T2S is going life - is the market ready to realise the synergies? T2S INFO SESSION, Frankfurt , December 2014
: The financial industry stands in the middle of a large change process 2014 2015 2016 2017 2018 Wave 1 Wave 2 Wave 3 Wave 4 T2S timeline 5 CSDs 5 CSDs 6 CSDs 5 CSDs Basel III Basel III Leverage Ratio Minimum ratios raised gradually until Basel III Capital Basel III LCR 2019 Basel III NSFR timeline EMIR mandatory Phased approach for different asset classes clearing Timeline of other UCITS V regulations AIFMD Continuing guidance BCBS-IOSCO IM rules Optimization Planning/ Specifi- Go-live timeline of Implementation decision cation banks Today December 9, 2014 2
: Let’s hide? 09 December 2014 3
: T2S will trigger change on two levels Mandatory change Optional change Dramatic for CSDs An option awarded to market participants by the ECB Relevant for direct clients of The opportunity to reengineer CSDs cash and securities networks Limited for indirect clients of The possibility to: CSDs Pool and centralize cash and securities in fewer accounts Access infrastructure for cash and securities directly December 9, 2014 4
: Customer Involvement and Information Clearstream has been actively involving customers since 2011 to ensure community readiness for T2S T2S Customer T2S Information Business Events Board - Bilateral Meetings - Webinars - Clearstream T2S Bulletin - Workshops and Roadshows - Clearstream T2S Web Portal - User Advisory Board - Clearstream T2S Distribution List - DUG / IIG - Effektenrunde Clearstream Customer SPOC Concept Clearstream T2S Customer Task Force - The Single Point of Contact - Ensures awareness and identifies (SPOC) on customer side is the the customer’s impact basis for close collaboration within - Aligns adaptation requirements the implementation phase between Clearstream and its - Coordinates the communication of customers for the implementation Clearstream T2S related activities of T2S 09 December 2014 5
: 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 6
: T2S enables new options for market access: Consolidation and direct access Historic post-trade model Emerging post-trade model Bank / global custodian Bank / global custodian CSD(s) Agent Agent Agent Agent Agent Agent Agent Agent Agent Agent Agent Agent T2S CSD CSD CSD CSD CSD CSD CSD CSD CSD CSD CSD CSD CSD CSD CSD CSD CSD CSD CSD CSD CSD NCB acc NCB acc NCB acc NCB acc NCB acc NCB acc NCB acc NCB acc NCB acc NCB acc NCB acc NCB acc NCB account ‒ Exposure to variety of banking ‒ Exposure to CSD & central bank counterparties infrastructure ‒ Cash account and collateral fragmentation ‒ Consolidation of cash and collateral ‒ Limited settlement netting potential ‒ Improved settlement netting ‒ Complex network of operations ‒ Single point(s) of access December 9, 2014 7
: Market participants can optimize post- trade economics along 4 efficiency levers Key elements Cost & risk impact – Direct holding of securities at – Reduced commercial bank exposure Delayer 1 CSD/ infrastructure level and capital consumption settlement-related – Increase use of central bank – Reduced operational risk due to less exposures money for settlements intermediaries / direct CSD holdings – Reduced funding & collateral needs – Consolidate cash and securities 2 Pool settlement – Reduced balance sheet and capital holdings, overcoming collateral collateral consumption fragmentation – Reduced fees for settlement lines – Reduced funding & collateral needs 3 – Optimize netting of payment and – Reduced balance sheet and capital Net settlements settlement flows consumption and market risk – Reduced fees for settlement lines – Single point(s) of access to a 4 Simplify – Reduced operational costs and fees range of markets – Standardized settlement, payment – Reduced operational risks operations and custody processes/messages Source: Oliver Wyman analysis December 9, 2014 8
: 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 Don’t know 5. 9
: T2S will trigger change on two levels Mandatory change Optional change Dramatic for CSDs An option awarded to market participants by the ECB Relevant for direct clients of The opportunity to reengineer CSDs cash and securities networks Limited for indirect clients of The possibility to: CSDs Pool and centralize cash and securities in fewer accounts Access infrastructure for cash and securities directly December 9, 2014 10
OneClearstream : Clearstream T2S solutions: Network strategy and eligible securities − CBL will consolidate OneClearstream Customer holdings in T2S-in securities in a CBF account for Access to 54 Markets settlement via T2S − CBF will Clearstream Clearstream to all T2S in CSDs consolidate client Banking Banking Direct links holdings in T2S T2S-in Frankfurt Luxembourg out securities in a markets CBL account for settlement in CBL Issuer CSD for Issuer CSD for T2S-out Domestic and in domestic German International links markets / markets Securities Securities Global − Clearstream will Markets CeBM CoBM make a range of Settlement Settlement T2S-out securities, both Eurobonds and domestic By consolidating holdings in one location, clients will be able to securities, T2S significantly reduce their credit and liquidity consumption eligible 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. 11
Clearstream’s ICSD : Clearstream T2S solutions: ICSD Your window to T2S and markets worldwide 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, T2S markets Global markets CBL has close links with Banque Centrale de Luxembourg CBL and CBFI give harmonised access to all T2S-in markets with payment in commercial bank money 12
Clearstream’s ICSD : Clearstream ICSD markets access A single gateway to all T2S and global markets through Clearstream’s ICSD solution CBL leverages Clearstream’s unique investor Customer CSD model with close to markets deadlines to allow customers to reduce the complexity and costs of their market connections: Clearstream Banking Luxembourg (CBL) – Customers can hold T2S-in and out securities on one single account at CBL Clearstream investor CSD model – CBL centralises all T2S-in holdings in one account in the CBF investor CSD CBF – CBF acts as an investor CSD with an CSD n account at each in-CSD CSD Z International CSD Y – market Cash pooling in single commercial bank CSD X money account at CBL Issuer CSDs Global markets TARGET2-Securities 13
: Clearstream T2S solutions Pan-T2S Investor CSD Clearstream is the single largest constituent CSD of T2S (40%). All trades flow Customer directly from CBF to T2S All cash legs and income settle directly on the client’s central bank Clearstream Frankfurt as Investor CSD account All positions held CBF either as issuer CSD All other (Germany) or via direct Nether- France Belgium Italy Spain T2S-in lands links of CBF to the Issuer CSDs CSD (other T2S-in markets) A simple and safe model T2S involving no unnecessary layers, risks, or processing delays 14 October 15, 2014
: Clearstream T2S solutions: LuxCSD - Delivery of fund shares into T2S 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 15
: CBL’s CFF Solution: Helping offshore funds to access T2S Commercial Bank Money access to T2S - Fund issuers who do not need access to central bank money can access LuxCSD and T2S through their current Transfer Agent CFF CFF link into CBL. T2S - This means that with a CFF link, fund issuers are ready today to distribute their funds into T2S as well. The decision how to access T2S remains with the TA/Fund 16
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