The Hungarian CSD, which will join T2S in the third wave, revealed its future T2S services. By Beáta Szőnyi, Senior Relationship Manager, GSS Hungary.
In line with the T2S migration plan, KELER published a paper on the description of KELER services in the T2S environment.
The document is essentially a summary of the T2S platform, including the conditions of the accession and the available services KELER will provide via its new system, BaNCS.
As written in the document and communicated earlier, the Central Bank of Hungary (CBH) and KELER decided to make all domestically issued securities available in T2S, however the Hungarian currency, HUF will not be brought into the T2S platform from its start. Hungary will follow the Partial Entry Model (PEM) in which only the euro settlement volume will be routed through T2S but domestic settlement in HUF will be settled by KELER using an omnibus account model within T2S. According to the PEM, starting on the migration date KELER is to partially outsource the core settlement services to T2S that require real-time reconciliation and daily consistency checks between T2S and KELER. The settlement calendar and daily processing schedule of KELER have to be harmonised with T2S as well.
Two options
From a connectivity point of view there will be two options for the market players to connect to T2S: they can either choose indirect or direct connectivity. In the first case, the Indirectly Connected Party (ICP) can reach out to T2S through KELER by using its communication platform. A Directly Connected Party(DCP) has direct access to T2S and it can use the securities settlements platform of T2S without connection to CSD thus a DCP can communicate with T2S without using KELER however they need authorisation from KELER to become DCPs in T2S.
In terms of securities account structures, DCPs will have their own accounts at T2S, and by default KELER will maintain an omnibus account at T2S for KELER clients that are ICPs, however ICPs will have the opportunity to open segregated accounts via KELER in T2S. In line with the provisions of the Hungarian and international legal requirements, KELER maintains securities in a segregated manner by distinguishing proprietary and client assets and therefore opens dedicated accounts. Securities deposited as collateral are also to be held on a segregated account. Further segregation is not a legal obligation but it is supported by KELER.
Stages of settlement
Due to the Partial Entry Model there will be different stages of settlement finality for a settlement instruction (SFI – validation, SFII – unilateral irrevocability from matching, SFIII – finality and enforceability from booking) along with this KELER described the different scenarios for matching and place of settlement (KELER or T2S).
Place of settlement principles:
- Against payment settlement in T2S currency (EUR): place of settlement is exclusively T2S, independent of the participants’ connectivity type or the account type involved;
- Against payment settlement in non-T2S currency: place of settlement can be T2S via Conditional Securities Delivery FOP (CoSD FOP) functionality or it can be KELER via real DVP transaction;
- Free of Payment settlement: place of settlement can be either T2S or KELER;
- If any of the participants is a DCP the place of settlement is exclusively T2S.
Life cycle management and matching harmonised with T2S
After the migration to T2S the process will consist of the following areas:
- Business validation: checking the consistency of instructions and a T2S reference (Market Infrastructure Reference - MITI) will be introduced as an additional reference compared to domestic settlements.
- Matching: KELER will implement T2S matching rules both in the domestic and T2S context.
- The 11-digit BIC (BIC11) identifier will be introduced for partner identification. However, KELER will continue to offer the possibility for its participants to use the KELER code or the 8-digit BIC in the instructions sent to them.
- In comparison to the pre-T2S environment the following new matching fields will be introduced by KELER in T2S:
- Trade Date will become a mandatory matching field.
- Opt-out indicator will be introduced as an additional matching field.
- Cum-ex indicator will be introduced as an additional matching field.
- Allegement: KELER will send an allegement message for any unmatched instruction after the first unsuccessful matching attempt was due to a missing counterpart instruction. An allegement cancellation and allegement removal will also be introduced.
- Status management: Status notifications of the instructions will be sent by KELER for ICPs and by T2S for DCPs.
- Hold and release: These mechanisms will allow participants to hold back or release instructions for settlement unless KELER put the instruction on hold.
- Priority Management: KELER will allow participants to amend priority until an instruction settles or cancellation occurs, and will map T2S priorities into priorities used by KELER participants after BaNCS’ go-live.
- Cancellation: After migration to T2S KELER will allow only bilateral cancellations for matched instructions, KELER currently allows participants to cancel settlement instructions unilaterally prior to and after matching.
KELER will cancel unmatched instructions on the latest date between either 20 working days after the intended settlement date or the date of the last status change in accordance with the ESSF/ECSDA recommendation. - Optimisation and recycling: Within this context KELER will introduce i) technical netting in T2S , this functionality enables the number and value of settled transactions to increase while booking takes place in a gross basis, ii) partial settlement, however only for DCPs, and iii) prioritisation of settlement.
- Provision check for and the posting of settlement: In T2S each and every transaction will be booked on a gross basis. Booking shall take place only if the provision check on the accounts stated in the settlement instruction or on the accounts predetermined by default is satisfactory.
A number of new transaction types and services will become available for KELER customers in T2S:
- Delivery With Payment,
- Conditional Securities Delivery (CoSD),
- Settlement restrictions: Reservation, Blocking and Earmarking,
- Linked instructions: link settlement instructions, link settlement restrictions,
Settlement calendar adapted to T2S
In regards to the settlement calendar and operational day schedule, KELER will harmonise its settlement calendar with T2S and it will also restructure its daily processing schedule.
End of day processing in KELER to start after 6 pm after receipt of EOD reports form T2S. Afterwards, KELER will create EOD reports for customers and open the next business day. Between 6 pm-8 pm T2S is not available. During this time slot KELER customers can place instructions in KELER ICP mode, but these instructions will not be processed. These will be queued and picked up for validation during SOD (start of day) processing, and if applicable submitted to T2S before NTS (night time settlement) starts (8 pm). Night-time operation of KELER is not planned. Real-time settlement to start at 5 am and real-time processing in KELER will be available until 6 pm. KELER will publish its new cut-off times for T2S operations during 2016.
Market claim management
In line with the T2S CASG standards, KELER will implement the concept of centralised market claim management and perform processing of market claims for pending transactions on record date in the context of T2S in order to reallocate the proceeds of distributions to the contractually entitled parties. In addition, KELER is implementing the market standards for the transformation process that will be applicable in terms of pending transactions on record date of a mandatory reorganisation, mandatory reorganisations with options or voluntary reorganisation.
Also, KELER is committed to offer a manual buyer protection (BP) process for elective corporate actions that a buyer can use in case of having unsettled transactions around market deadline.