T2S and corporate T2S and corporate actionsactions

CorpActions 2011CorpActions 2011

5 July 20115 July 2011

Hugh Simpson Hugh Simpson Advisor, T2SAdvisor, T2S

www.t2s.euwww.t2s.eu

Questions to answerQuestions to answer

Why is T2S happening?

How will it work?

Who is involved?

What does it mean for corporate actions?

Why?Why?

To achieve a

Harmonised

Integrated and

Efficient

Settlement infrastructure for

All European securities in

Euros and other currencies

How?How?

T2S will be a central IT platform

Operating securities accounts on behalf of CSDs

Operating cash accounts on behalf of central banks

With sophisticated facilities for transactions between these accounts

CSDs and central banks

“Out-source” their accounts to T2S

Remain legally responsible

And provide any additional value-added services

T2S will charge €0.15 per side for a DVP transaction

Starts in September 2014

Who?Who?

Developed and financed by the Eurosystem

30 CSDs have signed MoU with T2S:

All euro area CSDs

8 EU, non-euro CSDs (Denmark, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Sweden, the UK)

3 non-EU CSDs (Iceland, Norway and Switzerland)

Outside the euro area: Central banks of Denmark, Lithuania, Norway, Sweden,

Switzerland and UK are discussing participation of their currencies

What does it mean What does it mean for corporate actions?for corporate actions?

T2S is a settlement engine.

It provides the key elements required for settlement:

accounts for cash and securities; and

the means to make movements between them

It is not an asset servicing system

But it is a driver of harmonisation

The account holding relationship remains between the account-holder and the CSD

The results of CAs, delivering or exchanging cash and/or securities, can use the T2S mechanisms

Consider implications of T2S for CAs on stocks and on flows

CAs on holdingsCAs on holdings

Responsibility for identifying and notifying beneficiaries of CAs, collecting their elections remain with account-holding CSDs

Transfers of cash and securities processed through T2S

T2S standards based on recommendations of CAJWG

Benefits from T2S:

Use of a single cash account to receive distributions across multiple CSDs

T2S as a driver for harmonisation in CA processing

Potential for a single entry point

T2S and CAs on flowsT2S and CAs on flows

Market claims, transformations and buyer protection may arise when a transaction is pending during the period of a CA

T2S Advisory Group mandated CASG to work on CAs transaction management standards

CASG has developed “T2S Corporate Action Standards”

Market claims

Transformations

Buyer protection

Approved by the AG in September 2009: see

http://www.ecb.europa.eu/paym/t2s/governance/ag/html/subcorpact/index.en.html

CSDs obliged to comply by January 2014

9

Market ClaimsMarket Claims

Concept of Instruction Owner CSD (IOC): responsible for detecting and instructing market claims in T2S

IOC is defined as the CSD that provides the securities accounts on which the participant has sent an underlying instruction

There are always two IOC per transaction. Could be either the Issuer or the Investor CSD taking up the role.

Obligation for participating CSDs to adopt harmonised approach

10

CCPs or IOCs will manage transformations

Counterparties can choose to opt-out (new additional matching field)

Transformations triggered by IOCs/CCPs

Matched locally or in T2S

TransformationsTransformations

11

As per CAJWG standards, CSDs not obliged to offer buyer protection (BP) for their securities

If CSDs offer BP, they must comply with standards and deadlines

If an issuer CSD offers BP, the investor CSDs which have chosen to hold its securities should also offer BP

If two investor CSDs offer BP, but the issuer CSD does not, then BP functionality can still be used

Detection of BP instructions takes place outside of T2S; only resulting settlement of BP agreement is processed in T2S

Upward harmonisation

Buyer ProtectionBuyer Protection

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Compliance with T2S standardsCompliance with T2S standardsfor CAs on flowsfor CAs on flows

Summary - Percentage Compliance per Country

12%

0%

24%

15%

0%

53%

0% 0%

37%

0%

24%

0% 0%

15%

0%

37%

0% 0% 0% 0%

24%

0%

10%

41%

0% 0% 0% 0% 0%

69%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Source: CASG 2010 survey

What are the implications of What are the implications of T2S?T2S?

Investors and issuers can look at Europe as a single space

Choices for investors about how to participate in T2S Outsource everything to custodian/agent bank(s) – as now Consolidate activity in one CSD Direct participation in multiple CSDs for settlement and asset

servicing Use different solutions for settlement and asset servicing

Potential for a fundamentally different market structure Lower barriers for entry – as CSD? New opportunities in asset servicing? More choice for issuers?

www.t2s.euwww.t2s.eu