On 20 January 2023 Central Depository AD held a webinar with market participants to provide more details on its forthcoming joining to TARGET2-Securities. The webinar was also attended by European Central Bank (ECB) experts, the Financial Supervision Commission (FSC) and the Bulgarian National Bank (BNB). The main points shared during the webinar can be summarized as follows:
- FSC expressed its full support for all activities of local CSDs to join T2S.
- BNB reconfirmed its plan for testing with ESROT (the Electronic system for registration and servicing of trades in government securities) participants in Q2 2023. More detailed timeframe will be announced once the BNB’s Migration and testing strategy has been confirmed by ECB.
- ECB’s formal assessment for the exact migration date for 2023 is still ongoing and should be confirmed at the end of March 2023. Current target date is 11 September 2023.
- CDAD will follow the same approach as BNB regarding the migration of securities to T2S, i.e. EUR-denominated securities are to be migrated in September 2023 (or the date confirmed by ECB), while BGN-denominated securities shall be converted into EUR upon EUR adoption in Bulgaria and subsequently migrated to T2S as well.
- CDAD members will initially connect to T2S indirectly as Indirectly Connected Parties (ICP) but direct T2S connection can be considered in the near future.
- CSD members will be allowed to use single Dedicated Cash Account (DCA) opened in T2S for operations in both Bulgarian CSDs, i.e. CDAD and BNB.
- In addition to the existing net cash settlement model (BIS DVP Model 2), CDAD will introduce the option to use gross cash settlement (BIS DVP Model 1).
- Each CDAD member will have two securities accounts in T2S opened by Central Depository AD – an omnibus client account and a proprietary account. These T2S accounts will be mirrored in CDAD’s books and linked to the accounts at its Register of Financial Instruments and its Clearing and Settlement System.
- Against-payment batches at CDAD will remain 3 times per day.
- Some changes to settlement instructions formatting will be announced by CDAD by 27 February 2023. Settlement messages will though still be based on ISO 15022 standard.
- CDAD has started internal testing which will continue until May 2023.
- CDAD members will be able to test syntax validation of messages in April 2023, whereas testing including settlement finalization will be held in the period 15 May - 15 June 2023.
- Pre-Migration Dress Rehearsal testing for CDAD members will be performed from 19 June 2023 until 14 July 2023, while the Community testing shall take place between 17 July 2023 and 18 August 2023.
- CDAD intends to transfer T2S-related settlement charges to each CSD member as Out-of-pocket expenses.
- CDAD has announced it will gradually shift communication with its CSD members to ISO 20022 standard.
- CDAD will not apply Partial settlement and Hold & Release upon joining T2S.
On a side note, CDAD has also confirmed its intention to change the distribution frequency of CSDR-related cash penalties for failed settlement from daily to monthly. CDAD Rules are to be amended accordingly upon approval by FSC.
Impact on investors: Bulgarian Central Depository AD announced details related to its forthcoming onboarding to T2S, including testing with market participants in Q2 - Q3 2023.