3. Instruments, Trades and Transactions... 9 3.1. Which securities will be included in T+2 settlement?... 9 3.2. Are International Bonds affected by T+2?... 9 3.3. Will the Over the Counter (OTC) market move to T+2 as well?... 9 3.4. Will T+2 also be applied to manual on exchange trades?... 9 3.5. Does the new settlement cycle T+2 have any impact on cancellations?... 9 3.6. Will there be changes to the trading rules?... 9 3.7. Does the Confirmation message (trade slip), that the participant receives for executed trades, include the settlement date?... 9 3.8. Are repo transactions affected by T+2?... 10 4. Clearing and Settlement... 11 4.1. When is settlement due for trades executed on 3 and 6 October 2014?... 11 4.2. Does T+2 change the «Late Settlement Regime» at SIX x-clear Ltd and SIX SIS Ltd?... 11 4.3. How will the «Late Settlement Regime» at SIX SIS Ltd be applied during the transition period?... 11 4.4. Does T+2 have an effect on the optional netting of the CCP trades during the migration phase?... 11 4.5. Does T+2 have an effect on the «Buy-In» period of SIX x -clear Ltd?... 11 4.6. Will there be any change in collateral requirements at x-clear Ltd with the T+2 settlement cycle?... 12 4.7. How will T+2 affect the format of settlement instructions at SIX SIS Ltd?... 12 4.8. Will the Market Guides be updated and when will they be available?... 12 5. Corporate Actions... 13 5.1. How will Corporate Action risks be mitigated during the transition to T+2?... 13 5.2. Are any deadlines regarding Corporate Action transactions affected by T +2?... 13 5.3. How will Corporate Actions on international securities including those traded in Switzerland be handled?... 13 5.4. Are Issuers, Paying Agents and Lead Managers affected by T+2?... 13 5.5. Are there any changes with regards to cut-off times?... 13 5.6. Can you confirm that the interval between the key corporate action dates will be aligned to the T+2 settlement cycle?... 13 5.7. Will there be any difference in the order of date based on to the type of Corporate Actions (mandatory cash distributions, stock distributions, others)?... 13 5.8. Will the timing of sending pre-advices (or pre-entitlements) prior to income payment change?... 14 6. Migration... 15 6.1. How will the migration to the new settlement cycle T+2 be done?... 15
6.2. Are any system developments foreseen in relation to the transition to T+2?... 15 6.3. Are there any known changes resulting from the implementation of T+2 to SIX Swiss Exchange trading or market data interfaces?... 15 6.4. Will there be the possibility of testing before the implementation of T+2?... 15 7. Document History... 16
Introduction 1. Introduction 1.1. Purpose and Scope The purpose of this document is to prepare the participants for the transition to T+2 settlement in the Swiss market and to answer some of the most common questions in advance. This document will be continually updated as new questions arise or new information becomes available. 1.2. Definitions and Abbreviations Term / Abbreviation CCP CSDR EU GUI HSG MSC OTC SLS SSP-X SSX STI TRR Definition Central Counterparty Central Securities Depository Regulation European Union Graphical User Interface T2S Harmonisation Steering Group Member Support Centre Over the Counter SIX Swiss Exchange Liquidnet Service SIX Structured Products Exchange SIX Swiss Exchange Standard Trading Interface Trade Reconciliation Report 1.3. References Document SIX Swiss Exchange messages Rule Book and Directives Trading Guides MSC Messages Interface Specifications, Manuals and Guides Link http://www.six-swiss-exchange.com/news/sse_messages/2014_en.html SSX http://www.six-swiss-exchange.com/participants/regulation_en.html SSP-X http://www.six-structured-products.com/en/about-us/exchangetrading/trading-rules http://www.six-swissexchange.com/participants/regulation/trading_guides_en.html https://www.six-swiss-exchange.com/member_section/it/messages.html https://www.six-swiss-exchange.com/member_section/it/manuals.html Version 1.02 5 19
Introduction 1.4. Contacts 1.4.1. Trading SIX Swiss Exchange and SIX Structured Products Exchange For business related questions, please contact Market Operations: Topic Team Phone E-Mail Migration Testing Configuration Member Services +41 58 399 2473 member.services@six-group.com Please contact your Local Support Center for technical questions: Location Phone Fax E-Mail Zurich +41 58 399 2400 +41 58 499 2400 lsz@six-group.com Geneva +41 58 399 5642 +41 58 499 5643 lsg@six-group.com London +41 20 7864 4364 +41 20 7864 4333 lsl@six-group.com 1.4.2. Settlement For Settlement and Corporate Action related questions please contact the client desk at SIX SIS Ltd (sett.markets@sisclear.com). 1.4.3. Clearing 1.4.3.1. x-clear Ltd For Clearing related questions please contact your personal Client Relationship Manager at SIX Security Services. Version 1.02 6 19
General 2. General 2.1. Why is SIX moving to T+2 settlement? The implementation of a T+2 settlement cycle is mandated in the upcoming European Union (EU) Central Securities Depository Regulation (CSDR), which will increase efficiency and reduce risk in post-trade transactions, as well as harmonise the settlement cycle in Europe. A political agreement was approved on 26 February 2014. The legislation came into effect in April 2014. Whilst this legislation is not directly applicable in Switzerland, it is important that we ensure the Swiss market remains harmonised and competitive with EU markets to reduce additional funding cost burdens and risks. 2.2. Which markets are affected? All markets affected by the CSDR regulation are in scope for making a transition to T+2 and now Switzerland is also included. 2.3. What is the CSDR timeline for implementation of T+2? The wording of the CSDR sets a timeline for T2S markets to move to T+2 at least six months before the market migrate to T2S, but no later than 1 January 2016. Other markets affected by CSDR are to move to T+2 by 1 January 2015. However, all major European markets are implementing the change in advance of this timeline to ensure markets are fully prepared. The common date established across Europe for implementing the move to T+2 is 6 October 2014. 2.4. Who is coordinating the T+2 implementation activities for the Swiss market? SIX is coordinating the implementation for the Swiss market in close cooperation with market participants. 2.5. When will the Swiss market implement T+2? SIX has consulted with its market participants and has concluded that T+2 for the Swiss market will be implemented on 6 October 2014 and that the implementation will take place independently of the adoption of CSDR. 2.6. Is there a working group within market infrastructure for the preparation and roll-out of T+2? At a national level, no specific working group has been created. However. SIX Swiss Exchange and SIX Securities Services will liaise with participants through their normal user groups and relationship managers. At the European level the T2S Harmonisation Steering Group (HSG) has appointed a working group for the implementation of T+2 the «T2S T+2 Task Force». SIX Swiss Exchange has a representative involved in the T+2 Task Force. Version 1.02 7 19
General 2.7. What is the T2S T+2 Task Force and what is the group s assignment? The T+2 Task Force is a working group of the T2S Harmonisation Steering Group (HSG). The T+2 Task Force s primary focus is to ensure coordination between the respective T2S market s move to T+2. In addition the group will encourage coordination with other European markets also moving to T+2. The T+2 Task Force s assignment is to develop a number of proposals which will be put forward to the HSG. The T+2 Task Force proposals will be assessed by the HSG and if appropriate endorsed by the T2S Advisory Group (AG). The T+2 Task Force can only make proposals for best practices to the T2S relevant governance structures (HSG and AG). It is then the responsibility of ESMA or the relevant competent EU supervisory authorities to decide if they wish to adopt the proposals and make formal recommendations to the markets. Please find further information concerning «Best Practices for T2S Markets Migration to T+2» under the following link: http://www.ecb.europa.eu/paym/t2s/progress/pdf/taskforcet2/2014-05- 02_HSG_proposals.pdf??56f9ebc5f33842ba6deb57dd94a483bb 2.8. How will the recommendations of the T+2 Task Force be enforced? The recommendations of the Task Force cannot be enforced unless the relevant competent authorities adopt them and make them binding. 2.9. What are the implications for market participants when moving to T+2? The implications for moving to a T+2 settlement cycle will vary depending on many factors and each market participant must review its own operation and assess what impact the change will have. Below are some general implications that have been identified: Participants mid- and back-offices will have to complete all actions necessary to instruct settlement within two days rather than three. More attention to affirmations on trade date may be necessary. Settlement funding could be impacted as liquidity managers will have one day less to ensure the necessary liquidity for settlement. A Liquidity/collateral peak during migration is to be expected. Clearing houses will have less time to settle trades on underlying instruments, e.g. in the case of expirations and exercises. Static data management could be affected. During the T+2 implementation period there could be a temporary (2-3 weeks) peak of settlement failures. A failed transaction is a transaction that does not settle on the intended settlement date. More attention to correcting settlement failures may be necessary. 2.10. Will other markets move to T+2 at the same time as Switzerland? Yes, the following markets have confirmed their intention to migrate to T+2 on 6 October 2014 amongst others: Austria, Belgium (Euroclear Belgium, NBB), France (Euroclear France), Hungary, Ireland, Italy, Malta, the Netherlands (Euroclear Nederland), Portugal and the United Kingdom. Version 1.02 8 19
Instruments, Trades and Transactions 3. Instruments, Trades and Transactions 3.1. Which securities will be included in T+2 settlement? This shortened settlement cycle covers all instruments tradable on SIX Swiss Exchange Ltd and SIX Structured Products Exchange Ltd and settling through the Swiss Central Securities Depository, SIX SIS Ltd respectively Euroclear and Clearstream. 3.2. Are International Bonds affected by T+2? Yes. All International Bonds traded on the SIX Swiss Exchange platform will move to T+2. 3.3. Will the Over the Counter (OTC) market move to T+2 as well? Not necessarily, as the counterparties are free to define the cycle by mutual agreement. If the settlement of Over the Counter (OTC) transactions does not move to T+2, there will be an increased risk of settlement failures and funding issues. Therefore, SIX strongly recommends that market participants use T+2 as their default for settling OTC transactions starting from 6 October 2014 onwards, unless the two parties to the transaction have agreed otherwise. 3.4. Will T+2 also be applied to manual on exchange trades? Trades that are executed off order book but in accordance with the rules of the Exchange and subsequently reported to the exchange will implement T+2 as the standard settlement cycle. It will still be possible to report off order book trades to the Exchange with non-standard settlement. 3.5. Does the new settlement cycle T+2 have any impact on cancellations? No, the shorter settlement cycle T+2 does not impact the processing of cancellations of on and off order book trades. Cancellations of cleared trades can be executed by SIX Swiss Exchange Market Operations until the end of Clearing Day (18:15 CET) on the business day the trade occurred. Bilateral and manual trades can be cancelled by the Exchange until the end of trading on the business day following the trade date. 3.6. Will there be changes to the trading rules? Yes, as a consequence of the change in the standard settlement cycle the SIX Swiss Exchange and SIX Structured Products Exchange rules and directives will also need to be amended. The changes to rules and directives will be communicated to participants in accordance with the regular process in due course. 3.7. Does the Confirmation message (trade slip), that the participant receives for executed trades, include the settlement date? Yes, the Confirmation message (MsgType=AK) sent to participants via the Standard Trading Interface (STI) does include the settlement date in the FIX-Tag 64 SettlDate. Version 1.02 9 19
Instruments, Trades and Transactions Please note that the Participant Trade Reconciliation Report (TRR) provided on the Member Section of SIX Swiss Exchange also includes the settlement date, along with other clearing and settlement relevant information. You can find further information in the Standard Trading Interface (STI) Specification Confirmations and Participant Trade Reconciliation Report (TRR) Specification on the Member Section. 3.8. Are repo transactions affected by T+2? For the CH Repo & OTC markets of SIX Repo AG no changes are planned. Version 1.02 10 19
Clearing and Settlement 4. Clearing and Settlement 4.1. When is settlement due for trades executed on 3 and 6 October 2014? Trades executed on 3 October 2014 and 6 October 2014 will settle on the same intended settlement day, i.e. Wednesday, 8 October 2014. The table below provides an overview of the trading and settlement dates over the transition phase: Trade Date Valid Standard Settlement Cycle Intended Settlement Date Wednesday, 1 October 2014 T+3 6 October 2014 Thursday, 2 October 2014 T+3 7 October 2014 Friday, 3 October 2014 T+3 8 October 2014 Monday, 6 October 2014 T+2 8 October 2014 Tuesday, 7 October 2014 T+2 9 October 2014 Wednesday, 8 October 2014 T+2 10 October 2014 4.2. Does T+2 change the «Late Settlement Regime» at SIX x-clear Ltd and SIX SIS Ltd? No. The late settlement fee refers to the settlement date and not to the trade date. 4.3. How will the «Late Settlement Regime» at SIX SIS Ltd be applied during the transition period? In order to allow for a smooth transition, SIX SIS Ltd will grant a fee holiday for the «Late Settlement Regime» on the following settlement dates: 8 October 2014 9 October 2014 10 October 2014 4.4. Does T+2 have an effect on the optional netting of the CCP trades during the migration phase? No. The transactions executed on 3 October 2014 with clearing and settlement date 8 October 2014 (T+3) will not be netted with the transactions from 6 October 2014 with clearing and settlement date 8 October 2014 (T+2) because netting is trade date dependent. 4.5. Does T+2 have an effect on the «Buy-In» period of SIX x -clear Ltd? No. The Buy-In refers to the settlement date and not to the trade date. Version 1.02 11 19
Clearing and Settlement 4.6. Will there be any change in collateral requirements at x-clear Ltd with the T+2 settlement cycle? The collateral requirement is driven by the trading pattern of clearing members. In general by switching to a T+2 standard settlement cycle the collateral requirements from participants may vary from the existing patterns. By switching to a T+2 standard settlement cycle, it is recommended that you monitor the collateral requirement for certain period and understand the pattern of collateral requirements. 4.7. How will T+2 affect the format of settlement instructions at SIX SIS Ltd? There will be no change in the format of settlement instructions at SIX SIS Ltd. 4.8. Will the Market Guides be updated and when will they be available? Market guides will be updated within the existing publication period. Version 1.02 12 19
Corporate Actions 5. Corporate Actions 5.1. How will Corporate Action risks be mitigated during the transition to T+2? The date of implementation has been chosen so as to minimise the impact from corporate actions as far as possible. SIX will request issuers not to plan corporate actions during the T+2 transition period. 5.2. Are any deadlines regarding Corporate Action transactions affected by T +2? Yes, the following new deadlines apply for the Swiss market: For distributions: Record Date = Ex-Date + 1 Business Day (up to date with settlement cycle T+3 the deadline is + 2 Business Days) for reorganisations: Record Date = Last Trading Date + 2 Business Days The Payment Date will continue to equate to the record date + at least 1 Business Day. Reorganisations are Corporate Events for which the underlying ISIN is booked-out of the account (e.g. splits, mergers, redemptions etc.) 5.3. How will Corporate Actions on international securities including those traded in Switzerland be handled? The rules of the home market of a security are applied to all international securities. Depending on the constellation of the settlement orders in the Swiss market, SIX SIS Ltd will generate claims and/or reverse claims depending on the constellation of the trade. 5.4. Are Issuers, Paying Agents and Lead Managers affected by T+2? The companies (including the Paying Agent and Lead Manager) must comply with the publication and implementation of the corporate action to the new period at the record dates. 5.5. Are there any changes with regards to cut-off times? No changes apply to the cut-off times. 5.6. Can you confirm that the interval between the key corporate action dates will be aligned to the T+2 settlement cycle? Yes, the interval between the key corporate action dates will be aligned to the new settlement cycle. 5.7. Will there be any difference in the order of date based on to the type of Corporate Actions (mandatory cash distributions, stock distributions, others)? No, there will be no difference. Version 1.02 13 19
Corporate Actions 5.8. Will the timing of sending pre-advices (or pre-entitlements) prior to income payment change? No, the timing will not be affected and will remain unchanged. Version 1.02 14 19
Migration 6. Migration 6.1. How will the migration to the new settlement cycle T+2 be done? A big-bang approach will be taken for the change of settlement cycle to T+2. This means that, with effect from 6 October 2014, all instruments traded on SIX Swiss Exchange and SIX Structured Products Exchange will be migrated from settlement cycle T+3 to T+2. 6.2. Are any system developments foreseen in relation to the transition to T+2? As a general assumption, changing the settlement cycle does not require significant system changes because participants, both local and international, normally have systems in place that can cope with different settlement cycles. 6.3. Are there any known changes resulting from the implementation of T+2 to SIX Swiss Exchange trading or market data interfaces? The SIX Swiss Exchange trading and market data interfaces are not affected by the change of settlement cycle and remain unchanged. All graphical user interfaces (GUI) provided by SIX Swiss Exchange will display T+2 as the new standard settlement cycle. 6.4. Will there be the possibility of testing before the implementation of T+2? Before the change of the settlement cycle on 6 October 2014 in the Production environment, participants and third parties will be able to test the new settlement cycle T+2 in the test environment for a six week period. The test environments will be using T+2 during the full test period. SIX will support end-to-end testing for participants including SIX SIS Ltd, SIX x-clear Ltd and LCH. All functionality including the SIX Swiss Exchange Liquidnet Service (SLS) will be available for testing during the testing phase. SIX strongly recommends that all participants test their own applications, business processes and back office workflows during the test phase. You are kindly invited to contact Member Services (member.services@six-group.com) if you require assistance with testing in the Exchange s test environment. For SECOM related queries please contact the test support team at SIX Securities Services (ClientTesting@sisclear.com). Version 1.02 15 19
Document History 7. Document History Version Date Description 1.00 23 June 2014 First version of the document published with SIX Swiss Exchange message no. 21/2014 1.01 14 July 2014 Update version of the document - New Q&A 4.3 regarding handling of «Late Settlement Regime» during transition period 1.02 2 September 2014 Update version of the document - Updated Q&A 3.8 regarding Repo Transactions Version 1.02 16 19
Document History Notes Version 1.02 17 19
Document History Version 1.02 18 19
SIX Swiss Exchange AG 2014 SIX Swiss Exchange Selnaustrasse 30 P.O. Box 1758 CH-8021 Zurich T +41 58 399 5454 F +41 58 499 5455 info@six-swiss-exchange.com www.six-swiss-exchange.com None of the information contained herein constitutes an offer to buy or sell a financial instrument that is traded on SIX Swiss Exchange Ltd. SIX Swiss Exchange Ltd is liable neither for the completeness and accuracy of the information given, nor for any loss incurred as a result of action taken on the basis of information provided in this or any other SIX Swiss Exchange Ltd publication. SIX Swiss Exchange Ltd expressly reserves the right to alter prices or product composition at any time. SIX Swiss Exchange Ltd is a joint-stock company under Swiss law. It operates a securities exchange which is licensed and supervised by the Financial Market Supervisory Authority FINMA.