Static data set-up for Settlement and Auto-collateralisation in T2S
Workshop
Frankfurt, 29 November 2013
T2S Programme Office
European Central Bank
ECB-PUBLIC
Table of Contents
1
Introduction
2
Parties static data setup
3
Management of securities settlement process
4
Management of liquidity and collateral pools
5
T2S Auto-collateralisation
6
Implementation models
1
Organisation’s BIC structure in T2S
Varying usages
Management
of securities
settlement
process
BIC
structure
Management of
collateral and
liquidity pools
2
Set-up for Settlement and Auto-collateralisation
Constraints
For covering all scenarios efficiently in T2S, we need flexibility
Some constraints are hindering flexibility
1. Legacy BIC structures
 Mergers, acquisitions, policies, laws & business strategy/services have led to different
BIC set-up in different countries for different organisations
2. Technical constrains in T2S:
 The BIC 8 of the owners of the dedicated cash account and securities account:
•
•
Must be the same for offering Central Bank auto-collateralisation
Must not be the same for offering client collateralisation
 The same link is used for the definition of securities account for collateral provision and
settlement purposes
3
Organisation’s BIC structure in T2S
How do we find the optimal target BIC structure in T2S?
Legacy BIC structure
Efficient
securities
settlement
process
Target BIC
structure in T2S
Optimised pools of
liquidity and
collateral
Flexible management of
clients for client
collateralisation
4
Table of Contents
1
Introduction
2
Parties static data setup
3
Management of securities settlement process
4
Management of liquidity and collateral pools
5
T2S Auto-collateralisation
6
Implementation models
5
Static data configuration
Party Hierarchical Model
Level 1
T2S Operator
Level 2
CSD A
CSD B
CSD n
NCB
Level 3
Party BIC
Parent BIC
Level 4
Bank
PBAADEFF123
CSDAAAYY123
Securities
Account 1
CSD Participant
Securities
Account 2
Broker
Securities
Account 3
Central
Counterpart
Securities
Account n
Bank
PBAADEFF123
NCBAAAYY123
T2S Dedicated
Cash Account 1
T2S Dedicated
Cash Account 2
T2S Dedicated
Cash Account n
6
Static data configuration
T2S Party concept
 A T2S Party is a legal entity or individual that has a contractual relationship with a
CSD/NCB in T2S for the processing of its settlement related activities in T2S
T2S Party
Securities
Account
Securities
Account
T2S Party
Dedicated
T2ST2S
Dedicated
Cash Account
Cash Account
7
Static data configuration
Party identification
 An institution can establish multiple business relationships with different CSDs and/or
NCBs in T2S while using the same 11-digit Party BIC
 An institution may be defined as different participants within the same CSD, e.g. to
segregate securities settlement activities related to different departments of the same legal
entity, provided different 11-digit BICs are assigned for each different participant
T2S hierarchical party model
CSD A
CSDAAAYY123
TRGTXE2SXXX
Party BIC
Parent BIC
T2S Operator
TRGTXE2SXXX
CSD B
CSDBBBYY123
TRGTXE2SXXX
NCB
NCBAAAYY123
TRGTXE2SXXX
Bank A
PBAADEFF123
NCBAAAYY123
Bank A
PBAADEFF123
CSDAAAYY123
Bank A
PBAADEFF789
CSDAAAYY123
Bank A
PBAADEFF123
CSDBBBYY123
Securities
Account 1
Securities
Account 2
Securities
Account n
T2S Dedicated
Cash Account 1
T2S Dedicated
Cash Account n
8
Static data configuration
Entity and BIC Relationship
 A T2S actor, e.g. a Custodian bank, can be defined as a T2S Party using its own BIC, or its
clients BIC
 Although BICs in T2S are validated against the SWIFT BIC directory, T2S
does not verify that the BIC actually belongs to the party
CSD
CSD Participant’s clients
T2S
CSDADEFFXXX
CSD Participant
T2S Actor CSD
CSD BIC:
CSDADEFFXXX
T2S Party identification
CSD BIC: CSDADEFFXXX
Party BIC:
PBAADEFF123
PBAADEFF123
PBCLDEFF456
Note:
PBCLDEFF456
could also be used as Party BIC
9
Table of Contents
1
Introduction
2
Parties static data setup
3
Management of securities settlement process
4
Management of liquidity and collateral pools
5
T2S Auto-collateralisation
6
Implementation models
10
Management of securities settlement process
Instructing Party and Securities Account owner
 Securities Account owner: Party BIC 11 linked to the Securities Account in T2S.
A CSD Participant may link a Securities Account defined in T2S with its own Party
BIC 11 and operate as the securities account owner. In this set-up the CSD
Participant can instruct on the securities account as de-facto account owner
without the need of third party privilege.
 Instructing Party: Originator of the settlement instruction in T2S, either on its own
behalf or on behalf of its clients. It may or may not be defined as the Securities
Account owner in T2S. In the latter case, privileges must be setup in T2S to be
able to instruct and query on the account
11
Management of securities settlement process
Party and Account structure
 Segregation of proprietary and clients businesses can be done at the level of the
accounts without setting up a specific party for the CSD participant’s client
CSD Participant defines Securities Account
87654321 with its own Party BIC 11
CSD
CSD Participant
BIC11:
PBAADEFF123
Customer name: CSD PART
Securities Account: 1234 5678
T2S
T2S Party Identification:
CSD BIC: CSDADEFFXXX
Party BIC:
PBAADEFF123
Account on behalf of CSD part.’s client
having own BIC:
PBCLDEFF456
Customer: CSD PART CL
Securities Account: 87654321
Securities
Account:
1234 5678
Securities
Account:
87654321
12
Management of securities settlement process
Party and Account structure
 Segregation of proprietary and clients businesses can be done at the level of the party
when a specific party is created in T2S for the CSD participant’s client
CSD Participant defines Securities Account
87654321 with the BIC 11 of the client
CSD
CSD Participant
T2S
T2S Party Identification:
T2S Party Identification:
Customer name: CSD PART
CSD BIC:
CSDADEFFXXX
CSD BIC:
CSDADEFFXXX
Securities Account: 1234 5678
Party BIC:
Party BIC:
PBAADEFF123
PBCLDEFF456
Securities Account:
12345678
Securities Account:
87654321
BIC11:
PBAADEFF123
Account on behalf of CSD part’s
client having own BIC:
PBCLDEFF456
Customer: CSD PART CL
Securities Account: 87654321
13
Management of securities settlement process
Party and Account operational models
“Account owner model”
Instructing Party
T2S Party Identification:
CSD BIC:
CSDADEFFXXX
Party BIC:
PBAADEFF123
Sese.023
SecuritiesSettlement
TransactionInstruction
T2S
“Account operator model”
Account owner
T2S Party
Identification:
CSD BIC:
CSDADEFFXXX
Party BIC:
PBAADEFF123
Securities Account:
87654321
No third-party privilege must be granted to
Instructing Party PBAADEFF123 to send
Settlement Instruction on SAC 87654321
Instructing Party
T2S Party Identification:
CSD BIC:
CSDADEFFXXX
Party BIC:
PBAADEFF123
Sese.023
SecuritiesSettlement
TransactionInstruction
Account owner
T2S Party
Identification:
CSD BIC:
CSDADEFFXXX
Party BIC:
PBCLDEFF456
Securities Account:
87654321
Privilege to send Settlement Instruction on SAC
87654321 must be granted to Instructing Party
PBAADEFF123
14
Management of securities settlement process
Matching Concept – Mandatory and Optional matching fields
 Mandatory matching fields:
Delivering and Receiving CSD, Delivering
Party and Receiving Party BIC (11-digit,
Party1 block)
Mandatory Matching
Fields
Additional Matching
Fields
Optional Matching
Fields
T2S
Matching
fields
 Optional matching fields:
Delivering and Receiving CSD participant’s
client (11-digit, Party2 block). If inputted by
both parties, the fields need to match
15
Management of securities settlement process
Matching – Account Owner model
“Account owner model”
DELI
Delivering CSD
CSDADEFFXXX
(87654321)
Delivering Party
PBAADEFF123
Mandatory fields
Optional fields
RECE
Receiving CSD
CSDADEFFXXX
Receiving Party
PBABDEFF111
(CSDADEFFXXX)
(PBAADEFF123)
(PBCLDEFF456)
(PBCLDEFF456)
(CSDADEFFXXX)
(PBABDEFF111)
(PBCLDEFF111)
(PBCLDEFF111)
CSD Participant BIC e.g. PBAADEFF123 used for mandatory matching
16
Management of securities settlement process
Matching – Account Operator model
“Account operator model”
DELI
Delivering CSD
CSDADEFFXXX
(87654321)
Delivering Party
PBCLDEFF456
RECE
Mandatory fields
Optional fields
Receiving CSD
CSDADEFFXXX
Receiving Party
PBABDEFF111
(CSDADEFFXXX)
(PBCLDEFF456)
(CSDADEFFXXX)
(PBABDEFF111)
Mandatory matching performed with the BIC of the client e.g. PBCLDEFF456
17
Management of securities settlement process
Allegement
 The Allegement process sends a message* to advise an account owner that another T2S
Actor has instructed against it, whereas the account owner has no corresponding
instruction.
“Account owner model”
T2S Party
Sese.023
PBABDEFF111
SecuritiesSettlement
TransactionInstruction
T2S Party
Business
Validation
Matching
X
PBAADEFF123
Securities
Account: 87654321
The Instructing Party (SAC
owner) will receive the
allegement
“Account operator model”
T2S Party C
PBCLDEFF456
*It is not possible for a third-party to
receive a copy of the message
The Instructing Party will
NOT receive the allegement
18
Management of securities settlement process
Message Subscription and Routing Configuration
• The “message subscription” allows to define whether a message has to be
sent or not to a given T2S Actor
Message
Subscription
• “Message subscription” offers the possibility to configure a selection of
outbound messages and inbound message copies from T2S, to be received by a
T2S Actor
• The message subscription does not define to which technical address
(destination) of a recipient (i.e. T2S Actor) the message is actually delivered
• The “routing configuration” specifies the technical elements (i.e. a technical
address) T2S uses to send a given outgoing message to the relevant T2S Actor
Routing
• A Routing configuration does not specify the actual set of messages T2S has to
send to a T2S Actor
19
Table of Contents
1
Introduction
2
Parties static data setup
3
Management of securities settlement process
4
Management of liquidity and collateral pools
5
T2S Auto-collateralisation
6
Implementation models
20
Management of liquidity and collateral pools
Liquidity pool - Centralised into a single Dedicated Cash Account
 A liquidity pool in T2S is a collection of Dedicated Cash Accounts that can be used for
settlement of transactions involving a cash component
T2S Party
PBAADEFF123
SAC
12345678
SAC
87654321
T2S Party
PBAADEFF123
PBCLDEFF456
SAC
12345678
SAC
87654321
T2S Party
Dedicated Cash Account (DCA)
Dedicated Cash Account (DCA)
77777777
77777777
Multiple Securities Accounts may be linked to the same Dedicated Cash Account
independently of the underlying T2S Party in order to centralise liquidity
21
Management of liquidity and collateral pools
Liquidity pool - Split on several Dedicated Cash Accounts
T2S Party
PBAADEFF123
SAC
12345678
DCA
8888888
DCA
99999999
T2S Party
PBAADEFF123
PBCLDEFF456
SAC
87654321
SAC
12345678
SAC
87654321
DCA
77777777
DCA
8888888
DCA
77777777
T2S Party
Each Securities Account may be linked to one or several Dedicated Cash Accounts for
the purpose of splitting liquidity independently of the underlying T2S party
22
Management of liquidity and collateral pools
Collateral pool
 A Collateral pool in T2S is a collection of Securities Accounts that can be used for the
provision and/or receipt of collateral against intraday credit in the context of autocollateralisation
T2S Party A
PBAADEFF123
SAC
12345678
SAC
45678912
T2S Party B
T2S Party B
PBCLDEFF456
PBCLDEFF456
SAC
87654321
SAC
87654321
Dedicated Cash Account (DCA)
Dedicated
Dedicated
Cash Account
Cash Account
777777777
DCA
77777777
DCA
88888888
Same linking configurations are possible between Securities and Cash Accounts as for
liquidity pools
23
Table of Contents
1
Introduction
2
Parties static data setup
3
Management of securities settlement process
4
Management of liquidity and collateral pools
5
T2S Auto-collateralisation
6
Implementation models
24
T2S Auto-collateralisation
Static data, liquidity and collateral pool setup
Party Account
Relationship
model
Management
of Liquidity
Pools
Management
of Collateral
Pools
T2S autocollateralis
ation
Party setup, Account structure, configuration of Liquidity and Collateral Pools are key
components of the auto-collateralisation process in T2S
25
T2S Auto-collateralisation
BIC structure - Entity Relationship
 The BIC structure governs the flexibility and control in the settlement and
auto-collateralisation processes
CSD Participant with
same BIC8 as the PB
CB links BIC8* (PBAADEFF*)
of the PB to primary CMB
CB
NCBAXXYYAAA
CB links PB
DCA to CB
cash
account
PB
PBAADEFF123
PB
PBAADEFF123
CB Autocollateralisation
(Primary CMB)
PBAADEFF789
CSD Participants with
different BIC8 as the PB
PB authorises BIC4* (PBCL*)
of client for the use of DCA
Cash Accounts
Securities Accounts
Client1 of PB
PBCLDEFF456
PBCLCLFF456
PB authorises BIC8* (PBC2FRAA*)
of client for the use of DCA
and/or
Client2 of PB
PBC2FRAA001
PBC2FRAA111
and/or
PB authorises BIC11 of
client for the use of DCA
Client
collateralisation
(Secondary CMB*)
Client3 of PB
PBC3NLYY220
(*)Securities account of different clients can be
linked via one CMB or several CMBs.
26
Table of Contents
1
Introduction
2
Parties static data setup
3
Management of securities settlement process
4
Management of liquidity and collateral pools
5 T2S Auto-collateralisation
6
Implementation models
27
Implementation Models
Optimal target BIC structure in T2S
 Institutions must assess their needs for securities settlement, management of
cash flows and auto/client collateralisation processes
 Institutions must consider the impact of the implementation of the BIC
structure on the management of settlement flows, liquidity and collateral pools,
in conjunction with the T2S Party identification
 Following (non-exhaustive) models/alternatives can be assessed with regards to
BIC implementation choice:
 Decentralise liquidity pools in T2S
 Centralise liquidity and collateral pools without client collateralisation
 Centralise liquidity and collateral pools with use of client collateralisation
28
Implementation Models
Decentralise liquidity pools in T2S – No auto-collateralisation
 Management of liquidity via different pools for segregating client and proprietary
business
 Management of liquidity via different pools, according to their business and
organisational needs
Securities Accounts
Proprietary A/C 1
PBAADEFF123
Main Branch A/C 2
Primary
CMB 1
PBAADEFF123
Primary
CMB 2
PBAAGHI1XXX
DCA1
PBAADEFF789
CB Cash
Account
NCBAXXYYAAA
Proprietary A/C 3
PBAAGHI1XXX
Branch A/C 4
DCA2
PBAAGHI12AA
29
Implementation Models
Centralise liquidity and collateral pools without client collateralisation
 Aim of centralising of liquidity and collateral pools is met
 Implement/assigning institution’s own BIC codes to the securities account of
their clients in T2S
 Less flexibility in implementing the management of settlement flows like
matching and allegement, e.g. greater risk of implications such as crossmatching.
 Potentially easier to set up with regards to the set-up of privileges and routing
configurations
Securities Accounts
Proprietary A/C 1
PBAADEFF123
Client 1 A/C 1
PBAADEFF789
Primary
CMB
DCA
PBAADEFF123
CB Cash
Account
NCBAXXYYAAA
Client 2 A/C 1
PBAADEFF201
30
Implementation Models
Centralise liquidity and collateral pools with use of client collateralisation




Aim of centralising of liquidity and collateral pools is met
Model requires multiple BICs to associate multiple clients
More flexibility in implementing the management of settlement flows
More complex with regards to the set-up of privileges and routing
configurations
Securities Accounts
Proprietary A/C 1
PBAADEFF123
Main Branch A/C 2
Primary
CMB
PBAADEFF789
Proprietary A/C 3
PBC2FRAA001
DCA
PBAADEFF123
CB Cash
Account
NCBAXXYYAAA
Secondary
CMB 1
Client 1 A/C 1
PBCLDEFF456
Client 1 A/C 2
Secondary
CMB 2
PBCLCLFF456
31
Set-up for Settlement and Auto-collateralisation
Conclusion
 Institutions should carefully consider the trade-off between the
management of settlement flows and management of liquidity and
collateral pools
 Is there an appropriate trade off within these current constraints?
 The BIC 8 of the owners of the dedicated cash account and securities
account:
•
•
Must be the same for offering Central Bank auto-collateralisation
Must not be the same for offering client collateralisation
 The same link is used for the definition of securities account for collateral
provision and settlement purposes
32
Thank you for your attention
www.t2s.eu
33