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Reserve Bank of IndiaPune, 30 September – 1 October 2013
Payment and settlement systems - changing dynamics
T2S Programme OfficeEuropean Central Bank
Table of Contents
Global trends in the field of market infrastructure3
Use of global standard for local systems2
European context and challenges1
Payment and settlement systems – changing global dynamics
2
EU: a single market
An area without internal frontierswhere
goodspersonsservicescapital
•can circulate freely.
SEPA for retail and card payments
Cashless payments in euro in the EU (EEA) should become as easy, efficient and reliable as domestic payments
“One account, one card, one terminal”
EU Fragmented InfrastructureIn securities and large value payment market infrastructure
Target2
NasdaqOMX
Nordic
MTFs e.g. Chji-x/Turquoise
LU S.E.EuronextPT, BE,FR, NL
NYSEMTFse.g.
BATSNasdaq
EUROPE UNITED STATES
SixGroup
EMCF
VP CSDx
Euro-CCP
LCH Clearnet SALCH
ClearnetLtd.
Six-xClear
InterBolsa
Euroclear
SIS
SNB
BE FI FR NL SEUK&IE
......NCBx...
Clearing
SecuritiesSettlement &
Assetservicing
Trading
CashSettlement
BMEGroup
Iberclear
DeutscheBórse
EurexClearing
ClearstreamBankingFrankfurt
ClearstreamBankingLuxemb.
LondonStock
Exchange
BorsaItaliana
Cassa DiComp
MonteTitoli
NSCC FICC
FED
DTCC
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EU Fragmented InfrastructureSecurities Market Infrastructure in numbers
6
trading reporting clearing settling
65 regulated markets 1 trade repository 9 CCPs 25 CSDs
58 multilateral trading facilities
3 systemic internalisers
EU market infrastructure challenges
7
The integration of European market infrastructure is a political priority for EU governments
Major efforts are being made to facilitate integration, through harmonisation and interoperability
Usage of global standards is a must
Three actions possible for ECB/Eurosystem: regulations, catalyst for change, operator of market infrastructure
Table of Contents
Global trends in the field of market infrastructure3
Use of global standard for local systems2
European context and challenges1
Payment and settlement systems – changing global dynamics
8
Use of global standardsProviding an integrated market infrastructure
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A common platform for payments large value: TARGET2
A common securities market infrastructure: T2S
Standardising retail payments for creating a single euro payment area (SEPA)
ISO 20022a commonelement
For EU…
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2013
2014 2015 2016 2017 2018
1st user consultation
2nd user consultation and provision of GFS
Go-live
Use of global standardsTARGET2 migration to ISO 20022
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There were a number of initiatives in Europe related to ISO 20022 already before TARGET2 approved its migration strategy:
SEPA: the Single Euro Payments Area has replaced domestic retail credit transfers and direct debits with standardised European payments by using ISO 20022 messages
T2S: as announced by the T2S program, ISO 20022 messages will be used from the outset (new messages had to be developed for T2S, as no international standards previously existed)
EU: in the securities industry the EU is driven by the Giovannini Protocol, aiming at eliminating barriers that hamper efficient cross border activities in Europe (harmonising different standards and communication protocols is one way to achieve it)
Use of global standardsMaximising the reuse of investments for market participants
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ISO 20022 Registration
Management Group
ISO 20022 Registration
Authority
ISO 20022 Standards Evaluation
Groups
Securities
Payments
Trade services
Forex
Cards
TARGET2
T2S
CLS
SWIFT
Euroclear
other
ISO 20022 users
ISO 20022 Financial
Repository
Data Dictionar
y
Business Process Catalogu
e
ISO standard 20022: UNIFY
Business models
Candidate ISO 20022
messages
Universal financial industry message scheme
Use of global standardT2S: a business case
One integrated settlement process (domestic and cross-border)
CSD
CSD
CSD
NCB
Market ParticipantM
ark
et
Part
icip
an
t
Market Participant
Marke
t Particip
an
tC
ust
od
ian
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Scope of T2SPurpose of T2S
A Service offered to CSDs for Settlement only
Notary Function
Custody/ asset-
servicing Function
Banking Function
SettlementFunction
Registration of issuer indebtedness and investor holdings
e.g. coupon payments,
redemptions, stock splits
Change of ownership among
investors
e.g. lending and borrowing only in
some (I)CSDs
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Advantages of T2S for Europe
Making Europe a better place to trade and invest
Purpose of T2S
A single pool of securities
To harmonise fragmented
and inefficient financial markets
To enhance competition in
settlement services
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Account Structure in T2SFunctioning of T2S
Technical platform of all securities and cash accounts to settle all securities transactions in
central bank money
TARGET2
CENTRAL BANK MONEY
VALIDATION and MATCHING
SECURITIES
OPTIMISATION
of
SETTLEMENT
SETTLEMENT
and
REALIGNMENT
CENTRAL BANK MONEY
CSD A
CSD B
CSD C
NCB A
NCB BNCB B ACCOUNTS
NCB A ACCOUNTS
NCB C
CENTRAL BANK MONEY
NCB A ACCOUNTS
Other RTGS
TARGET2VALIDATION and MATCHING
SECURITIES
OPTIMISATION
of
SETTLEMENT
SETTLEMENT
and
REALIGNMENT
CENTRAL BANK MONEYSECURITIES
OPTIMISATION
of
SETTLEMENT
SETTLEMENT
and
REALIGNMENT
SECURITIES
OPTIMISATIONof
SETTLEMENT
SETTLEMENT
and
REALIGNMENT
CENTRAL BANK MONEY
CENTRAL BANK
MONEY
NCB B ACCOUNTS
NCB A ACCOUNTSCSD A
CSD B
CSD C
CSD A
CSD B
CSD C
CSD A ACCOUNTS
CSD C ACCOUNTS
CSD B ACCOUNTS
NCB A
NCB B
NCB A
NCB B ACCOUNTS
NCB A ACCOUNTS
CENTRAL BANK MONEY
NCB A ACCOUNTS
Other RTGS
NCB C ACCOUNTS NCB C ACCOUNTS
Other RTGS
CENTRAL BANK
MONEY
CENTRAL BANK
MONEY
CSD A
CSD B
CSD C
CSD A
CSD B
CSD C
NCB A
NCB B
NCB C
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Optimisation FeaturesFunctioning of T2S
NotaryFunction
Technical netting
Partial settlement
Additional optimisationalgorithms
Autocoll-ateralisation
Reduction of the need for cash and
securities on transactions to
minimize the use of resources
Splitting of transactions in the
case of limited availability of
resources
Creation of extra liquidity for
settlement via collateral on flow
and stock
Consideration of all transactions with equivalent ISINs to identify
chains of transactions, empty circles,
etc.
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User ConnectivityFunctioning of T2S
Two T2S network providers to maintain competition: - Eurosystem
licensing procedures led to selection of SIA/Colt and SWIFT as the two value-added network providers
Additionally, internet access in U2A mode is also planned
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Status quo of T2S
The T2S Programme Plan
Development of software for core functions is complete
Focus is now on testing
StartMon 17/07/06
FinishTue
31/07/17
SP17SP13
SP6SP5
SP4SP3SP2SP1
T2S Go-Live
Migration Phase (SP14 - 16)User Testing Phase (SP7-12)
EATDevelopment & Testing PhaseSpecification Phase
Preparation Phase2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
We are here
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T2S Community
23 CSDs have confirmed their participation, representing nearly 100% of settlement volume in euro
T2S remains an open system: other CSDs can still join, but will have to pay an entry fee
So far only the euro and DKK (as of 2018) will be settled in T2S, but other currencies may join later
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ECB Governing
Council
T2SBoard
Governors’ Forum
Non-euro Currencies Steering Group
(NECSG)
CSD Steering Group (CSG)
National UserGroup (NUG)
Non-euro central banks’
governors / boards
Project Managers
Group (PMG)
Operations Managers
Group (OMG)
Change Review Group
(CRG)
ECB
ReportingEscalationCRG reporting to CSGTechnical Groups reporting to T2S Board
Advisory Group (AG)
T2S governance since 1 July 2012Status-quo of T2S
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Financial Equilibrium in T2S
Tariff Structure
Investment cost
Running costs
Prices
PLUS TIMES
Volume estimates
Status-quo of T2S
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CSDR
Three streams shaping the new European securities settlement landscape
Market integrationA new securities settlement landscape
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T2S
DVP will no longer be a bilateral relationship between one CSD and
one NCB.Any CSD in T2S is
potentially in a DVP relationship with any
NCB in T2S
Harmonisation
Same market practice all over Europe: national boundaries will be broken down
The new framework will lead to increased competition
CSDs regulation
Same safety and efficiency rules all
over Europe
Competition
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A new securities settlement landscape
Benefits for CSDs
A technologically advanced, state-of-the-art, and robust settlement engine
Economies of scale by pooling together settlement volumes across Europe
New business opportunities through access to new markets
Long-term savings from efficient re-shaping to T2S
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Benefits for Users
Same processing and reduced settlement fees for domestic and cross-border transactions
Possibility to access all securities from one account in one CSD
Potential to optimise collateral and liquidity requirements
Reduced back-office costs by centralising settlement and thus streamlining interfaces
New business opportunities through access to new markets
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Higher level of competition in post-trade industry
A Single Market for financial services in Europe through harmonised clearing and settlement
Reduced settlement risks on cross-border transactions to positively affect financial stability
Investors can more easily diversify their portfolios
Issuers can more easily reach European investors
Reduced costs of capital for firms lead to economic growth
Benefits for Markets
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Use of global standardsAcross products…
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Making Euro area market infrastructure more accessible for all
Preparing for answering the globalisation challenges?
For outside EU…
ISO 20022a commonElement?
Table of Contents
Global trends in the field of market infrastructure3
Use of global standard for local systems2
European context and challenges1
Payment and settlement systems – changing global dynamics
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Global trends in the field of market infrastructureNew challenges
New challenges
• Managing globalising markets• High volume of information from multiple sources• Reporting for multiple purposes to multiple parties
Only one source of information the transactionsand assets of financial institutions
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Global trends in the field of market infrastructureNew challenges
Reusing existing investments
• Optimising existing information and systems• Increasing transparency for internal reporting• Increasing meaningful access to information for competent authorities
ISO 20022 amongst other standards can help
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Global trends in the field of market infrastructureCapitalising on investments made
ISO 20022 for payments
Communications between the
ordering customer and its
bank, etc.
Interbank transfers via correspondent banking or ACHs,
high value payments, low
value bulk payments, RTGS,
etc.
Account opening, standing orders, transaction and
account information,
advices & statements from …
Payment initiation
Clearing & settlement
...the account servicing
institutions to account owners,
including reporting from the financial
institution…
…to the ordering & beneficiary customers,
reconciliation, exceptions & investigations
handling.
Cash Management between various actors:
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Global trends in the field of market infrastructure
Account opening,
standing orders, transaction and
account information,
advices & statements, queries &
investigations
Income, corporate
actions, market data, proxy
voting
Collateral, repos, securities lending &
borrowing
CustodyCollateral management
Trade Initiation, pre-trade
Trade, post-trade
Clearing & settlementSecurities
Issuance
Capitalising on investments made
ISO 20022 for securities
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Global trends in the field of market infrastructure
Clearing and Settlement, including
netting and related
reporting
Post-trade:confirmation,
matching, assignment,
novation, etc.
Notification of trades to
third parties
Pre-trade: IOI,
quotes, etc.
Trigger events, option
exercises
Trade: order,
execution, allocation, affirmation,
etc.
Capitalising on investments made
ISO 20022 for forex
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Trade facilitators: chambers of commerce,
insurance co, freight forwarders, carriers, customs,
factoring co
Associations providing rules and
master agreements
(eg IFSA, ICC)
Private and corporate customers (treasurers)
Application providers
Financial Institutions
Risk management
entities
Global trends in the field of market infrastructureCapitalising on investments made
ISO 20022 for trade services
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POI messages for payments, administrative
and device related services
Similar messages transacted on
internet or from mobiles or other personal devices
Transactions between
acquirers and card issuers
ATM processes such as
authorization, processing,
ATM management and inventory
Transactions between merchants and acquirers, and cardholders and issuers that
support authorization, clearing, reversal, chargeback, dispute
processing, etc.
Global trends in the field of market infrastructureCapitalising on investments made
ISO 20022 for card and retail payments
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Global trends in the field of market infrastructureOther standards
Other global initiatives are popping up
• LEI - an ambitious project coming to reality• ISIN already a reality in most markets• … mapping all needs ?
ISO is providing technical committee and working groups
Thank you for your attentionwww.t2s.eu
@T2SECB
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T2S on the web: www.t2s.eu
- Publication of all relevant information and key documents
- Access to documents of all T2S working groups
- “Spotlight” on latest information on the project
- Information on project plan, governance, pricing, harmonisation
- Ad hoc sections dedicated to all the T2S community (CSDs, banks, NCBs, others)
- Publication of newsletter “T2S OnLine”
More information on T2Swww.t2s.eu
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