Transcript T2S - Capital Markets Events
T2S and corporate actions
CorpActions 2011 5 July 2011 www.t2s.eu
Hugh Simpson Advisor, T2S
Questions to answer
Why is T2S happening?
How will it work?
Who is involved?
What does it mean for corporate actions?
To achieve a Harmonised Integrated and Efficient Settlement infrastructure for All European securities in Euros and other currencies
Why?
How?
T2S will be a central IT platform Operating securities accounts on behalf of CSDs Operating cash accounts on behalf of central banks With sophisticated facilities for transactions between these accounts CSDs and central banks “Out-source” their accounts to T2S Remain legally responsible And provide any additional value-added services T2S will charge €0.15 per side for a DVP transaction Starts in September 2014
Who?
Developed and financed by the Eurosystem 30 CSDs have signed MoU with T2S: All euro area CSDs 8 EU, non-euro CSDs ( Denmark, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Sweden, the UK) 3 non-EU CSDs ( Iceland, Norway and Switzerland) Outside the euro area: Central banks of Denmark, Lithuania, Norway, Sweden, Switzerland and UK are discussing participation of their currencies
What does it mean for corporate actions?
T2S is a settlement engine.
It provides the key elements required for settlement: accounts for cash and securities; and the means to make movements between them It is not an asset servicing system But it is a driver of harmonisation The account holding relationship remains between the account-holder and the CSD The results of CAs, delivering or exchanging cash and/or securities, can use the T2S mechanisms Consider implications of T2S for CAs on stocks and on flows
CAs on holdings
Responsibility for identifying and notifying beneficiaries of CAs, collecting their elections remain with account-holding CSDs Transfers of cash and securities processed through T2S T2S standards based on recommendations of CAJWG Benefits from T2S: Use of a single cash account to receive distributions across multiple CSDs T2S as a driver for harmonisation in CA processing Potential for a single entry point
T2S and CAs on flows
Market claims, transformations and buyer protection may arise when a transaction is pending during the period of a CA T2S Advisory Group mandated CASG to work on CAs transaction management standards CASG has developed “T2S Corporate Action Standards” Market claims Transformations Buyer protection Approved by the AG in September 2009: see http://www.ecb.europa.eu/paym/t2s/governance/ag/html/subcorpact/index.en.htm
l CSDs obliged to comply by January 2014
Market Claims
Concept of Instruction Owner CSD (IOC): responsible for detecting and instructing market claims in T2S IOC is defined as the CSD that provides the securities accounts on which the participant has sent an underlying instruction There are always two IOC per transaction. Could be either the Issuer or the Investor CSD taking up the role.
Obligation for participating CSDs to adopt harmonised approach 8
Transformations
CCPs or IOCs will manage transformations Counterparties can choose to opt-out (new additional matching field) Transformations triggered by IOCs/CCPs Matched locally or in T2S 9
Buyer Protection
As per CAJWG standards, CSDs not obliged to offer buyer protection (BP) for their securities If CSDs offer BP, they must comply with standards and deadlines If an issuer CSD offers BP, the investor CSDs which have chosen to hold its securities should also offer BP If two investor CSDs offer BP, but the issuer CSD does not, then BP functionality can still be used Detection of BP instructions takes place outside of T2S; only resulting settlement of BP agreement is processed in T2S Upward harmonisation 10
Compliance with T2S standards for CAs on flows
Summary
- Percentage Compliance per Country 100% 90% 80% 69% 70% 60% 50% 53% 41% 40% 37% 37% 30% 24% 20% 10% 12% 0% 0% AT B E ( N B B -S S S ) BE 15% CH 0% CY DE 24% 15% 0% 0% DK EE ES 0% FI 0% 0% FR G R ( B O G S ) G R ( H E L E X ) HU 24% 10% 0% IS IT 0% 0% 0% 0% LU LT LV MT NL 0% NO 0% PL P T ( In te rb o ls a P ) T ( B d P S S S ) 0% 0% 0% RO SI SK 0% SE U K & I E 11 Source: CASG 2010 survey
What are the implications of T2S?
Investors and issuers can look at Europe as a single space Choices for investors about how to participate in T2S Outsource everything to custodian/agent bank(s) – as now Consolidate activity in one CSD Direct participation in multiple CSDs for settlement and asset servicing Use different solutions for settlement and asset servicing Potential for a fundamentally different market structure Lower barriers for entry – as CSD?
New opportunities in asset servicing?
More choice for issuers?