Download 2. Pricing of T2S information services

ECB-PUBLIC
20 June 2011
T2S PROGRAMME OFFICE
09.04.01/2011/004960
ITEM 4.2
FINALISATION OF THE T2S PRICING STRUCTURE AND
PRICE LIST
1.
Introduction
The T2S Pricing Structure and the T2S Price List are part of Schedule 7 to the T2S Framework
Agreement. They have basically been stable since last November when they were last discussed in the
T2S Advisory Group (AG), the one major exception being the pricing of information services.
This note therefore presents the T2S Team’s proposal for the pricing of information services (Section 2).
At the same time, we take the opportunity of highlighting some other more minor changes to the T2S
Pricing Structure that have been made (Section 3). Lastly, the note follows-up on a question raised by one
member in the March AG meeting regarding the possible extension of ‘account allocations’ to indirect
holding markets (Section 4).
2.
Pricing of T2S information services
When the T2S Pricing Structure and Price List were last presented to the AG in November, one important
missing element was the pricing of information services. The T2S Programme Office is now ready to
present to the AG a proposal for the actual prices in euro cents and fee triggers for such services.
2.1 Underlying assumptions
There are several assumptions underlying the pricing proposal and these are described below, i.e. the
revenue target, the list of chargeable items, the expected use of information services, and lastly the
processing weight factors.
Revenue target
As agreed by the AG and approved by the Governing Council of the ECB in October 2010, it is planned
that, on average, 25% of total T2S annual revenues will be derived from information services.
Chargeable items
The complete list of chargeable items for information services is proposed to be as follows:

A2A reports (with a charge per reported business item1): The full list of A2A reports and
associated business items is presented in an annex to the T2S Pricing Schedule.

A2A queries (with a charge per queried business item): The full list of A2A queries and
associated business items is presented in an annex to the T2S Pricing Schedule.

U2A queries (with a fixed charge per executed search function).

Messages bundled into a file (with a charge per message in the file).

Transmissions (with a charge per transmission).
There are two changes compared with the November version of the Pricing structure.
First, there is a new chargeable item called “Messages bundled into a file”. This item was introduced as a
result of the need to avoid the transmission of individual messages during night-time settlement. Instead,
a file containing all messages would be sent at the end of the night-time cycle. Furthermore, the bundling
of messages into files can also be used for the sending of messages by T2S Actors to the T2S platform.
Second, a new term “Transmission” has also been introduced. It replaces the previous item “Message
subscription service”, which was not sufficiently clear that it also covers in-bound messages and some
additional communications types which are not messages (i.e. a file containing the bundled messages, an
A2A query response and an A2A report).
Use of information services
The AG Pricing Workshop of February 2011, composed of representatives from central banks, CSDs and
banks, estimated the use of T2S information services. The workshop participants focused on identifying
business needs of market participants, in particular CSDs and directly connected parties, in terms of
information services for an efficient use of T2S, based on current market practices and market data to the
extent applicable. The AG validated the report on 7 March 2011. Table 1 reports the resulting volume
estimates for the use of information services.
1
A ‘business item’ is one instance of a business entity defined in the T2S data model (e.g. settlement instruction, securities
position, intra-balance movement, liquidity transfer, cash posting, securities account, dedicated cash account etc) with all its
attributes.
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Table 1: Expected use of information services in 2016
Description
1)
2)
3)
4)
Messages sent as single messages
Messages bundled into files / business items in reports
A2A queries (reported business items)
U2A queries
Volume estimate
(millions)
1,149.99
1,452.42
705.1
5.1
Note: Estimates taken from the report of the Pricing Workshop; figures for 2014 extrapolated into 2016 (the first full
year of operation after completion of migration) with the expected volume growth rates of 6.3% resulting from the
March 2010 AG questionnaire which also underlie the Governing Council pricing decision.
The report of the Pricing Workshop is based on the assumption that it will be possible to deactivate
message subscription during night-time settlement, to be replaced with bundling of settlement related
messages into files. These volume estimates yield an exchange of 4.89 single messages and 6.28 business
items per settlement transaction (or 2.45 messages and 3.14 business items per instruction).
Processing weight factors
The 4CB has subsequently estimated the relative processing weights of the various items (i.e. how much
IT capacity will be consumed for processing a business item in an A2A report relative to a business item
in an A2A queries or an individual message) as a basis for determining the relative prices of the different
information services.
2.2 Pricing proposal
On the basis of the expected use of the various chargeable information service and relative IT processing
capacity, the T2S Programme Office has calculated the actual prices in euro cents that would be required
in order to achieve the target of 25% of T2S revenues.
Information services
A2A reports
A2A queries
U2A queries
Messages bundled into a file
Transmissions
3.
Price (euro cent)
0.4 cent
0.7 cent
10 cent
0.4 cent
1.2 cent
Explanation
Per business item in any A2A report generated
Per queried business item in any A2A query generated
Per executed search function
Per message in a file
Per transmission
Summary of other changes in the T2S Pricing Structure
This section briefly summarises the other changes or clarifications made to the T2S Pricing Structure
since December 2010 when it was previously presented to the Advisory Group.
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3.1 Pricing of Daytime Settlement Surcharge
During the workshops on the Schedule of the T2S Settlement Day, it was agreed that, after the night-time
cycle will have been completed (even if this were before the Maintenance Window starting at 3a.m.),
real-time settlement should take place. As the Pricing Structure only referred to Daytime and Night-time
settlement, it has therefore been clarified that the Daytime Surcharge will apply during a defined time
period from 07.00 to 18:00 CET and that it does not refer to batch or RTGS processing..
3.2 Account allocations
As agreed in the March AG, the fee trigger for account allocations will be a flag at the account level to
signify that the account is an “end-investor/retail investor” account.
3.3 Securities accounts
The Programme Board decided that securities accounts will be free of charge until at least the end of the
cost recovery period, i.e. September 2022. A review will take place at that time in order to determine
whether the zero charge should apply beyond 2022.
3.4 Realignment instructions
It is clarified in the T2S Pricing Structure that realignment instructions will not be charged. Such a charge
has never been intended but that has not been mentioned explicitly and thus caused uncertainty with some
market participants.
3.5 Internally generated settlement restrictions
It is clarified that settlement restrictions (i.e. intra-position and intra-balance movements) that are
internally generated by T2S will be charged. For example, a securities position may be blocked for use in
a specific DvP transaction. Once the DvP transaction is ready to settle, T2S will automatically unblock
the security position. This automatic unblocking will be charged for.
4.
Application of account allocation fees beyond direct holding markets
At the March 2011 AG meeting, one AG member mentioned that it might be difficult to properly define a
direct holding market and that account allocations should also apply for indirect holding markets under
certain conditions. It was agreed to study this question further.
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In direct holding markets, all domestic end-investors – whether they are large institutional investors or a
small retail investor – generally have their own securities accounts at the CSD. Indeed, having accounts at
the CSD at the end-investor level is often a legal requirement in these markets for domestic residents. If
direct holding markets were to adopt the “non-layered model”, all these end-investor securities accounts
would be held in T2S. In contrast, in indirect holding markets, there is no need to hold separate accounts
for end-investors at the level of the CSD. Instead, end-investors can hold their securities through a
(potentially long) chain of intermediaries. This is the key difference with direct holding markets (see
figure 1).
Figure 1. Holding of securities in direct and indirect holding markets
Direct holding structure
Indirect holding structure
CSD
End
investor
CSD
End
investor
Intermediary
Intermediary
Intermediary
Intermediary
Intermediary
Intermediary
Intermediary
Intermediary
End
investor
End
investor
Because of the account structure, a CSD in direct holding markets may have to open and manage millions
of end-investor accounts in T2S. In order to ensure cost efficiency for direct holding markets adapting to
T2S with the non-layered model and thereby comply with the ECOFIN recommendations, it was agreed
by the Advisory Group that a special “account allocation” fee would be charged for the DvP and FoP
transfers to and from accounts flagged as end-investor/retail investor accounts.
However, as mentioned by one AG member in the March meeting, indirect holding markets – depending
on their participants’ account structure – could, from an economic perspective rather than from a legal
perspective, be rather similar to direct holding markets. A global custodian in an indirect holding market
often segregates the assets of its customers at the level of the CSD, i.e. the global custodian opens and
manages an account for individual custody clients at the CSD for this custody clients’ asset protection. If
the custody client accounts are segregated at CSD level, the custodian would then have to transfer
securities at the level of the CSD.
The AG member raised the question of whether these DvP and FoP transfers between the sub-accounts of
a custodian in an indirect holding market should also benefit from the reduced “account allocation” fee.
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Introducing such a reduced fee for indirect holding markets would substantially challenge the pricing
equilibrium that forms the basis for the Governing Council’s guarantee of 15 cents per DvP instruction.
The reduced account allocation fee has been a deliberate agreement of the AG in order to cater for the
specificity of direct holding markets and to provide a level playing field between such market set-ups.
Everything else equal, if a reduced fee for transfers to/from end-investor accounts was introduced for
indirect holding markets, custodians would have very strong incentives to start segregating (if they do not
do so already) their clients’ accounts at the CSD. Although it is difficult to have a precise estimate, it is
likely that the transactions involving end-investor accounts (which could also be institutional investors)
would end up comprising a very large proportion of the overall settlement transaction volume taking
place in T2S. At the same time, the volume of transactions classified as non-end investor DvP would
significantly shrink.
Such a significant shift in volumes from DvP to account allocations would require a complete review of
the pricing structure. This would imply that the relative fee of account allocations would need to increase,
bring the price of account allocations close to the levels of the DvP/FoP instructions.
It is therefore proposed to keep the account allocation fee only available in the direct holding
markets which join T2S with the non-layered model.
If the AG agrees with this proposal, one issue remains open: the Programme Office had presented to the
AG in March 2011 different options for identifying account allocations in direct holding markets and the
AG agreed on the flag at account level. In the option chosen by the AG the flag at account level would
ideally require the definition of an objective criterion whether a market in T2S qualifies as a direct
holding market and which accounts would be eligible to bear such flag. In the absence of such criteria, the
Eurosystem after consultation of the AG in the current T2S Governance, and after consultation of the
future CSD Steering Group, the future Non-euro Currencies Steering Group and the AG in the T2S
Governance after the signature of the FA and the CPA, will have to take a view which market / which
accounts of a CSD qualify for the reduced account allocation fee. As a basic principle, a market would
qualify as a direct holding market in T2S if the market brings all end-investor accounts to T2S.
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