Download Payment and Settlement Systems – Changing Global Dynamics

Payment and settlement systems - changing dynamics
Reserve Bank of India
Pune, 30 September – 1 October 2013
T2S Programme Office
European Central Bank
0
Table of Contents
Payment and settlement systems – changing global dynamics
1
European context and challenges
2
Use of global standard for local systems
3
Global trends in the field of market infrastructure
1
EU: a single market
An area without
internal frontiers
where
goods
persons
services
capital
•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 Infrastructure
In securities and large value payment market infrastructure
EUROPE
UNITED STATES
Deutsche
Bórse
Nasdaq
OMX
Nordic
Clearing
Eurex
Clearing
EMCF
Securities
Settlement &
Asset
servicing
Clear
stream
Banking
Frankfurt
Trading
BME
Group
Iber
clear
MTFs e.g. Chji-x/
Turquoise
EuroCCP
Euronext
PT, BE,
FR, NL
LU S.E.
LCH Clearnet SA
MTFs
e.g.
BATS
London
Stock
Exchange
Borsa
Italiana
Six
Group
LCH
Clearnet
Ltd.
Cassa Di
Comp
Six-x
Clear
NSCC
Monte
Titoli
SIS
DTCC
NYSE
Nasdaq
FICC
Euroclear
VP
CSDx
Clear
stream
Banking
Luxemb.
Inter
Bolsa
BE
FI
FR
NL
SE
UK
&
IE
FED
Cash
Settlement
...
...
NCBx
...
SNB
Target2
4
EU Fragmented Infrastructure
Securities Market Infrastructure in numbers
trading
65 regulated markets
reporting
1 trade repository
clearing
settling
9 CCPs
25 CSDs
58 multilateral trading facilities
3 systemic internalisers
5
EU market infrastructure challenges

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
6
Table of Contents
Payment and settlement systems – changing global dynamics
1
European context and challenges
2
Use of global standard for local systems
3
Global trends in the field of market infrastructure
7
Use of global standards
Providing an integrated market infrastructure
For EU…
 A common platform for
payments large value:
TARGET2
ISO 20022
a common
element
 A common securities market
infrastructure: T2S
 Standardising retail payments
for creating a single euro
payment area (SEPA)
8
Use of global standards
TARGET2 migration to ISO 20022
2013
2014
2015
2016
2017
2018
Go-live
1st user
consultation
2nd user consultation
and provision of
GFS
9
Use of global standards
Maximising the reuse of investments for market participants
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)
10
ISO standard 20022: UNIFY
ISO 20022
Registration
Management Group
ISO 20022
Registration
Authority
ISO 20022
Standards
Evaluation
Groups
Securities
ISO 20022 Financial
Repository
Universal
financial
industry
message
scheme
Data
Dictionary
ISO 20022
users
Business
models
Payments
Trade services
Business
Process
Catalogue
Candidate
ISO 20022
messages
Forex
Cards
TARGET2
T2S
CLS
SWIFT
Euroclear
other
11
Use of global standard
T2S: a business case
One integrated settlement process
(domestic and cross-border)
Custodian
CSD
NCB
CSD
CSD
Market Participant
Market Participant
Market Participant
Market Participant
12
Scope of T2S
Purpose of T2S
A Service offered to CSDs for Settlement only
Registration of issuer
indebtedness and investor
holdings
e.g. coupon payments,
redemptions, stock
splits
Change of ownership
among investors
Notary
Function
Custody/
asset-servicing
Function
Settlement
Function
Banking
Function
e.g. lending and
borrowing only in some
(I)CSDs
13
Advantages of T2S for Europe
Purpose of T2S
A single pool
of securities
To harmonise
fragmented and
inefficient financial
markets
To enhance
competition in
settlement services
Making Europe a better place to trade and invest
14
Account Structure in T2S
Functioning of T2S
VALIDATION
andMATCHING
MATCHING
VALIDATION and
CSD A
CSD
A
TARGET2
SECURITIES
CENTRAL
BANK
CENTRAL
BANK
MONEY
MONEY
CSD A ACCOUNTS
NCB A ACCOUNTS
NCB A
ACCOUNTS
NCB
A ACCOUNTS
CSD
AAA
NCB
NCB
NCB
A
NCB B ACCOUNTS
NCB
ACCOUNTS
NCB BBACCOUNTS
NCB
CSD
B
NCB B
OPTIMISATION
OPTIMISATION
of
of
CENTRALBANK
BANK
CENTRAL
MONEY
MONEY
SETTLEMENT
SETTLEMENT
CSD B
CSD B ACCOUNTS
SETTLEMENT
SETTLEMENT
and
and
REALIGNMENT
REALIGNMENT
CSD C
CENTRAL
CENTRALBANK
BANK
MONEY
MONEY
CSD C ACCOUNTS
NCB C ACCOUNTS
NCB
NCBCAACCOUNTS
ACCOUNTS
NCB
CSD
NCB C
C
Other RTGS
Technical platform of all securities and cash accounts to
settle all securities transactions in central bank money
15
Optimisation Features
Functioning of T2S
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
Notary
Function
Technical
Autocollnetting
ateralisation
Partial
settlement
Additional
optimisation
algorithms
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.
16
User Connectivity
Functioning of T2S
 Two T2S network providers
to maintain competition:
- Eurosystem licensing
procedures led to
selection of SIA/Colt and
SWIFT as the two valueadded network providers
 Additionally, internet access
in U2A mode is also planned
17
The T2S Programme Plan
Status quo of T2S
SP5 SP6
Start
Mon 17/07/06
2007
2008
Preparation Phase
2009
2010
2011
2012
2013
2014
2015
2016
2017
Finish
Tue
31/07/17
Specification Phase
Development & Testing Phase
EAT
User Testing Phase (SP7-12)
Migration Phase (SP14 - 16)
SP1
SP2
SP3
SP4
SP13
SP17
T2S GoLive
We are here
 Development of software for core functions is complete
 Focus is now on testing
18
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
19
T2S governance since 1 July 2012
Non-euro
central banks’
governors /
boards
Steering
Level
Bodies
Central Bank
Decision-Making
Bodies
Status-quo of T2S
Governors’
Forum
ECB Governing
Council
T2S
Board
Technical Groups
Market
advisory
bodies
Non-euro
Currencies
Steering Group
(NECSG)
CSD Steering
Group (CSG)
National User
Group (NUG)
Advisory Group
(AG)
ECB
Operations
Managers Group
(OMG)
Project
Managers Group
(PMG)
Change Review
Group (CRG)
Reporting
Escalation
CRG reporting to CSG
Technical Groups reporting to T2S Board
20
Financial Equilibrium in T2S
Status-quo of T2S
Tariff Structure
Investment
cost
Volume
estimates
PLUS
TIMES
Running
costs
Prices
21
Market integration
A new securities settlement landscape
Three streams shaping the new European securities settlement
landscape
CSDR
22
Competition
A new securities settlement landscape
The new framework will lead to increased competition
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
CSDs regulation
Same safety and
efficiency rules all over
Europe
Harmonisation
Same market practice all
over Europe: national
boundaries will be
broken down
23
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
24
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
25
Benefits for Markets

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
26
Use of global standards
Across products…
For outside EU…
 Making Euro area market
infrastructure more
accessible for all
ISO 20022
a common
Element?
 Preparing for answering the
globalisation challenges?
27
Table of Contents
Payment and settlement systems – changing global dynamics
1
European context and challenges
2
Use of global standard for local systems
3
Global trends in the field of market infrastructure
28
Global trends in the field of market infrastructure
New 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 transactions
and assets of financial institutions
29
Global trends in the field of market infrastructure
New 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
30
Global trends in the field of market infrastructure
Capitalising on investments made
ISO 20022 for payments
Clearing & settlement
Interbank transfers
via correspondent
banking or ACHs,
high value
payments, low
value bulk
payments, RTGS,
etc.
Payment initiation
Communications
between the
ordering
customer and its
bank, etc.
Cash Management between various actors:
Account opening,
standing orders,
transaction and
account
information,
advices &
statements from …
...the account
servicing
institutions to
account owners,
including reporting
from the financial
institution…
…to the ordering
& beneficiary
customers,
reconciliation,
exceptions &
investigations
handling.
31
Global trends in the field of market infrastructure
Capitalising on investments made
ISO 20022 for securities
Securities
Issuance
Trade
Initiation,
pre-trade
Trade,
posttrade
Collateral management
Account
opening,
standing orders,
transaction and
account
information,
advices &
statements,
queries &
investigations
Collateral, repos,
securities lending &
borrowing
Clearing &
settlement
Custody
Income,
corporate
actions, market
data, proxy
voting
32
Global trends in the field of market infrastructure
Capitalising on investments made
ISO 20022 for forex
Pre-trade:
IOI,
quotes,
etc.
Notification
of trades to
third
parties
Trade:
order,
execution,
allocation,
affirmation,
etc.
Trigger
events,
option
exercises
Post-trade:
confirmation,
matching,
assignment,
novation, etc.
Clearing and
Settlement,
including
netting and
related
reporting
33
Global trends in the field of market infrastructure
Capitalising on investments made
ISO 20022 for trade services
Private and
corporate
customers
(treasurers)
Risk
management
entities
Financial
Institutions
Application
providers
Associations
providing
rules and
master
agreements
(eg IFSA, ICC)
Trade facilitators:
chambers of
commerce,
insurance co,
freight forwarders,
carriers, customs,
factoring co
34
Global trends in the field of market infrastructure
Capitalising on investments made
ISO 20022 for card and retail payments
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.
Similar messages
transacted on
internet or from
mobiles or other
personal devices
POI messages
for payments,
administrative
and device
related
services
35
Global trends in the field of market infrastructure
Other 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
36
Thank you for your attention
www.t2s.eu
@T2SECB
37
More information on T2S
www.t2s.eu
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”
38