The IT-NUG view
Paolo Bramini
Banca d’Italia
Payment System Department
Set-up for settlement, autocollateralisation and client
collateralisation in T2S
Frankfurt , 29 November 2013
ECB
Background information
• At the end of 2012 an Italian NUG Task Force started analysing the account
set-up in T2S
• The TF, among other things, identified a major issue: a technical constraint in
the use of BIC for the CMB.
• The outcome of this analysis was submitted to the ECB in March 2013
• In June 2013 the NUG approved a CR aiming at removing this constraint for the
first release of T2S
• In July the CR was informally sent for consultation to the other Eurosystem
NCBs; in October it was formally forwarded to the CRG, which discussed it in
its October meeting; the CR is currently “on hold”
The current Monte Titoli autocollateralisation offer
Similarly to T2S the Monte Titoli settlement system Express II offers to
settlement agents access to autocollateralisation :
• in the night-time settlement procedure
• on stock (firm coll)
• on flow (self coll).
ExpressII do not offer autocollateralisation during the daylight settlement
The payment banks (PBs) with a ‘short’ cash position might access the
autocollateralisation both for its own and for its clients’ business : in other
words PBs might use their own collateral and re-use the clients’ collateral to
access the Banca d’Italia intraday credit facility.
ExpressII automatically take the collateral out from the accounts that the PBs
has earmarked. The PB might earmark its account and the clients’ ones
The current Monte Titoli clients’ account structure
Client Segregated Accounts (Conto liquidatore)
• the client is not an ExpressII participant
• the settlement agent/ custodian assigns a segregated account to its clients and also acts as PB
• the client has a contractual relationship with its settlement agent/ custodian only
Cash settlement via agent (Tramitato contante)
• the client is an ExpressII participant
• the client uses the payment bank as a cash agent
• the client has a contractual relationship with Monte Titoli for settlement and a contractual
relationship with its cash agent for cash management
Operated account
• the client is an ExpressII participant
• the payment bank provides cash and operates also (on the client’s behalf) the securities account
• the client has a contractual relationship with Monte Titoli for settlement and a contractual
relationship with its agent for cash management and for instructing and managing the securities
account
The T2S world
A link between a DCA and
the
SACs
must
be
established to ensure that
settlement
and
autocollateralisation are possible
Prior to linking a securities
account to a DCA, a Credit
Memorandum
Balance
(CMB) needs to be set-up.
Activity
A
The Payment Bank open a DCA
Responsible
NCB
B
The Central Bank creates the primary CMB as a link between the PAYMENT BANK
DCA and the PAYMENT BANK BIC8 (i.e. all the branches are included) and sets the
autocollateral limit
NCB
C
The Central Bank links the T2S Dedicated Cash Account of the Payment Bank:

to the T2S Central Bank Account which provides intraday credit to the
Securities Account to be used as regular securities account for the Central
Bank collateralisation

to the Securities Account belonging to the CB (as a CSD Participant) to be
used as receiving Securities Account for the Central Bank collateralisation
NCB
D
E
F
The Payment Bank as a CSD Participant
opens one or more securities accounts to settle its own business
The Payment Bank as a CSD Participant /Client opens one or more securities
accounts
The Payment Bank as a CSD Participant creates collateral receiving securities
account
G
The Payment Bank grants its client the access to its DCA creating the non-primary
CMB as a link between the PAYMENT BANK DCA and the BIC11 of the client and
indicating also its receiving collateral account
H
The Payment Bank client links its SACs for settlement (and collateral in case
applicable) purposes to Payment Bank’s DCA
I
The Payment Bank configures CMB credit Limits, including the one for clientcollateralisation service, for Payment Bank clients
CSD
CSD
CSD
Payment Bank
/ or NCB
CSD
Payment Bank
The current set-up …. in the T2S world
BANK AAAAITMMXXX is a PB and a CSD participant
BANK AAAAITMMXXX opens a DCA to settle its own and its clients’ business.
As far the clients’ business is e concerned, AAAAITMMXXX wishes:
• To grant credit to each client via client auto-collateralisation and/or via
secured/unsecured credit lines by setting up different limits for each client;
• To re-use the collateral received by its clients to access the CENTRAL BANK intraday
credit via autocollateral in case of lack of cash on its DCA.
To settle its clients’ business using segregated ‘credit lines’ AAAAITMMXXX cannot use
its own BIC already set in the primary CMB (where no limits are applicable)
In the following the two AAAAITMMXXX clients are therefore identified by two different
BIC11s:
• AAAAITMZXXX (so called “conto liquidatore”)
• BBBBITMMXXX (so called “tramitato contante”/ “operated account”)
The current set-up …. in the T2S world (2)
From a legal /operational point of view, we can consider:
• AAAAITMZ as a second BIC of AAAAITMMXXX bought by the participant to segregate
its client business (segregated accounts for each client /client category using specific
branch codes and linking them to the DCA via specific non-primary CMBs) ;
• BBBBITMM as the actual BIC of the AAAAITMMXXX client. BBBBITMM has its own
securities account and avails itself of AAAAITMM as a cash agent (PAYMENT BANK)
providing also collateral facilities. In this case, BBBBITMM has a contractual relationship
with the CSD for settlement in T2S and a contractual relationship with its PB for cash
and client collateralisation management in T2S.
Entities
The current set-up …. in the T2S world
NCB
CSD1
Parties
AAAAITMMXXX
CMB
Prim.
External
RTGS
Account
Accounts
AAAAITMMXXX
CMB
Security
Account
Link
AAAAITMZXXX
BBBBITMMXXX
CMB1
CMB2
CMB Security
Account Link
CMB Security
Account Link
AAAAITMMXXX
DCA
AAAAITMMXXX
A/C 1234
NCB
DCA
NCB
Reg Coll SAC
NCB
Rec Coll SAC
AAAAITMZXXX
A/C 6000x
BBBBITMMXXX
A/C 7890
AAAAITMMXXX
A/C 61234
AAAAITMMXXX
ID1
RECEIVING acc. for CLIENT coll
PROVIDING acc. for CB coll
Entities
Model 1: one CMB for several accounts in several CSDs
Parties
NCB
CSD1
AAAAITMMXXX
AAAAITMZXXX
BBBBITMMXXX
Accounts
External
RTGS
Account
CSD2
CSD3
AAAAITMMTER
AAAAITMZXXX
AAAAITMZXXX
AAAAITMMXXX
Reciving/Providing
Account
CMB1
AAAAITMMXXX
DCA
AAAAITMZXXX
A/C 6000x
BBBBITMMXXX
A/C 6000y
BBBBITMMXXX
A/C 6000z
AAAAITMZXXX
SEC. A/C
AAAAITMZXXX
SEC. A/C
CMB Security
Account Link
Slide 1
SERVIZIO SISTEMA DEI PAGAMENTI
Parties
Entities
Model 2: several accounts in several CSDs ;
one CMB for a specific client (XX2) in a specific CSD using a specific DCA (DCA2)
CSD1
NCB
AAAITMMXXX
AAAITMZXX0
AAAITMZXX1
External
RTGS
Account
CSD2
AAAITMZXX2
AAAITMZXX0
AAAITMZXX1
AAAITMZXX2
AAAITMZXXX
Reciving/Providing
Account
CMB1
CMB2
AAAITMMXXX
DCA 2
Accounts
AAAITMMXXX
DCA 1
AAAITMZXX0
A/C 60000
AAAITMZXX1
A/C 60001
AAAITMZXX2
A/C 60002
AAAITMZXX0
SEC. A/C
AAAITMZXX1
SEC. A/C
AAAITMZXX2
SEC. A/C
CMB Security
Account Link
CMB Security
Account Link
Slide 1
SERVIZIO SISTEMA DEI PAGAMENTI
Parties
Entities
Model 3: different securities accounts in different CSDs. All accounts belonging to the
same BIC11 are linked to a specific CMB, but all CMBs are linked to the same DCA
Euroclear France
NCB
::::::::
Monte Titoli
AAAAITMZnnn
AAAAITMMXXX
AAAAITMMXXX
AAAAITMZYYY
AAAAITMZ001
CMBN
Accounts
External
RTGS
Account
CMB
AAAAITMMXXX
DCA
AAAAITMMXXX
A/C 1234
AAAAITMZYYY
A/C 61234
CMB Security
Account Link
CMB1
AAAAITMMXXX
Reciving/Providing
Account
AAAAITMZnnn
SEC. A/C
AAAAITMZ001
A/C 60000x
CMB Security
Account Link
Slide 2
SERVIZIO SISTEMA DEI PAGAMENTI
Entities
Model 4: several securities accounts with the same BIC of the PB (the first 8 digits) and
two securities accounts with different BIC linked through two CMBs at the same DCA
Parties
NCB
CSD
AAAAITMMXXX
AAAAITMMXXX
Accounts
External
RTGS
Account
AAAAITMM123
CMB1
AAAAITMZ456
BBBBITMMXXX
AAAAITMMXXX
Reciving/Providing
Account
CMB2
AAAAITMMXXX
DCA
AAAAITMMXXX
A/C 1234
AAAAITMMXXX
A/C 61234
AAAAITMM123
A/C 62134
C/TERZI NOSELF
AAAAITMZ456
A/C 61234
C/TERZI SELF
CMB Security
Account Link
BBBBITMMXXX
A/C 6000y
CMB Security
Account Link
Slide 2
SERVIZIO SISTEMA DEI PAGAMENTI
The Italian NUG CR T2S 0429 SYS … background
Primary CMB is set-up by NCB using the PB’s BIC8. This implies that:
• It is not possible with only one BIC8 to manage its own business and the clients one
and segregating the exposure by using the limits : all securities accounts linked to this
DCA, associated to parties, located in any CSD, that have their first BIC’s 8 characters
equal to such a BIC8, cannot be managed through a non-primary CMB.
• It is not possible directly access the central bank collateralisation from a unique DCA by
using SACs stemming to parties with a different BIC8 (i.e. open in CSDs located in
different countries): all securities accounts linked to this DCA, associated to parties,
located in any CSD, that have their first BIC’s 8 characters different from such a BIC8,
can only be managed through a non-primary CMB
The Italian NUG CR T2S 0429 SYS
• The constraint on the primary CMB as a link between the PAYMENT BANK DCA and the
PAYMENT BANK BIC8 should be removed, allowing the link between the PAYMENT
BANK DCA and any BICs
• The possibility to use the BIC11 together with the wild card pattern should be granted.
This would ensure more efficiency in BIC allocation when payment banks wish to
segregate their client business by setting up different non-primary CMBs and, at the
same time, easing the reuse of clients auto-collateral into central bank autocollateralisation.
The technical constraint could indeed limit the possibility of a PB in its operating set-up
(notably for PBs operating through branches located in different countries, whose
different operating offices are identified by different BIC 8 in which the country code is
defined by digits 5 and 6 of the BIC).