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?
Why?
To achieve a
 Harmonised
 Integrated and
 Efficient
Settlement infrastructure for
 All European securities in
 Euros and other currencies
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%
53%
50%
41%
40%
37%
37%
30%
24%
20%
24%
24%
15%
15%
12%
10%
10%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
Source: CASG 2010 survey
SE
&I
E
UK
SK
SI
RO
PL
Int
erb
ol s
a)
PT
(Bd
PS
SS
)
PT
(
NO
NL
MT
LV
LT
LU
IT
IS
HU
FR
(B O
GS
)
GR
(HE
LE
X)
GR
FI
ES
EE
DK
DE
CY
CH
BE
B-S
SS
)
BE
(NB
AT
0%
11
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?
www.t2s.eu