ISO 20022 Messaging Solutions Collateral Management January 16 th - PowerPoint PPT Presentation

ISO 20022 Messaging Solutions Collateral Management January 16 th 2018 - Fifth meeting of the AMI-SeCo HSG’s Collateral Management Harmonisation Task Force (CMH-TF)

ISO 20022 and ISO 15022 Collateral Management offering What is available… • Current offering consists of two suite of messages, addressing both “bilateral” & “triparty” message standardisation requirements. – Bilateral Collateral Management messages are based on ISO 20022 development methodology covering x-asset & x- segment, life cycle activity – Clearing (ISO 20022) a few ISO 15022 MTs not used, background Triparty Collateral Management messages are based on ISO 15022 Standards & in use for more than 10 years, globally. 2

Processes Coverage Messaging solutions Multi asset class Business line agnostic Bilateral Collateral Fully STP Upstream Management • Margining • Eligibility • ISO 20022 • MX Messaging CCP – Cleared flow Clearing member Buy side Interoperable Standardised Tri-Party Collateral Collateral Management Management • ISO 15022 • MT Messaging Bilateral (I) CSD flow CSD (I)CSD flow Settlement and Securities messages Downstream Reconciliation Cat 5 • Settlement • ISO 15022 / 20022 Equities / FI • Reporting • MT / MX Messaging • Reconciliation • Status linked reporting • Asset movement Payment messages Cat 1,2 Statements Cat 5, 9

Positioning of current ISO 20022 and ISO 15022 messaging offering Upstream Business Models… Collateral management ecosystem Non -Clearing Members 1..n Custodians 1…n Exchanges/MTFs/OTFs/OTC Banks/ Broker- 1…n dealers 1…n Financial institution Corporates 1…n ACTING AS: ACTING Trading party AS: General A Clearing Member B ACTING AS Financial Clearing House (CCP) : Triparty Institutions 1…n 1…n Service Participant Collateral Management Agents 1…n C Buy-side 1…n A Bilateral Collateral Management (x-asset & x-segment) Triparty Collateral Management Bilateral Collateral Management B 1…n (CCP coverage) Triparty Collateralisation C Triparty Collateral Management 4 Buy-side 1…n

Bilateral Collateral Management Solution • Provides an end to end electronic messaging solution around collateral processes • Cross asset & cross Issuance of a margin call segment solution, complementary with Collateral negotiation downstream settlement processes (Dis)Agreement of collateral Dispute notification • Enables monitoring & Reporting mobilisation of collateral in Substitution the business chain • Development based on ISO 20022 methodology • Complementary to Clearing solution, addressing the communication needs of CCP to GCM/ICM and NCMs 5

Bilateral Collateral Management Messaging Solution Collateral Management Process Collateral Margin Call Collateral Dispute Interest Initiation of Deal Reporting Initiation Negotiation Notification Processing Substitution underlying deal Closing ISO 20022 messages Margin Call Collateral Dispute Substitution Reconciliation Interest Proposal Processing  Margin Call  Collateral  Collateral  Interest Payment  Margin Call  Collateral Proposal Dispute Notification Substitution Request Exposure Request (colr.013) Request (colr.007)  Interest Payment (colr.009) (colr.10) Report (colr.003)  Collateral Proposal  Collateral (colr.016) Response (colr.014)  Margin Call Response  Interest Payment Substitution Response (colr.008) Response (colr.011) Statement (colr.004)  Collateral (cole.015) Substitution Confirmation (colr.012) Generic messages : Collateral Management Cancellation Request, Collateral Management Cancellation Status 6

CCP Clearing Messaging Solution Clearing Trade management House 1 Non -Clearing Members 1 Position management Reports Clearing Non -Clearing Settlement management Rec House 2 Members 2 Clearing Risk & Collateral … Member Firm … management Statements Others ie Buy-in etc Non -Clearing Members n Clearing House n • New messaging solution based on ISO 20022 methodology • Servicing the communication and standardisation requirements of Clearing houses and GCM/ICM/DCM for cash markets (FI & equities) 7

CCP Clearing Messaging Solution CCP Clearing Messaging Solution Risk & Interest Trade Position Settlement Assignment of trade Collateral Others Processing Management Management Management to CCP Management ISO 20022 messages Trade Position Settlement Risk & Collateral Others Interest Processing Management Management Management Management  Trade Leg  Net Position (secl.004)  Collateral Proposal  Default Fund  Interest Payment  Settlement Obligation  Margin Report Notification (colr.007) Contribution Request (colr.013) Report (secl.010)  Collateral Proposal  Interest Payment (secl.001) (secl.005) Report (secl.006)  Securities  Trade Leg  Margin Call Request  Buy-in Response (colr.008) Response (colr.014) Transaction Pending  Collateral  Interest Payment Statement (colr.003) Notification Report (semt.018)  Margin Call (secl.003) Substitution Request (secl.007) Statement (colr.015)  Bank To Customer  Trade Leg  Buy-in Response Response (colr.004) (colr.010) Account Report  Margin Call Dispute  Collateral Notification (secl.008) (camt.052)  Buy-in Notification (colr.009) Cancellation Substitution Response  Bank To Customer (secl.002) (colr.011) Confirmation Statement (camt.053)  Collateral (secl.009) Substitution Confirmation (colr.012)  Collateral Management Cancellation Request (colr.005)  Collateral 8 Management

Most used messages on the SWIFT Network Automated Margining and Substitution – Using ISO 20022 Colr. and Secl. series messages

Most used messages on the SWIFT Network Automated Reporting – Using ISO 15022 Settlement and Reconciliation messages 10

Automated Reporting – Using commonly used ISO 20022 Settlement and Reconciliation messages 11

Automated Reporting – Using ISO 20022 Colr. series messages 12

Triparty Collateral Management Messaging Solution Collateral Management Process Margin Call Exposure and Matching & Initiation of Claim Deal Initiation & Collateral Collateralisation Reporting underlying Return Closing Status Mark-To-Markets Status deal ISO 15022 Messages Margin Call & MTM & Collateral Status update Reporting Claim Status Valuation  MT527  MT569  MT558  MT569  MT527 Triparty Triparty Collateral Triparty Triparty Collateral Triparty Collateral Collateral and Exposure Collateral and Exposure Instruction  MT558 Instruction Statement Status Advice Statement Triparty Collateral Status Advice • Life-cycle of a triparty transaction: from matching to settlement • Complies with regulatory requirements (US FED) • Provides real time instruction, status and collateral position reporting • Implemented by more than 150 institutions globally, facilitates single- window approach through Standards and SWIFT network 13

Triparty Collateral – basic scenario Party A Party B “Lending / borrowing deal” I need cash, I ‘exchange’ I have surplus cash, I this for ISIN A ‘exchange’ this for ISIN A I need collateral for the I must give collateral for ISIN (collateral taker) the ISIN (collateral giver) MT 527 MT 527 This is the deal I made, I ‘lend’ ISIN This is the deal I made, I ‘borrow’ A to party B. I instruct you to move ISIN A from party A. I instruct you Triparty Agent the ISIN to party B and to to move the ISIN from party A and collateralise the exposure, that is, to collateralise the exposure, that Match = YES to get collateral from Party B is, to give collateral to Party A. Checks = OK MT 558 MT 558 Securities + cash movement MT 569 MT 569 There may be various MT 54x + payment messages to move securities & cash to the appropriate accounts 14

Triparty Collateral in context of CCP Links CCPs using triparty agents to handle collateral management operations • Due to the regulatory push Trade Exchange or MTF towards CCP Clearing for agreement standardised products, there is & Novation an additional demand on high quality collateral Lender Borrower • In order to leverage their Clearing House Clearing Member security holdings & meet the (GCM/DCM margining timelines with (eg Bank/B/D)) required quality of collateral, Instruction (MT 527) Margin Instruction (MT 527) market participants are looking Management to leverage their triparty & Reporting Status & Status collateral management Reporting & Reporting arrangements vis a vis the CCPs. (MT 558, MT 569) (MT 558, MT 569) Triparty Collateral Management Agent 15