T2S is going life - is the market ready to realise the synergies? - - PowerPoint PPT Presentation

T2S is going life - is the market ready to realise the synergies?

T2S INFO SESSION, Frankfurt, December 2014

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T2S timeline Basel III timeline Timeline of

• ther

regulations Optimization timeline of banks

Phased approach for different asset classes Minimum ratios raised gradually until 2019

Basel III LCR Wave 1 5 CSDs Wave 2 5 CSDs Wave 3 6 CSDs Wave 4 5 CSDs

Today

The financial industry stands in the middle of a large change process

Basel III Capital

2014 2016 2017 2015 2018

Basel III Leverage Ratio Basel III NSFR UCITS V

Continuing guidance

EMIR mandatory clearing AIFMD BCBS-IOSCO IM rules

December 9, 2014 2

Go-live

Planning/ decision Specifi- cation Implementation

: 09 December 2014 3

Let’s hide?

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Optional change

• An option awarded to market

participants by the ECB

• The opportunity to reengineer

cash and securities networks

• The possibility to:
• Pool and centralize cash and

securities in fewer accounts

• Access infrastructure for cash and

securities directly

T2S will trigger change on two levels

December 9, 2014 4

Mandatory change

• Dramatic for CSDs
• Relevant for direct clients of

CSDs

• Limited for indirect clients of

CSDs

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Customer Involvement and Information

Clearstream has been actively involving customers since 2011 to ensure community readiness for T2S

T2S Customer Business Events

• Bilateral Meetings
• Webinars
• Workshops and Roadshows
• User Advisory Board
• DUG / IIG
• Effektenrunde

T2S Information Board

• Clearstream T2S Bulletin
• Clearstream T2S Web Portal
• Clearstream T2S Distribution List

Clearstream Customer

Clearstream T2S Customer Task Force

• Ensures awareness and identifies

the customer’s impact

• Aligns adaptation requirements

between Clearstream and its customers for the implementation

• f T2S

SPOC Concept

• The Single Point of Contact

(SPOC) on customer side is the basis for close collaboration within the implementation phase

• Coordinates the communication of

Clearstream T2S related activities

09 December 2014 5

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Q1: Is your organization ready for T2S?

• 1. Yes, we are ready
• 2. We will be ready when our market migrates
• 3. No, we are not ready
• 4. We have no need to adapt to T2S
• 5. Don’t know

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T2S enables new options for market access: Consolidation and direct access

T2S Bank / global custodian CSD(s) CSD CSD CSD CSD CSD CSD CSD CSD CSD NCB account

Emerging post-trade model Historic post-trade model ‒ Exposure to variety of banking counterparties ‒ Cash account and collateral fragmentation ‒ Limited settlement netting potential ‒ Complex network of operations ‒ Exposure to CSD & central bank infrastructure ‒ Consolidation of cash and collateral ‒ Improved settlement netting ‒ Single point(s) of access

December 9, 2014 7 NCB acc NCB acc NCB acc NCB acc NCB acc NCB acc NCB acc NCB acc NCB acc NCB acc NCB acc NCB acc Bank / global custodian CSD Agent Agent CSD Agent CSD Agent CSD Agent CSD Agent CSD Agent CSD Agent CSD Agent CSD Agent CSD Agent CSD Agent CSD

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Key elements Cost & risk impact

– Direct holding of securities at CSD/ infrastructure level – Increase use of central bank money for settlements – Reduced commercial bank exposure and capital consumption – Reduced operational risk due to less intermediaries / direct CSD holdings – Consolidate cash and securities holdings, overcoming collateral fragmentation – Reduced funding & collateral needs – Reduced balance sheet and capital consumption – Reduced fees for settlement lines – Optimize netting of payment and settlement flows – Reduced funding & collateral needs – Reduced balance sheet and capital consumption and market risk – Reduced fees for settlement lines – Single point(s) of access to a range of markets – Standardized settlement, payment and custody processes/messages – Reduced operational costs and fees – Reduced operational risks

Market participants can optimize post- trade economics along 4 efficiency levers

Delayer settlement-related exposures Pool settlement collateral Net settlements Simplify

• perations

1 2 3 4

December 9, 2014 8 Source: Oliver Wyman analysis

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Q2: Do you have a strategy to re-engineer / consolidate your cash and security networks?

1. Yes, we will centralize more business in one or several T2S investor CSDs 2. We are still working on a strategy to consolidate business more 3. Not yet. We plan to wait till T2S is life and will then decide our strategy 4. No, we have no plan to change our securities agent and cash correspondent networks 5. Don’t know

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Optional change

• An option awarded to market

participants by the ECB

• The opportunity to reengineer

cash and securities networks

• The possibility to:
• Pool and centralize cash and

securities in fewer accounts

• Access infrastructure for cash and

securities directly

T2S will trigger change on two levels

December 9, 2014 10

Mandatory change

• Dramatic for CSDs
• Relevant for direct clients of

CSDs

• Limited for indirect clients of

CSDs

: 11

Clearstream T2S solutions: Network strategy and eligible securities

− CBL will consolidate holdings in T2S-in securities in a CBF account for settlement via T2S − CBF will consolidate client holdings in T2S

• ut securities in a

CBL account for settlement in CBL and in domestic markets − Clearstream will make a range of T2S-out securities, both Eurobonds and domestic securities, T2S eligible

OneClearstream

By consolidating holdings in one location, clients will be able to significantly reduce their credit and liquidity consumption

CBF plans to establish links to all other In-CSDs to which it currently does not have a link after its migration to T2S in wave 3.

T2S-in markets T2S-out markets / Global Markets

Clearstream Banking Frankfurt

Issuer CSD for German Securities CeBM Settlement

Clearstream Banking Luxembourg

Issuer CSD for International Securities CoBM Settlement

Access to 54 Markets

Domestic links Direct links to all T2S in CSDs

OneClearstream Customer

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T2S markets Global markets

Clearstream T2S solutions: ICSD

Your window to T2S and markets worldwide

Clearstream’s ICSD

CBL and CBFI give harmonised access to all T2S-in markets with payment in commercial bank money The ICSD solution – Clearstream Banking Luxembourg (CBL): – Centralised access point to T2S and global markets (55 markets and 43 currencies) – Tested model with limited migration costs – Best-in-class Asset Servicing provided in partnership with leading local agents – Leading global collateral management – Safety and regulatory compliance of a primary market infrastructure provider with Securities Settlement System (“SSS”) status and regulated by CSSF and BAFIN – Based in Luxembourg, a AAA rated country, CBL has close links with Banque Centrale de Luxembourg

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CBL leverages Clearstream’s unique investor CSD model with close to markets deadlines to allow customers to reduce the complexity and costs of their market connections: – Customers can hold T2S-in and out securities on one single account at CBL – CBL centralises all T2S-in holdings in one account in the CBF investor CSD – CBF acts as an investor CSD with an account at each in-CSD – Cash pooling in single commercial bank money account at CBL

Clearstream ICSD markets access

A single gateway to all T2S and global markets through Clearstream’s ICSD solution

Clearstream’s ICSD

TARGET2-Securities Clearstream investor CSD model

Clearstream Banking Luxembourg (CBL)

CBF Issuer CSDs

CSD n CSD Z CSD Y CSD X

Customer

International market Global markets

: October 15, 2014

Clearstream T2S solutions Pan-T2S Investor CSD

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Clearstream is the single largest constituent CSD of T2S (40%). All trades flow directly from CBF to T2S All cash legs and income settle directly on the client’s central bank account All positions held CBF either as issuer CSD (Germany) or via direct links of CBF to the Issuer CSD (other T2S-in markets) A simple and safe model involving no unnecessary layers, risks, or processing delays

Customer

T2S

France

Clearstream Frankfurt as Investor CSD

Belgium Nether- lands Italy Spain All other T2S-in CSDs

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T2S access through a single point of access

• Harmonised infrastructure
• Simplified

reconciliation without realignment needs

• Access to the complete T2S environment
• Central bank money where available i.e.

€ initially and DKK in 2018

• Commercial

bank money where necessary

• Dedicated services for funds e.g. reports
• Co-existence with delivery of fund shares

in the register for e.g. Asian investors

Clearstream T2S solutions: LuxCSD - Delivery of fund shares into T2S

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CBL’s CFF Solution: Helping offshore funds to access T2S

• Fund issuers who do not

need access to central bank money can access LuxCSD and T2S through their current CFF link into CBL.

• This means that with a CFF

link, fund issuers are ready today to distribute their funds into T2S as well.

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Transfer Agent

T2S CFF

Commercial Bank Money access to T2S

The decision how to access T2S remains with the TA/Fund

: 17 17 9 December 2014

Clearstream T2S solutions: Integrated collateral pool in the Global Liquidity Hub

«OneClearstream» ICSDs & CSDs

Other T2S CSDs Local Agents

CSD/T2S and Central Bank Money Settlement ICSD and Commercial Bank Money Settlement

Global Custodian s Other I-CSDs Local Agents Global Custodian s

From a single Collateral Management Interface

• Locating eligible collateral

where it is deposited

• Beyond borders and

asset classes

• In partnership with the

actual collateral depositories Ensuring …

• Open-architecture
• Inventory management
• On-line access
• Real-time monitoring
• Flexible criteria
• Transparent processes
• Legal-soundness

: 18 18 October 15, 2014

Clearstream T2S solutions: Integrated lending pool across ICSD and T2S

OneSecLend – building a single lending pool

«OneSecLend» for ICSDs & CSDs

CSD/T2S and Central Bank Money Settlement ICSD and Commercial Bank Money Settlement

Borrowers Borrowers Borrowers Borrowers Borrowers Borrowers Lenders Lenders Lenders Lenders Lenders Lenders

• Fails Lending
• Street Lending
• Principal model
• Agency structure + CCP

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‒ Single Client connectivity access ‒ CoBM settlement currently for 52 global markets and Eurobonds ‒ CeBM settlement for T2S markets ‒ One Clearstream asset services ‒ Single asset pool across ICSD and CSD with integrated collateral management and fund services

How it all comes together

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• 5. Asset services – One Clearstream

Clearstream Customer

Global Securities Financing Investment Funds Services

CSD IN (T2S CeBM)

CSD 1 CBF omnibus a/c CSD 2 CBF omnibus a/c CSD 3 CBF omnibus a/c

Investor CSD

(CoBM & CeBM settlement)

Asset servicing

CSD OUT (ICSD CoBM)

US ASIA OTHERS

ICSD

(CoBM Settlement)

Local Partners

Single client connectivity

: Example footnote

So where are we heading?

6-12m 3-6m 12-18m Readiness window Planning/ decision Implemen- tation Specification/ preparation Timeline variation will depend on the number of domestic markets to be consolidated as well as existing operational complexity

Expected post-trade optimization timeline for banks

2014 2016 2017 2015 Today

~80% of settlement instructions

• n T2S after

wave 3

December 9, 2014 20

~2 years

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Q3: To me T2S is…?

1. A lot of work 2. An opportunity to run our business in a better way 3. An opportunity to offer new products and services 4. The promise of a more competitive market 5. The threat of a more competitive market 6. All of the above

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