TARGET2, Eurosystem Collateral
Framework & CCBM2 (part I)
Nynke Doornbos
4th Conference on Payments and Securities Settlement Systems
Ohrid, Republic of Macedonia, 20 June 2011
Topics
• TARGET2
• Basics Eurosystem collateral framework
• Collateral trends
• CCBM2
Agenda TARGET2

TARGET

Scope and framework TARGET2

TARGET2 operational day

Single Shared Platform
De Nederlandsche Bank
Eurosysteem
TARGET

TARGET
 Trans-European
 Automated
 Real-time
 Gross settlement
 Express
 Transfer system
De Nederlandsche Bank
Eurosysteem
History: the ESCB payment system
European
Central
Bank
NCB-A
NCB-B
Interlinking
bank A
bank B
bank C
bank D
De Nederlandsche Bank
Eurosysteem
History: TARGET(1)
ECB
NCB
ILC
NCB
ILC
NCB
ILC
NCB
ILC
ILC
NCBILC
NCBILC
ILC
TARGET
Interlinking
Network
• Expensive
NCB • Inflexible
• Different pricing
NCB
• Different products /
NCB services
• Different standards
ILC
ILC
NCBILC
ILC
ILC
NCB
NCB
ILC
ILC
ILC
NCB NCB
NCB
De Nederlandsche Bank
Eurosysteem
From TARGET to TARGET2
Swift Net Services
Bank A
Bank B
Interlinking via FIN
NCBs
Ancillary systems
De Nederlandsche Bank
Eurosysteem
TARGET2 Platform
One central platform for NCBs for the real time gross
settlement of large value payments
The central TARGET2 platform, called Single Shared
Platfom (SSP), was built by 3 NCB´s (3CB):
Bundesbank, Banque de France and Banca d´Italia
The platform offers some mandatory and some optional
modules.
Operational as off 19 November 2007 (in 3 groups)
De Nederlandsche Bank
Eurosysteem
TARGET2 in Europe
Countries on TARGET2
---- of which €
Other EU-countries
De Nederlandsche Bank
Eurosysteem
Functionalities in T2
De Nederlandsche Bank
Eurosysteem
TARGET2
TARGET2 offers:
High availability
 Uniform pricing
 Uniform functionality
 Harmonisation
 Advanced tools for liquidity management
 Ready for new countries

De Nederlandsche Bank
Eurosysteem
TARGET2: Operations

All RTGS operations may be processed in TARGET2




All types of operations




individual operations settled in real-time and in central bank money
no exclusion according to amount or type of operations
Wholesale payments are a main goal for TARGET2
credit transfers
direct debits (limited usage)
mandated payments
All types of business



payments between market participants
central bank operations
settlement operations of ancillary systems
De Nederlandsche Bank
Eurosysteem
TARGET2 Operational day
18:45
19:30
22:00
01:00
06:45
07:00
17:00
18:00
18:45
business
day (d+1)
TARGET business day (d)
Calendar day (d-1)
Calendar day (d)
9
1
2
3
4
3
5
6
7
8
1
De Nederlandsche Bank
Eurosysteem
TARGET2 Operational day
Purpose of the different phases:
Start-of-day (1 & 2)
 Night-time processing (3)
 Technical maintenance window (4)
 Preparation for day trade phase (5)
 Day trade phase I (6)
 Day trade phase II (7)
 End-of-day (8 & 9)

De Nederlandsche Bank
Eurosysteem
Payment interface
- FIN Copy SWIFTNet FIN
Bank A
MT 103(+) / 202 / 204
Participant Interface (Y-copy)
mandatory
Booking
instruction
Bank B
SSP country
MT 097
MT 096
SSP country
MT 011
MT 012
MT 103(+) / 202/204
MT 019
PM
Acknowledgement
either / or
optional
Payment Processing
De Nederlandsche Bank
Eurosysteem
Single Shared Platform
Centralized solution: single platform, no interlinking
 central payments processing: DE, IT
(workload distribution between regions)
 central datawarehouse and customer services: FR
Region 1
Region 2
Region 3
SITE A
SITE C
SITE E
SITE B
SITE D
SITE F
payments and accounting
services
customer related
services
De Nederlandsche Bank
Eurosysteem
Single Shared Platform
REGION 1
Live
SITE A
SITE B
Test & Training
(T&T)
P
P
Asynchronous
remote
copy
Synchronous remote copy
Hot back-up
Periodic
Region
Rotation
S
REGION 2
SITE C
Synchronous remote copy
S
SITE D
Hot back-up
De Nederlandsche Bank
Eurosysteem
Ancillary systems settlement
For integrated model:
liquidity transfer
SSS
For interfaced model:
real-time settlement
SSS
Securities accounts
Other NCB Cash
settlement accounts
RTGS
Securities accounts
NCB
environ
ment
RTGS
NCB
environ
ment
De Nederlandsche Bank
Eurosysteem
Pricing

Objectives: cost recovery, competitiveness and
broad access

Pricing of transactions: pricing scheme with a
monthly fee (100 euro or 1.250 euro) plus
transaction fee between EUR 0.80 and 0.125.

Optional services (e.g. liquidity pooling and
services related to ancillary systems) are priced
separately
De Nederlandsche Bank
Eurosysteem
Liquidity pooling - Virtual account
Credit institution e.g.
Bank A1
Credit institution e.g.
Bank A2
Credit institution
Bank A3
Group account




Virtual balance : balance on (single) accounts + credit lines
Possibility to „use“ this position by each group account
holder
Booking on the single accounts (not on the virtual account)
Only intra-day: „levelling“ off at the end of day mandatory De Nederlandsche Bank
Eurosysteem
Volume and value turnover T2
De Nederlandsche Bank
Eurosysteem
Major large value payment systems in
the world
De Nederlandsche Bank
Eurosysteem
Main indicators in 2010-H1
De Nederlandsche Bank
Eurosysteem
Actual volume and value
turnover T2
May 2011
NL
Total
Volume of transactions
(daily average)
Value of transactions
(EUR millions) - daily
average
32.138
260.626
345.837
3.072.465
Peak
volume
42.987
NL no 4 in volume
no 5 in value
De Nederlandsche Bank
Eurosysteem
Summary

Commercial banks directly benefit of a
technically centralized platform (legally it is a
decentralized system)

One pool of liquidity, one window for info on all
TARGET payments
De Nederlandsche Bank
Eurosysteem
Topics
• TARGET2
• Basics Eurosystem collateral framework
• Collateral trends
• CCBM2
De Nederlandsche Bank
Eurosysteem
The Eurosystem collateral framework:
principles decided in 1998
Protecting the Eurosystem
from incurring losses in it's
monetary policy operations
De Nederlandsche Bank
Eurosysteem
The Eurosystem collateral framework:
principles decided in 1998
Volume available collateral is sufficient
for effective monetary policy and
smooth operation of payment system
+/- EUR 14.000 billion
De Nederlandsche Bank
Eurosysteem
The Eurosystem collateral framework:
principles decided in 1998
Volume available collateral is sufficient
for effective monetary policy and
smooth operation of payment system
+/- EUR 14.000 billion
Collateral Deposited
(+/- EUR 2.000 billion)
and
Collateral Used for Credit Operations
(+/- EUR 700 billion)
In NL:
+/- EUR 150 billion deposited (7,5%)
+/- EUR 42 billion used for credit operations (6%)
De Nederlandsche Bank
Eurosysteem
The Eurosystem collateral framework:
principles decided in 1998
Operations accessible to a
broad set of counterparty’s
De Nederlandsche Bank
Eurosysteem
The Eurosystem collateral framework:
principles decided in 1998
Equal treatment of
all counterparty’s
De Nederlandsche Bank
Eurosysteem
The Eurosystem collateral framework:
principles decided in 1998
Enhancing
operational efficiency
and transparency
•One framework -> one single list since 2007
•Clear eligibility rules available via public guidelines
•Centrally guided reporting at ECB
De Nederlandsche Bank
Eurosysteem
The Eurosystem collateral framework:
principles decided in 1998
 In
accordance with principle open market economy: free
competition -> efficient allocation of resources
 Equal
 No
treatment of counterparties
privileged treatment of public sector securities
De Nederlandsche Bank
Eurosysteem
The Eurosystem framework:
Basics




All liquidity providing credit operations of the
Eurosystem based on adequate collateral (no cash)
Collateral needed for
monetary policy purposes (MRO´s + LTRO´s)
intraday credit (payments purposes)
One collateral-lists for monetary policy purposes and
payment system operations and local use
Broad collateral list consisting of marketable and nonmarketable assets (broad definitions)
De Nederlandsche Bank
Eurosysteem
Single list of collateral – since 2007


Drawbacks 2-tiers list (1999-2006): heterogeneity
and no transparency
Single list consists of two asset classes:
 Marketable
assets - listed on regulated markets or certain
accepted non-regulated markets
 Non-marketable assets - credit claims and Irish nonmarketable retail mortgage backed debt instruments, no
market criterion

For both asset classes → Eurosystem credit
assessment framework (ECAF)
De Nederlandsche Bank
Eurosysteem
Eurosystem Credit Assessment Framework
- since 2007
ECAF principles: consistency, accuracy and comparability
Credit assessment sources:
 ECAI – External Credit Assessment Institutions (Moody’s,
Fitch, S&P, DBRS)
 ICAS – NCBs in-house credit assessment systems
 IRB – counterparties internal ratings-based systems
 RT – third-party providers rating tools (Lince, ICAP)
De Nederlandsche Bank
Eurosysteem
ECAF benchmark/threshold

1999 – 2008:
´Single A` (A-Fitch and S&P, A3 Moody´s)
or
Probability of default (PD) over a one-year horizon
of 0.10% - definition default stems from EU Capital
Requirements Directive (CRD)

2008-2010: temporary acceptance lower rating
2011: new benchmark –> BBB- or PD of 0.40%
Exception: ABS -> 2x AAA


De Nederlandsche Bank
Eurosysteem
Eligible marketable assets
MARKETABLE ASSETS
Type of assets
ECB debt certificates; other marketable debt instruments
Credit standards
Asset of high credit standard; ECAF rules
Place of issue
European Economic Area (EU + Norway, Iceland, Licht.)
Settlement/handling
procedures
Settled in euro area; centrally deposited in book-entry
form with central banks or SSS fulfilling ECB’s minimum
standards
Type of
issuer/debtor/guarantor
Central banks; public sector; private sector; international
and supranational institutions
Place of establishment of
Issuer/debtor/guarantor
Issuer: EEA or non-EEA G10 countries; Guarantor EEA
Acceptable markets
Regulated markets; non-regulated market accepted by
ECB
Currency
Euro
(No minimum size; governing law restricted to EEA)
De Nederlandsche Bank
Eurosysteem
Eligible non-marketable assets
NON-MARKETABLE ASSETS: CREDIT CLAIMS
Type of assets
Credit claims
Credit standards
High credit standard for debtor/guarantor; ECAF rules
Settlement/handling
procedures
Eurosystem procedures
Type of
issuer/debtor/guarantor
Public sector; non-financial corporations; international
and supranational institutions
Place of establishment of
Issuer/debtor/guarantor
Euro area
Currency
Euro
Minimum size
Until Dec 2011: NCB choice for domestic use; 500,000
for cross-border use. After 1 Jan 2012: 500,000
Governing law
Law of a euro area Member State, max 2.
(Additional legal requirement: verification of existence, notification of debtor or
registration, no restrictions on mobilisation or realisation).
De Nederlandsche Bank
Eurosysteem
Risk control measures Eurosystem
Marketable assets
Credit claims
High credit
standards
• Rating of A- or better or an annual probability of default of
10bps or less (2011: BBB- or 40 bps)
Valuation
haircut
• Liquidity category
• Coupon type
• Residual maturity
Variation
margins
• Marking to market assets and requiring additional collateral
if market prices move substantially
No close links
• No close links between counterparty submitting collateral
and issuer/guarantor of collateral
De Nederlandsche Bank
• No ‘financial’ close links for Asset Backed Securities
Eurosysteem
• Residual maturity
• Type of interest rate
payment
• Valuation methodology
(NCBs)
Valuation principles – daily valuation
• Marketable assets
• Take representative price source, use market price
• Non-availability of marketprice -> calculate theoretical price
(based on discounted cash flows)
• Two hubs provide theoretical prices, Banque de France for
ABS, Deutsche Bundesbank for other complex debt
instruments
• Non-marketable assets
• Theoretical price or outstanding amount (-> higher haircut)
• 2012: Central Eurosystem Pricing Hub for prices of
marketable assets – 2013 for credit claims
De Nederlandsche Bank
Eurosysteem
Agenda
• The Eurosystem collateral framework
• Impact of turmoil on financial markets
• European collateral trends
• Mobilising collateral
• CCBM1 → CCBM2
De Nederlandsche Bank
Eurosysteem
Measures taken since 2008
• Monetary operations added with longer maturities and fixed rates
and with full allotment
• Liquidity provisions in other currencies (US dollars , Swiss francs
through Fx swaps), additional swap arrangements (US, CHF, JPY,
GBP, SEK)
• Temporary relaxation of eligibility criteria – ending ult. 2010
• Foreign collateral prepared in the toolbox (non-EUR collateral)
• Higher haircuts and higher rating requirements for ABS, additional
requirements (surveillance reports, no ‘financial close links’)
• Limits for the use of uncovered bank bonds
• Covered bond program (CBPP), 2009-2010, ended
• SMP program, ongoing
• 2011 – lower rating requirements
De Nederlandsche Bank
Eurosysteem
Recent amendments
Measure
ABS issued after 1 March 2010 require two AAA ratings at issuance.
The second best rule was introduced for ABS implying that not only
the best but also the second best rating must comply with the
minimum rating threshold for ABS.
The asset pool of an ABS should not consist of tranches of other
ABS.
The collateral pool of a counterparty may not include a higher share
than 10 percent of uncovered bank bonds issued by an entity with
which the counterparty has close links unless the value of the asset is
less than 50 million. However, this limitation does not apply to assets
that are guaranteed by a public sector entity with the right to levy
taxes.
The eligibility of assets with a rating below A- but above BBB- was
extended until further notice except for ABS.
The minimum rating threshold of debt instruments issued or
guaranteed by the Greek government was suspended.
More stringent provisions on the cash flow generating assets backing
asset-backed securities were introduced together with restrictions on
the location of the ABS originator and underlying assets to the EEA.
The introduction of additional exemptions from the prohibition of close
links which relates to non-UCITS covered bonds that fulfil all criteria
that apply to asset-backed securities, and are backed by residential
real estate loans.
Fungible tap issuances of ABS are considered to be new issuances of
ABS.
For structured issue where the prospectus provides for the delivery of
an acceleration and an enforcement notice, non-subordination of a
tranche must be ensured under both acceleration and enforcement
notice-related priority of payments.
Expiry of the temporary measures of eligibility of i) assets
denominated in USD, JPY and GBP ii) uncovered bank bonds listed
on non-regulated and accepted markets iii) subordinated assets with
a guarantee.
Announcement
date
Implementation
date
Grandfathering
period
20 November 2009
1 March 2010
Ended
1 March 2011 for
assets issued
before 1 March 2010
20 January 2009
1 March 2010
Ended
March 2011
1
20 January 2009
20 January 2009
Ended 1 March 2010
for bonds
submitted before 20
January 2009
8 April 2010
8 April 2010
N.A.
3 May 2010
3 May 2010
N.A.
9 October 2010
10 October 2010
9 October 2011
9 October 2010
10 October 2010
31 March 2011
9 October 2010
10 October 2010
To maturity
9 October 2010
10 October 2010
None
8 April 2010
1 January 2011
N.A.
De Nederlandsche Bank
Eurosysteem
Conclusions regarding functioning of
the collateral framework






The Eurosystem adjusted the collateral framework
much less than FED and BoE
Flexibility Eurosystem framework was historical
necessity (no homogeneous banking structures)
Liquidation risk increased because of dislocated
markets
Concentration risk increased because of own used
assets
Framework needs vigilant monitoring and sound
information base
Increase in residual financial risks asks for continuous
De Nederlandsche Bank
redefinition of risk control framework
Eurosysteem
Agenda
• The Eurosystem collateral framework
• Impact of turmoil on financial markets
• European collateral trends
• Collateral management at the
Nederlandsche Bank
• Mobilising collateral
De Nederlandsche Bank
Eurosysteem
Eligible collateral by asset type
De Nederlandsche Bank
Eurosysteem
Use of collateral for credit
operations
De Nederlandsche Bank
Eurosysteem
European evolution of collateral used
by asset type (%)
De Nederlandsche Bank
Eurosysteem
Total NL collateral pool
Increase 290% between 2007-2010. Decrease as off fall 2010
Numbers
Value (without weekly cash deposits)
3500
250
Marketables
205.4
Non-marketables
200
3000
Marketables
2.794
Non-Marketables
Lehman Brothers
bankrupt (15
Sub-prime
crisis (August /
150
Improved
situation for
NL banks…
Status Feb2011: 160
billion
166.5
September 2008)
138.9
September 2007)
2500
More numbers =
Higher activity level
2000
1500
100
End grandfathering
ABS with 1 rating
70.7
1.040
1000
11 May law FZO:
Rise credit claims?
50
500
0
0
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
De Nederlandsche Bank
Eurosysteem
Agenda
• The Eurosystem collateral framework
• Impact of turmoil on financial markets
• European collateral trends
• Collateral management at the
Nederlandsche Bank
• Mobilising collateral
• CCBM1 -> CCBM2
De Nederlandsche Bank
Eurosysteem
Present collateral framework (NL)
• Legal technique: pledge (repo possible)
• Pool of collateral
- total market value minus haircut (+interest) = credit line
- integrated use of the collateral pool on request of credit
institutions like supporting services, e.g. CCP margin and
guarantees for special purposes
• Legal setting credit claims: public pledge, physical
delivery loan documentation, ex ante notification of
debtor -> implementation new law expected
De Nederlandsche Bank
Eurosysteem
Agenda
• The Eurosystem collateral framework
• Collateral management at the
Nederlandsche Bank
• Impact of turmoil on financial markets
• European collateral trends
• Mobilising collateral
• CCBM1 → CCBM2
De Nederlandsche Bank
Eurosysteem
Safekeeping of collateral
(no remote access, repatriation)
Collateral management
•
Domestic:
• DNB vault
• Euroclear
Netherlands (Local
CSD)
•
Cross border:
• Direct link between
CSD’s
• Euroclear Bank
• Foreign CSD via
CCBM network of
central banks
CSD
foreign
ICSD
(eurobonds)
CCB
DNB
CCB
CSD
domestic
CSD
foreign
De Nederlandsche Bank
Eurosysteem
Structure of domestic safekeeping
DNB
2
3
(= credit line)
Euroclear
Netherlands
1
1
Bank A
De Nederlandsche Bank
Eurosysteem
Structure of eligible links
1
Bank A
3 (= €)
2
1
(I)CSD
(Monte Titoli)
DNB
Eligible link
Euroclear
Netherlands
De Nederlandsche Bank
Eurosysteem
Structure of CCBM
2
CCB
HCB
5
4
6
CSD
1a
3
Custodian/
Agent
1b
CCBM - Correspondent Central Bank Model
CCB - Correspondent Central Bank
HCB - Home Central Bank
CSD - Central Securities Depository
Bank A
De Nederlandsche Bank
Eurosysteem
Agenda
• The Eurosystem collateral framework
• Collateral management at the
Nederlandsche Bank
• European collateral trends
• Mobilising collateral
• CCBM1 → CCBM2
De Nederlandsche Bank
Eurosysteem
Topics CCBM2
 Why
CCBM2?
 Principles
 Benefits
of CCBM2
 CCBM2,
The Modules
 Planning
De Nederlandsche Bank
Eurosysteem
CCBM: developments

Increased demand till 2008 for cross-border use of
collateral (2006 > 50%; 2008 > 60%)

CCBM is used in 80% of cross-border transactions
De Nederlandsche Bank
Eurosysteem
Collateral mobilisation flow today
(domestic and cross-border)
Release of Credit
Release of Credit
Bank
Country A
Mobilisation instruction
Confirmation
Cash account
Bank in Country A
Mobilisation instruction
NCB
Country A
Delivery
of collateral
instruction
CCBM
message
Settlement
confirmation
NCB
Country B
Matching
Confirmation
CSD A
Central
Securities
Depository
Matching
Delivery of collateral instruction
CSD B
Central
Securities
Depository
De Nederlandsche Bank
Eurosysteem
Drawbacks of CCBM

Eurosystem collateral management is technically decentralised with
different national procedures







Domestic level: different conditions across the euro area
Cross-border level: CCBM
Domestic/cross-border level: Different conditions for cross-border (CCBM)
and domestic transfers
Not all eligible collateral is easy to deliver cross-border
Slow cross-border links
Complex model: Too many different messages per country (CSD)
Costs:


Lack of standardization
Sometimes need for predepositing
De Nederlandsche Bank
Eurosysteem
Eurosystem answer : CCBM2

Given the drawbacks in terms of harmonisation and efficiency,
in July 2008 the Governing Council of the ECB decided to
launch the CCBM2 project

A better organisation of the Eurosystem collateral mobilisation

Delivery of collateral, both cross border and domestic

CCBM2 will offer a harmonised and efficient solution facilitating
the interaction of counterparties acting as collateral providers
with the Eurosystem
De Nederlandsche Bank
Eurosysteem
Press release March 8, 2007 and
Decision of 17 July 2008
Governing Council decided to:
review
the current Eurosystem collateral
management handling procedures
develop
a single IT platform for domestic and
cross border collateral
based
on existing system such as the one of
NBB/DNB
De Nederlandsche Bank
Eurosysteem
Topics CBM2
 Why
CCBM2?
 Principles
 Benefits
of CCBM2
 CCBM2,
The Modules
 Planning
De Nederlandsche Bank
Eurosysteem
CCBM2 principles
1. Central Bank IT platform for collateral management
2. Domestic & cross border, pooling & earmarking,
pledge & repo
3. For all eligible collateral
4. Real-time straight-through-processing
5. Fully compatible with T2 and new systems to be
developed in future
6. Eligible SSS and eligible links between SSS
De Nederlandsche Bank
Eurosysteem
Important features
 No
separate legal entity, but an ICT solution
 No
compulsion, no prohibition
 Different
modules
De Nederlandsche Bank
Eurosysteem
Topics CCBM2
 Why
CCBM2?
 Principles
 Benefits
of CCBM2
 CCBM2,
The Modules
 Planning
De Nederlandsche Bank
Eurosysteem
Collateral mobilisation flow in CCBM2
Harmonised procedures for domestic and cross-border mobilisation
Bank
Country A
Mobilisation
instruction
Delivery
of collateral
instruction
Release of
Credit
Matching
Release of credit
CSD
Central
Securities
Depository
Settlement
confirmation
Cash account
Bank Country A
De Nederlandsche Bank
Eurosysteem
Harmonisation in NCB collateral
management (1)

Cross-NCB harmonised procedures, messages and
standards:
 for
settlement instructions, corporate actions (coupons,
redemptions), statements of holdings
 between NCBs and credit institutions
 between NCBs and SSSs/(I)CSDs
 common
SWIFT-address
 same
SWIFT-message formats using international market
standards
De Nederlandsche Bank
Eurosysteem
Harmonisation in NCB collateral
management (2)
Impact on Central Banks
Reduce considerably testing effort
Share IT costs and development
Share business knowledge & experience
Share workload
De Nederlandsche Bank
Eurosysteem
Harmonisation in NCB collateral
management (3)
Impact on credit institutions
Harmonisation messaging & procedures
Level playing field
Increased speed of collateral mobilisation
(STP)
Real-time monitoring
Decentralised business relations remains
De Nederlandsche Bank
Eurosysteem
Topics CCBM2
 Why
CCBM2?
 Principles
 Benefits
of CCBM2
 CCBM2,
The Modules
 Planning
De Nederlandsche Bank
Eurosysteem
What is CCBM2? The modules
NCBs
Counterparties
CSDs /
SSSs
Support Functions
Mandatory
Message Router
A2A Interfaces
External
CMS
Securities
Module
Monitoring &
Reporting
Workflow
Manager
U2A
Interfaces
Credit Claims
Module
Static Data
Mobilisation
Pooling
Recording
Application
Reference Data
Corporate
Actions
Earmarking
Mobilisation
Eligible
Assets Database
TARGET2
Credit &
Collateral
Module
TARGET2
Securities
CCBM2
Data
providers
De Nederlandsche Bank
Eurosysteem
Message Router
(I)CSDs/SSSs
Counterparties
CCBM2
Message Router
External
CMS
TARGET2
Securities
Module
Credit&
Collateral
Module
Credit
claims
Module
De Nederlandsche Bank
Eurosysteem
Message Router



Mandatory core module of CCBM2
Communication with external parties and market
infrastructures
Main functionalities:
 Receiving/sending messages
 Validation of messages
 Conversion of messages
 Query on the status af any operation in process
(real-time)
De Nederlandsche Bank
Eurosysteem
Credit and Collateral Module
(I)CSDs/SSSs
Counterparties
CCBM2
Message Router
External
CMS
TARGET2
Securities
Module
Credit&
Collateral
Module
Credit
claims
Module
De Nederlandsche Bank
Eurosysteem
Credit & Collateral Module
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●
●
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Management of counterparties’ collateral positions
Assigns each counterparty a single global position
Pooling/earmarking
Optional functionalities: credit freezing, interaction with external CMS, autocollateralisation
View on global position of entities of the same group
Collateral
Bank A
Credit
• Collateral Position
• Securities
• Credit Claims
• Other collateral (e.g. tri-party)
TOTAL COLLATERAL
• Credit Position
• Open Market Operations
• Marginal Lending
• Other Credit (e.g.
TOTAL Guarantees)
CREDIT
Remaining Credit Line = COLLATERAL – CREDIT = available intraday credit
De Nederlandsche Bank
Eurosysteem
Securities Module
(I)CSDs/SSSs
Counterparties
CCBM2
Message Router
External
CMS
TARGET2
Securities
Module
Credit&
Collateral
Module
Credit
claims
Module
De Nederlandsche Bank
Eurosysteem
Securities Module
Main functionalities:
 Processing of messages (matching, settling, rejecting)
 Validation checks (eligibility, close links)  Static data
 Handling of corporate actions (coupon payment,
redemption)
 Supporting Pledge & Repo
 Counterparty receives daily statement of holdings
De Nederlandsche Bank
Eurosysteem
Credit claims Module
(I)CSDs/SSSs
Counterparties
CCBM2
Message Router
External
CMS
TARGET2
Securities
Module
Credit&
Collateral
Module
Credit
claims
Module
De Nederlandsche Bank
Eurosysteem
Credit claims Module
Main functionalities:
 Receiving (de)mobilization requests  NCBs (recording)
 Sending (de)mobilization requests to Router (recording)
 Validation checks (eligibility, close links)  Static data
 Successfully validated credit claims automatically mobilised
(bulk procedures)
 Supporting different national legal requirements (e.g.
eligibility checks, registration, ex-ante debtor notification,
banking secrecy)
De Nederlandsche Bank
Eurosysteem
New feature in CCBM2: Triparty services:
Introduction to Triparty Collateral Management
Third party (e.g. (I)CSD) acts as an agent for the taker (Eurosystem)
and provider (counterparty) of the collateral.
Taker and provider enter into an agreement with triparty agent on
the level of outsourcing.
Contractual
Triparty
Triparty agent
agent
(I)CSD
(I)CSD
relationship
Contractual
relationship
counterparty
counterparty
joining
Contractual
NCB
NCB
relationship
Triparty
arrangement with CCBM2 (domestic dimension)
De Nederlandsche Bank
Eurosysteem
Introduction to Triparty Collateral Management

Typically for repo transactions, securities lending, or securities
pledged to a central bank

Triparty service providers offer generic collateral management
services: collateral eligibility checks, valuation, optimisation,
automatic allocation and substitution, monitoring and reporting

Collateral takers: central banks, commercial banks,
supranationals, state agencies, asset managers

Collateral givers: broker dealers, commercial banks, asset
managers, investment banks
De Nederlandsche Bank
Eurosysteem
Introduction to Triparty Collateral Management
The flow between provider(s) and user(s)
Bank
Bank
Bank
Country
Country
Country
AA
A
(Request for in- or
decrease credit line)
National Central Bank
Country
A
National Central
Bank
Country
A
National Central
Bank
Country A
Request for in- or
decrease credit line
(Matching)
Triparty
agent
Release (decrease) of credit line
Confirmation
De Nederlandsche Bank
Eurosysteem
Current status
Triparty solutions currently in use with
NCBs:
Clearstream Banking Frankfurt (XemaC)
Clearstream Bank Luxemburg (CmaX)
Euroclear Group (Autoselect)
 Domestic level only
 Models vary to certain extent, in particular
in relation to messaging (i.e. NCB
connection)

De Nederlandsche Bank
Eurosysteem
Envisaged status CCBM2


One of the CCBM2 principles is to make the cross
border use of collateral transparent to the
counterparty: i.e. alignment with domestic use
One technical platform
Removal of repatriation requirement
Harmonised messaging, as far as possible
Full usage of all possibilities within framework
Triparty collateral management available /
accessible for all counterparties
De Nederlandsche Bank
Eurosysteem
Envisaged status CCBM2
The flow between provider(s) and user(s)
Bank
Bank
Bank
Country
Country
Country
AA
A
(Request for in- or
decrease credit line)
Request for credit
in- or decrease
(Matching)
Triparty
agent
Release (decrease) of credit line
Confirmation
De Nederlandsche Bank
Eurosysteem
Topics CCBM2
 Why
CCBM2?
 Principles
 Benefits
of CCBM2
 CCBM2,
The Modules
 Planning
De Nederlandsche Bank
Eurosysteem
Project Overview

The project is in the Detailing/Building Phase

From a business perspective, detailed specifications are in the
process of being finalised in the various business domain and
built into a system

The Legal Framework is being worked upon

The Eurosystem Testing is under preparation

The Migration concepts are being further elaborated

The planning assumptions as shared at SIBOS 2010 will be reassessed towards mid-2011, also following the feedback from
the community
De Nederlandsche Bank
Eurosysteem
Project Status – key milestones
The Project Milestones as presented at SIBOS
Eurosystem
Counterparty
2010
acceptance test
certification
Business
requirements
document
2010
Q4
2011
Q1
Q2
2013
2012
Q3
Q4
Detailed system
requirements
Q1
Q2
Q3
CSD
testing
Q4
Q1
Q2
Wave 1
migration
Q3
Q4
Wave 2
migration
Interface guide
User interface guide
De Nederlandsche Bank
Eurosysteem
CCBM2 and T2S

T2S:
market infrastructure project
settlement system
eligible securities of participating CSDs

CCBM2:
project for central bank internal systems
custody (25 CSDs), settlement of MPOs
also credit claims and emergency collateral
De Nederlandsche Bank
Eurosysteem
CCBM2 and T2S
TARGET2-Securities
Sub -Cash
accounts
Securities
accounts
TARGET2
Custody
accounts
Single
Eurosystem
Interface
CCBM2
Cash
accounts
De Nederlandsche Bank
Eurosysteem
Questions ??
Thank you !!
De Nederlandsche Bank
Eurosysteem