Business cases for Securities Transaction type codes currently not supported by allegement messages Feedback from Euroclear Business Case ‐ Securities Transaction type codes Without allegement According to ISO standards, the following Securities Transaction type codes can be used in inbound settlement instructions (ISO 20022 sese023 message, or ISO15022 MT540, MT541, MT542, MT543). However they are not in the scope of settlement allegement messages (ISO 20022 Securities Settlement Transaction Allegement Notification or ISO15022 MT578 and ISO 20022 SecuritiesSettlementTransactionAllegementReport or ISO15022 MT586). Definition Securities Transaction type (Source: Message Reference Guide codes SecuritiesSettlementTransactionInstruction002V05 (sese.023.002.05) Borrowing Reallocation [SBRE] Depository Receipt Conversion [CONV] Depository Receipt Release Cancellation [RELE] Factor Update [FCTA] Issuance [ISSU] Lending Reallocation [SLRE] Mark Down [MKDW] Internal reallocation of a borrowed holding from one safekeeping account to another Relates to a depository receipt conversion. Relates to a release (into/from local) of depository receipt operation. Relates to a factor update Relates to the issuance of a security such as an equity or a depositary receipt. Internal reallocation of a holding on loan from one safekeeping account to another. Relates to the decrease of positions held by an International Central Securities Depository (ICSD) at the common depository due to custody operations (repurchase, pre‐release, proceed of corp. event realigned). Definition Securities Transaction type (Source: Message Reference codes SecuritiesSettlementTransactionInstruction002V05 (sese.023.002.05) Mark Up [MKUP] Guide Relates to the increase of positions held by an International Central Securities Depository (ICSD) at the common depository due to custody operations (repurchase, pre‐release, proceed of corporate event realigned). Relates to a movement of shares into or out of a pooled account Relates to the issue of medium and short term paper (CP, CD, Non Syndicated [NSYN] MTN, notes ...) under a program and without syndication arrangement Relates to the return of financial instruments resulting from a Return Delivery Without rejected Matching [RODE] delivery without matching operation. Sell Buy Back [SBBK] Relates to a sell buy back transaction. Syndicate Underwriters Relates to the issue of financial instruments through a [SYND] syndicate of underwriters and a lead manager TBA Closing [TBAC] Relates to a To Be Announced (TBA) closing trade Relates to the withdrawal of specified amounts from specified Withdrawal [REDI] subaccounts Move Of Stock [INSP] As a result, if one of these codes is used in a ‘to be matched’ settlement instruction, no allegement is produced towards the counterparty (the ISO transaction code being a ‘mandatory’ data within allegement messages). We understand that current standards are based on the following assumptions: ‐ These codes are always used in transaction without matching and / or ‐ They involve the same counterparty on both debit and credit sides ‐ Even though external counterparties are involved, the practice is to use FOP without matching Therefore it was considered that their presence in allegement messages was unnecessary. Euroclear has consulted its clients in the 3 ESES CSDs (Euroclear France, Euroclear Belgium, Euroclear Nederlands) about the relevance of this rule in the context of their adaptation to T2S. It received the feedback that this restriction should be removed in the next applicable ISO release. The reasons behind are both from a general and specific business natures ‐ When a range of values is defined for a given data in ISO messages, it should be the same across all messages. Managing different sets of values for the same data is a source of complexity and of errors for end users ‐ The choice to instruct with matching or without matching, with internal or external counterparts should be left at the discretion of the user, regardless of the ISO transaction code. Current rule results in restrictions in the usage of related ISO codes. Some clients indicated that they use default ISO codes (such as TRAD) because of this rule, while they would have preferred to use the appropriate ISO code to ease reconciliation ‐ This change becomes more critical in the context of T2S adaptation. T2S business rules make it mandatory to use matching with external counterparties. Existing scenarios where the user can transfer securities without matching to a counterpart using such ISO codes cannot continue with T2S. ‐ As far as business scenarios are concerned, hereafter some scenarios that imply the use of these ISO codes in to be matched instructions with external counterparties. Most of them relate to issuance situations eg o the issuer agent issues securities (by debiting dedicated issuance account) and delivers them onward with matching to a counterpart through a single instruction (ISO codes ISSU, MKUP) o same process may apply in the context of new issues / Primary market distribution (ISO codes NSYN, SYND) o in the context of Depositary Receipts conversion instruction by the DR agent can be linked to the delivery of DRs to a holder (CONV code) request of cancellation can be linked to the delivery of DRs to the DR agent (ISO code RELE) Feedback from NBB‐SSS Business case where we need sese.028 for MKUP and MKDW. It’s in case of stripping/reconstitution request x‐border. Without this sese.028, the Belgian Debt Agency is not be made aware stp of the request and cannot start automatically its processing. In case of stripping request (MKDW of an OLO), the BDA generates accordingly strips for the participant x‐border (so the instructions cannot be sent already matched to T2S). Those instructions have MKUP as iso transaction. So this party will not receive sese.028 and cannot match them. In case of reconstitution request (MKUP of an OLO), the BDA destroy accordingly strips for the participant x‐border (so the instructions cannot be sent already matched to T2S). Those instructions have MKDW as iso transaction. So this party will not receive sese.028 and cannot match them.