SPANISH MARKET REFORM April 2016
TABLE OF CONTENTS Spanish Market Reform Explained... 3 Impact to Goldman Sachs and Our Clients... 4 Spanish Market Matching Standards... 6 Goldman Sachs Standard Settlement Instructions... 7 Frequently Asked Questions... 8 2
SPANISH MARKET REFORM EXPLAINED INTRODUCTION The purpose of this document is to provide our clients and counterparties with information regarding the Clearing and Settlement Reform in Spain (commonly known as Spanish Market Reform or SMR), and the transition to a trade date plus two business days (T+2) settlement cycle for Spanish cash equities. The migration to ARCO, Iberclear s new clearing and settlement system, will take place on April 27, 2016 and the settlement cycle for Spanish cash equities will change to T+2 on trade date June 23, 2016. The T+2 settlement cycle is mandated under the Central Securities Depository Regulation (CSDR) and is dependent on the go-live of ARCO. The reform is intended to prepare the Spanish equity market post-trade infrastructure for migration to the European Central Bank s TARGET2-Securities (T2S) settlement platform, which is scheduled for September 2017. The reform will result in changes to post-trade procedures including settlement processing, settlement cycle and registration processing. This document will cover the approach that Goldman Sachs (GS) is taking and the potential impact on the settlement of securities transactions in the Spanish equity market. TIMELINE The key dates in 2016 for SMR and the migration to a T+2 settlement cycle are illustrated below. This timeline is subject to Iberclear, BME Clearing and Bolsa de Madrid readiness. SMR go-live, first trade date SMR first settlement date (T+3) Last trading day on T+3 cycle First trading day on T+2 cycle First settlement date for T+2 executed trades Apr 27 May 2 Jun 22 Jun 23 Jun 27 Please note: Settlement for two trading days, June 22 (T+3) and June 23 (T+2), will occur on intended settlement date (ISD) June 27, hence settlement volume is expected to increase on this day. 3
IMPACT TO GOLDMAN SACHS AND OUR CLIENTS SUMMARY OF THE KEY CHANGES The table below provides an overview of the key changes to be introduced by SMR and a brief description of Goldman Sachs approach: Change Description GS Approach Additional Comments Introduction of a Central Counterparty (CCP) Bolsas y Mercados Españoles (BME) Clearing will be the appointed CCP for Bolsa de Madrid executed trades, either directly or via a local broker. Clearing will become mandatory for on-exchange activity. Citibank Madrid has been appointed as the General Clearing Member (GCM) for GS. Clients trading offexchange with GS will not be impacted. BME Clearing s function is to perform clearing and netting, while Iberclear will continue to perform the settlement processing function. Iberclear Account Structures Four types of account structure will be offered: Proprietary account General Third-Party account Individual Third-Party account Special Individual account of Financial Intermediary GS will be adopting the General Third-Party account model. GS will have its own securities account at Iberclear, hence a new Iberclear account number has been appointed. The full Spanish standard settlement instruction (SSI) details are provided on page 7. Clients will need to instruct with these new SSIs when settling with GS. Elimination of References of Registry References of Registry will be eliminated and communication of ownership will take place in the Post Trade Interface (PTI). Registration names which represent the named beneficial owner of the shares will remain. Registrars are still recognized as the beneficial owners in the market to enforce traceability. GS will continue to use registration name "Goldman Sachs Securities Nominees Ltd" and code "COD00000062". The full Spanish standard settlement instructions (SSI) details are provided on page 7. Settlement Day Schedule Two settlement processes will be introduced (times in CET): Settlement in cycles: 08:30 to 15:00 (two hour cycles with optimization) Real-time Gross Settlement (RTGS): 07:30 to 15:00 (DVP on-exchange) / 16:00 (DVP off-exchange) / 18:00 (FOP) GS will settle in the predefined settlement cycles and will not instruct RTGS. Clients must instruct in advance of the revised settlement cut-offs, preferably by T+1. CET: Central European Time DVP: Deliveryversus-Payment FOP: Free-of-Payment Market Buy-in Change The market buy-in deadline for equities will move from ISD+1 to ISD+4 in-line with the rest of the European Union. Market penalties for late settlement of on-exchange deliveries will continue to apply. An asset servicing adjustment, generated by a settlement instruction with trading date T-4 that has failed, will be settled directly in cash. An asset servicing adjustment, generated by a settlement instruction on trading date T-3, will go directly to buy-in on the day following its generation. Clients and counterparties are expected to provide at least one full trading cycle notice for any onward bilateral settlement risk. ISD: Intended Settlement Date 4
IMPACT TO GOLDMAN SACHS AND OUR CLIENTS Change Description GS Approach Additional Comments Auto-partial settlement All on-exchange instructions will be automatically partialled by default. All other instructions will only be in scope if both parties have opted-in to auto-partial settlement. GS will opt-in for autopartial settlement, except for Securities Lending activity. Iberclear applies a default partial cash threshold of 10,000. Hold & Release Iberclear will introduce Hold & Release capabilities, similar to T2S. Hold: A function to send a settlement instruction to Iberclear for matching but preventing settlement. Release: A function to send a settlement instruction to T2S for matching and settlement. GS will not use Hold and Release directly, however our agent bank (Citibank Madrid) will manage this process on our behalf. GS will send all instructions in release status to the agent bank. GS will not offer Hold & Release capabilities to clients. Recycling Matched and un-matched instructions will be auto-recycled. Timely matching is required. Bilateral Cancelation To cancel matched instructions, bilateral cancelation requests from both parties will be required. None Cash Tolerance Two-tiered cash matching tolerance: 25 for transactions > 100,000 2 for transactions 100,000 Increased accuracy of settlement instructions required for matching. Implementation of Ex-Date The ex-date will be one settlement cycle less one working day prior to record date. None Auto- Compensation on Claims Auto-compensation is applied on asset servicing claims for up to 20 business days (pre-smr only three business days). This change will be managed by GS on our clients behalf and will be reported accordingly. Auto- Transformations Auto-transformations will be supported for all asset servicing event types (pre-smr only stock splits supported). This change will be managed by GS on our clients behalf and will be reported accordingly. Formal Buyer Protection Formal Buyer Protection is offered for failing CCP transactions over key asset servicing dates (pre-smr no protection offered). new standard. This change will be managed by GS on our clients behalf and will be reported accordingly. 5
SPANISH MARKET MATCHING STANDARDS NEW MATCHING FIELDS Further to the existing mandatory matching fields, Iberclear will be introducing two new types of matching fields, additional and optional. Additional matching fields will be used to indicate corporate action attributes, whilst the optional matching fields provide new matching criteria. Neither types of fields are mandatory but have different behaviors. The approach taken by Goldman Sachs for these matching fields is outlined below. ADDITIONAL MATCHING FIELDS The use and matching of the Opt-out ISO transaction condition indicator results in the exclusion of an instruction from automatic market claims. The CUM/EX indicator specifies the income entitlement due on a transaction. In order to maintain matching consistency, Goldman Sachs will not be instructing any of the additional matching fields. These fields will remain blank in Goldman Sachs' settlement instructions. Field Opt-out ISO transaction condition indicator CUM/EX indicator Matching Criteria The additional matching fields only become a matching criterial if at least one party instructs a value: Value 1 + Value 1 = Match Blank + Blank = Match Value 1 + Blank = No Match Value 1 + Value 2 = No Match GS Approach GS will not be instructing these additional matching fields in line with expected market practice OPTIONAL MATCHING FIELDS The optional matching fields provide new criteria for market participants to use in the matching process if required. Goldman Sachs will instruct the 'securities account of the delivering/receiving party' for matching accuracy. All other optional matching fields will remain blank by default, unless specifically provided by the client. Field Common trade reference Client of delivering CSD participant Client of receiving CSD participant Securities account of delivering party Securities account of receiving party Matching Criteria The optional matching fields only become a matching criteria if both parties instruct a value: Value 1 + Value 1 = Match Blank + Blank = Match Value 1 + Blank = Match Value 1 + Value 2 = No Match GS Approach GS will instruct the 'securities account of the delivering/receiving party', all other optional matching fields will remain blank by default 6
GOLDMAN SACHS STANDARD SETTLEMENT INSTRUCTIONS REVISED STANDARD SETTLEMENT INSTRUCTIONS FOR SPANISH EQUITIES To comply with the new BIC11 format, as well as the changes to the account structure, Goldman Sachs has provided revised SSIs for the Spanish equity market below. Market/Effective Trade Date Spain Equity Goldman Sachs International AG: CITIESMXXXX CL: GSILGB2XXXX PS: IBRCESMMXXX Goldman Sachs & Co AG: CITIESMXXXX CL: GOLDUS33XXX PS: IBRCESMMXXX Iberclear Account: IBRCCITIESMXXXX000000006T0EX0000005 Iberclear Account: IBRCCITIESMXXXX000000007T0EX0000006 Registration Name: Goldman Sachs Securities Nominees Ltd Registration Name: Goldman Sachs Securities Nominees Ltd April 27, 2016 Registration Code: COD00000062 Registration Code: COD00000062 7
FREQUENTLY ASKED QUESTIONS 1. Is auto-partialling compulsory for offexchange activity? No, auto-partialling is optional for offexchange related instructions. GS will be implementing auto-partialling for both receipts and deliveries, however both parties need to opt-in for auto-partial for the process to work. If one party does not opt-in, the instruction will not be eligible for auto-partial. 2. Will registration names be eliminated? No, registrars are still recognized as the beneficial owners in the market to enforce traceability. Registration name details should be provided amongst your SSIs on trade date. 3. Are off-exchange related settlements moving to a T+2 settlement cycle? Yes, the T+2 settlement cycle will be adopted for both off-exchange and on-exchange activity. T+2 will be the default settlement cycle for all Spanish equites from trade date June 23, 2016. 4. When does our organization have to make any changes with respect to Spanish equity SSIs for GS? The Spanish equity SSIs provided by GS will be effective from trade date April 27, 2016, which is the date of Iberclear s go-live for ARCO. Prior to this date, GS will continue to use its existing SSIs. 5. What methodology is GS using to convert BIC8 to BIC11? Unless a client or counterparty notifies us otherwise, we will take the default approach by appending XXX at the end of the BIC8 to make it BIC11 compliant. 6. Why is settlement volume expected to increase on June 27, 2016? Due to the change of settlement cycle from T+3 (traded on June 22) to T+2 (traded on June 23), the intended settlement date for both trade dates will fall on June 27, hence settlement volume is expected to increase on this day. 8
Contact Details For any questions or queries please contact the Goldman Sachs Spanish Market Reform Project Team at gs-smr-info@gs.com. DISCLAIMER This message has been prepared by personnel in the Operations Departments of one or more affiliates of The Goldman Sachs Group, Inc. ("Goldman Sachs") and is not the product of the Global Investment Research Department or Fixed Income Research. It is not a research report and is not intended as such. Goldman Sachs has made available to you this as a courtesy for your information only. Goldman Sachs is under no obligation to notify you or seek your consent prior to changing any of the content and as a result the information contained in this document may change from time to time without prior notice to you. This material contains information provided by third parties, which may be indicative and subject to change and may not be complete, accurate or current and Goldman Sachs has no liability with respect thereto. Goldman Sachs takes no responsibility for keeping the information up to date. The information is confidential and must not be distributed to a third party or within your organisation without our prior written consent. Goldman Sachs accepts no liability whatsoever from the use of the information contained in the attached document. It does not amend or supplement any agreement governing your relations with Goldman Sachs. Nothing contained in this document is intended, nor should be construed in any way as, legal, tax or accounting advice. You should perform such due diligence as you deem fit, including consulting your own independent legal, tax, accountancy and other professional advisors, as necessary or appropriate.