T2S: Settling without borders in Europe

T2S: Settling without borders in Europe London School of Economics London, March 24 2014 Pierre Beck Vice-Chairman of the T2S-Board 0

1 Table of Contents T2S: Settling without borders in Europe 1 2 3 Purpose and Benefits of T2S Functioning of T2S Project Governance

2 Spot on T2S Purpose and Benefits of T2S T2S Single IT Platform Entirely New Concept Solution to Fragmentation Core-neutral Borderless securities settlement Harmonised Commoditised DVP in CeBM Reversed integrated model Multi-currency dimension

3 Fragmented Infrastructure Purpose and Benefits of T2S EUROPE UNITED STATES Trading BME Group Deutsche Bórse Nasdaq OMX Nordic MTFs e.g. Chji-x/ Turquoise LU S.E. Euronext PT, BE, FR, NL London Stock Exchange Borsa Italiana Six Group NYSE MTFs e.g. BATS Nasdaq Clearing Eurex Clearing EMCF Euro- CCP LCH Clearnet SA LCH Clearnet Ltd. Cassa Di Comp Six-x Clear NSCC FICC Securities Settlement & Asset servicing Iber clear Clear stream Banking Frankfurt Clear stream Banking Luxemb. VP CSDx Inter Bolsa Euroclear BE FI FR NL SE UK & IE Monte Titoli SIS DTCC FED Cash Settlement... NCBx...... SNB Target2

4 Current EU Settlement Landscape Purpose and Benefits of T2S Non-integrated, cross-border settlement CSD Market Participant CSD CSD Custodian CSD CSD CSD CSD CSD CSD

5 Scope of T2S Purpose and Benefits of T2S A Service offered to CSDs for Settlement only Registration of issuer indebtedness and investor holdings Notary Function Settlement Function Change of ownership among investors e.g. coupon payments, redemptions, stock splits Custody/ asset-servicing Function Banking Function e.g. lending and borrowing only in some (I)CSDs

Market Participant Custodian 6 Future EU Settlement Landscape Purpose and Benefits of T2S One integrated settlement process (domestic and cross-border) Market Participant CSD CSD CSD CSD Market Participant Market Participant

General Principles of T2S (published in 2011) (1) The Eurosystem shall take on the responsibility of developing and operating T2S by assuming full ownership (3) T2S shall not involve the setting-up and operation of a CSD, but instead serves only as a technical solution for providing settlement services to CSDs (5) The respective CSD customers securities accounts shall remain legally attributed to the CSD and the respective central bank customers cash accounts shall remain legally attributed to the central bank. 7

(7) Securities account balances shall only be changed in T2S (8) T2S shall settle exclusively in central bank money (12) CSDs participation in T2S shall not be mandatory (13) All CSDs settling in central bank money and fulfilling the access criteria shall be eligible to participate in T2S (14) All CSDs participating in T2S shall have equal access conditions 8

9 T2S Benefits Purpose and Benefits of T2S T2S will benefit all market participants Investors CSDs Custodians Issuers

10 Market integration A new securities settlement landscape Three streams shaping the new European securities settlement landscape CSDR

T2S harmonisation Dashboard Status: 15 October 2013 11 ACTIVITIES PRIORITY 1 DEFINITION MONITOR COMPL. 1 T2S ISO 20022 messages G G G 2 T2S matching fields G G Y 3 T2S MESSAGES Interaction for registration G G G 4 Interaction for tax info G G G 5 Interaction for CSD ancillary services G G G 6 SCHEDULE OF SETTLEMENT DAY G G Y 7 T2S CORPORATE ACTIONS STANDARDS G G R 8 Settlement finality I (moment of entry) Y x x 9 Settlement finality II (irrevocability of transfer order) G G G 10 LEGAL HARMONISATION Settlement finality III (irrevocability of transfers) G G G 11 Law applicable/conflicts of Law R x x 12 Outsourcing IT services R x x 13 SETTLEMENT DISCIPLINE REGIME R x x 14 SETTLEMENT CYCLES R x x 15 Availability of Omnibus Accounts G G B CSD ACCOUNT STRUCTURES 16 Restrictions on Omnibus Accounts G G G 17 REGISTRATION PROCEDURES Y x x 18 Securities accounts numbering G G G T2S ACCOUNTS NUMBERING 19 Dedicated cash accounts numbering G G G ACTIVITIES - PRIORITY 2 DEFINITION MONITOR COMPL. 20 CORPORATE ACTIONS MARKET STANDARDS CA market (CAJWG) standards G G Y 21 PLACE OF ISSUANCE R x x 22 Withholding tax procedures G Y x TAX PROCEDURES 23 Transaction tax procedures Y x x 24 CROSS-BORDER SHAREHOLDER TRANSPARENCY Y x x 25 MARKET ACCESS R x x 26 SECURITIES AMOUNT DATA G G G

12 Table of Contents T2S: Settling without borders in Europe 1 2 3 Purpose and Benefits of T2S Functioning of T2S Project Governance

13 The Technical Infrastructure SECURITIES VALIDATION and MATCHING CENTRAL BANK BANK MONEY TARGET2 CENTRAL BANK CENTRAL BANK MONEY MONEY CSD A CSD A ACCOUNTS OPTIMISATION OPTIMISATION of of SETTLEMENT NCB A ACCOUNTS NCB A ACCOUNTS CSD NCB NCB A A CSD B CSD B ACCOUNTS SETTLEMENT SETTLEMENT and and REALIGNMENT REALIGNMENT NCB B ACCOUNTS NCB B ACCOUNTS NCB CSD B CSD C CSD C ACCOUNTS NCB C ACCOUNTS CENTRAL BANK MONEY NCB C A ACCOUNTS NCB CSD C Other RTGS

14 Main Functionalities of T2S Functioning of T2S Optimised settlement model - CSD securities - CeBM cash Real-time gross settlement (RTGS), combined with - Auto-collateralisation - Continuous Optimisation - Recycling mechanisms In addition, T2S provides i.a. - Matching services - Conditional securities delivery - Automated real-time realignment of cross-csd positions - Single account repository - Standardised interfaces - Message subscriptions & reporting Lifecycle Management and Matching 1 2 Validation Static Data Settlement Unmatched instructions Matched instructions 3 4 Instructions Matching Maintenance 8 Recycling & Optimisation Securities accounts Eligibility 5 Eligible instructions Provisioning & Booking 7 Interface 9 Report Management 10 Queries Management Sequencing Dedicated cash accounts 6

15 Optimisation Features Functioning of T2S Reduction of the need for cash and securities on transactions to minimize the use of resources Notary Function Technical netting Autocollateralisation Creation of extra liquidity for settlement via collateral on flow and stock Splitting of transactions in the case of limited availability of resources Partial settlement Additional optimisation algorithms Banking Function* Consideration of all transactions with equivalent ISINs to identify chains of transactions, empty circles, etc.

16 CSD Reshaping to T2S Functioning of T2S CSD infrastructures require adaptations to integrate with T2S CSD T2S Lending Reporting Custody Settlement Coll. Mgmt. Others

17 Table of Contents T2S: Settling without borders in Europe 1 2 3 Purpose and Benefits of T2S Functioning of T2S Project Governance

Central Bank Decision-Making Bodies Steering Level Bodies Market advisory bodies Technical Groups T2S Governance since 1 July 2012 Status-quo of T2S 18 Non-euro central banks governors / boards Governors Forum ECB Governing Council Non-euro Currencies Steering Group (NECSG) T2S Board CSD Steering Group (CSG) National User Groups (NUGs) Advisory Group (AG) ECB Operations Managers Group (OMG) Project Managers Group (PMG) Change Review Group (CRG) Reporting Escalation CRG reporting to CSG Technical Groups reporting to T2S Board

T2S Community Status-quo of T2S Icelandic Securities Depository Euroclear SE Euroclear FI Euroclear UK & IE EVK CSD of Lithuania Euroclear NL Euroclear BE Latvian Central Depository VP Securities A/S NBB-SSS BNY Mellon KDPW Clearstream Banking LuxCSD VP LUX SIX SIS OeKB CDAD Euroclear FR KELER CDCP KDD Iberclear Depozitarul Central Interbolsa Monte Titoli HELEX BOGS 24 CSDs signed the T2S Framework Agreement

20 T2S under development SP5 SP6 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Preparation Phase Specification Phase Development & Internal Testing Phase User Testing Phase Migration Phase SP1 SP2 SP3 SP4 SP13 SP17 T2S Go-Live We are here

21 Thank you for your attention www.t2s.eu @T2SECB