clearing service for corporate and government bonds settling at

CCG-Links-SM-v7.2-ita-SO CCG ICSDs - Service model Page: 1

March 4th 2013

Service Model

Clearing Service for corporate and government bonds settling at ICSDs


Index

Foreword ................................................................................................................................................ 3 1. Service Model .................................................................................................................................... 4

1.1 New Bond Section ICSDs ...................................................................................................... 4 1.3 Netting of contracts and maintenance of positions ...................................................................... 6 1.4 Initial Margins .............................................................................................................................. 6

1.5 Assets eligible for Margining ....................................................................................................... 6 1.6 Default Fund .......................................................................................................................... 6 1.7 Novation, contracts acquisition and related information for Members ....................................... 6 1.8 CC&G membership in the settlement systems ........................................................................... 7 1.9 Determination and submission of the bilateral nets to the settlement systems and pre-settlement

info ..................................................................................................................................................... 7 Bilateral nets creation ..................................................................................................................... 7

Pre-settlement Info ......................................................................................................................... 8 Submission of the Instructions to the ICSDs ................................................................................. 9

1.10 Validation, matching and sequencing of instructions ........................................................... 9 1.10 Settlement Info ........................................................................................................................... 9

1.11 Settlement Period ....................................................................................................................... 9 1.12 Deliveries of Members to CC&G ........................................................................................ 10 1.13 Fail management and Buy In Execution .................................................................................. 10

1.14 Sell Out .................................................................................................................................... 11 1.15 Corporate Actions .................................................................................................................... 11

1.16 Fees, penalties and other costs suffered by CC&G .................................................................. 11 1.17 Reporting .............................................................................................................................. 11

2. Flows Scheme .............................................................................................................................. 13 3. Report for Partial .......................................................................................................................... 14


Foreword

CC&G will extend its CCP service to bonds settling in the International Central Securities Depositories (ICSDs) Euroclear Bank and Clearstream Banking Luxembourg Brussels. To this end, CC&G will benefit of the experience gained in the guarantee of similar securities settling in Express II by using, where possible, the same procedures and principals of risk management used for such securities. In particular and as shown in detail in the model:

- positions in fixed income securities that settle in Express II and in the ICSDs will be margined in an integrated manner using the methodology currently in use, with marginal changes to the management of currency risk for instruments that settle in currencies other than euro; - Margins will be required in euros under current arrangements through direct debit of of Target 2 PM accounts; - positions in fixed income securities that settle in Express II and in ICSDs will be subject to the same fail management and buy-in execution procedures; - the current default fund of the Bond Section will be extended to cover the positions of ICSDs Bond Section.

The proposed service model is currently limited to retail cash bond markets and the potential interested retail markets are EuroMOT, ExtraMOT, EuroTLX, Hi-MTF.


1. Service Model

1.1 New Bond Section ICSDs

Government and corporate bonds settling in the ICSDs will be cleared in a new Section (Bond Section ICSDs) that will complete those already existing. Following this addition, the guarantee scheme will be divided as follows: The new Section enables Clearing Members to manage their status of clearing for bond instruments with maximum flexibility. In fact, it is possible to have the same or a different membership qualification for the current and new bond section. In case of participation as a Non Clearing Member in two Bond Sections, the Non Clearing Member can appoint two different General Clearing Members.

1.2 Membership Criteria for the admission to the Bond Section ICSDs The Membership criteria for the admission to the Bond Section ICSDs are the same as for the current Bond Section, except for settlement. The Clearing Member must have access to Euroclear Bank or Cleastream LUX (or use a Settlement Agents who have access to such systems) instead of the Express II. In details: Entities admitted and capital Requirements Banks and Investment Firms may join as General Clearing Members or Individual Clearing Members if they have a Supervisory Capital of at least:

General Clearing Members: € 25,000,000, increased by a variable amount depending on the total number of Non-Clearing Members; € 5,000,000 from the second to the fifth Non-Clearing Member included or € 10,000,000 up to the tenth Non-Clearing Member included or, € 15,000,000 after the tenth Non-Clearing Member.

Individual Clearing Members: € 10,000,000.

In the event of the adoption of different membership status among the various Sections, the higher of the asset requirements indicated in the paragraphs above shall be met.

Share

Section

Derivatives

Section

Energy

Derivatives

Section

Bond Section Bond Section

ICSDs

New Current


Since the capital requirements of the two bond sections are the same, meeting the above requirements allows members to operate in both sections. Legal Persons that intend to join as General Clearing Members and Individual Clearing Member whose Asset Requirements is less than that indicated above but at least equal to € 15,000,000 and € 3,000,000, respectively, must constitute a guarantee of an amount at least equal to the difference. Members admitted to trading on the market and not complying with the above mentioned capital requirements are eligible for being Non Clearing Members. Operational Requirements Clearing Members’ requirements:

1. hold a PM account in Target 2 System for the execution of obligations, denominated in euros, arising from membership of the System

2. join the Central Depository Service if they intend to handle Margins using Financial Instruments

3. join the Settlement Services (opening an account with Euroclear Bank/ Clearstream Lux) for the final settlement of contracts guaranteed by the System Unless they use the services of a Settlement Agent as indicated here below.

For each of the requirements indicated in points 1 and 2, the same Settlement Agent must be appointed for all Sections in which the Member participates. Different Settlement Agents may, however, be appointed for different requirements. As per requirements indicated in point 3: the Clearing Member may appoint a Settlement Agent different from the one used for the other Sections, i.e. the Settlement Agent for the ICSDs can be different from the one used in Express II.

Technological and Organizational Requirements Clearing Members have to subscribe for the technological infrastructure ICWS, unless they already participate into other Sections. In this circumstance, they will be allowed to use the existing work stations. Clearing Members or their Settlement Agents shall subscribe the POA (Power Of Attorney) that entitles CC&G to send settlement instructions to the ICSDs on their behalf to EuroClear Bank or Clearstream Lux. The other subjects admitted to the trading who do not meet the above requirements may be granted the status of Non-Clearing Members. To do so they must enter into the agreement “General Clearing Member – Non Clearing Member” with a General Clearing Member.


1.3 Netting of contracts and maintenance of positions The Contractual Positions, at the time of registration in each of the accounts of the Clearing Member are cleared with the Contractual Positions already registered in the same accounts with the same characteristics.

1.4 Initial Margins The margins will be collected in euros according to the current model used. In other words, through direct debit of Clearimg Member PM accounts in Target 2. Margins on positions of the Bond Section and the ICSD Bond Section will be calculated in an integrated manner using the methodology currently used for guaranteed bonds of the Bond Section, with certain adjustments so to manage the currency risk associated with instruments that settle in currencies other than the euro. Subjects who join both the Bond Section and the ICSD Bond Section as Clearing Members or Non Clearing Members of the same General Clearing Member will benefit from the integrated margin between the two Sections resulting in lower margins to be paid to CC&G.

1.5 Assets eligible for Margining

Eligible assets for Initial Margins are cash (Euros) and Italian, French and German Government Bonds, denominated in Euro.

1.6 Default Fund

Default Fund will be unique for the Bond Section and the ICSD Bond Section. The minimum contribution to the Default Fund amount is equal to € 100.000. Payments for Default Fund may be deposited in euro and/or by guarantee provided by a guarantor. In any case at least 40% of the contribution to the Default Fund shall be deposited in euro.

1.7 Novation, contracts acquisition and related information for Members Contracts will be guaranteed by CC&G from the time of conclusion of a contract on the Market. Monte Titoli’s X-TRM Open service will be deputy to the calculation of the settlement countervalue of the trades executed, to real-time routing of contracts from the market to CC & G.

A new hourly Infra day Data file (D01D illustrated in detail in the document “CCG ICSDs – Clearing Data Services” herein attached) will be added to the existing ones


where the list of contracts settling in the ICSDs will be reported. Contracts settling in Express II will be reported in the hourly file D01C.

1.8 CC&G membership in the settlement systems CC&G will be a direct member of the settlement system by opening its own accounts at Euroclear. CC&G will hold two securities clearance account at EB: - a/c 13300 for settlement instructions - a/c 13301 for buy-in instructions

Hence, positions will be settled as follows: - Within Euroclear (Internal instructions) versus the Clearing Members having an

account in Euroclear Bank; - on a bridge Euroclear/Clearstream versus the Clearing Members having an account in

Clearstream Lux.

1.9 Determination and submission of the bilateral nets to the settlement systems and pre-settlement info

Bilateral nets creation

Clearing Members will have the opportunity to choose between two different ways of creating balances: • the "aggregate model", which will create separate balances for purchases and sales, or • the "netting model ", which will create a unique balance by adding up purchases and sales separately Members can choose between CC&G will be creating the bilateral nets related to the trading and settling at the ICSDs adopting the methodology for the creation of bilateral nets chosen by the Member on the basis of the two models as illustrated in the attached document “CCG ICSDs – Nets Creation Rules” Even if the Clearing Member opts for the “Netting Model”, in case of non-standard bilateral nets, as indicated in the following table, CC&G will be recalculating the nets using a separate aggregation method, by adding up the purchases and the sells separately. Afterwards CC&G will be submitting the related net to the ICSDs. Nets instruction submitted by CC&G to the ICSDs Securities Cash Net standard net Settlement instruction

1 delivery withdrawal Ordinary yes DVP (ordinary)

2 withdrawal delivery Ordinary yes RVP (ordinary)


3 delivery Zero just

securities

NO

Two ordinary instructions

(DVP and RVP)

determinated by the

aggregations of the sales

and the purchases

separately.

4 withdrawal Zero just

securities

NO

5 delivery delivery same

direction

NO

6 withdrawal withdrawal same

direction

NO

7 Zero withdrawal just cash NO

8 Zero delivery just cash NO

9 Zero Zero zero NO no instruction

Methodology for the creation of bilateral nets is illustrated in the document “CCG ICSDs – Nets Creation Rules” Furthermore, CC&G could be apply the shaping to the nets in case these should be above an amount pre-determined by CC&G. The thresholds will be defined for each currency. Pre-settlement Info

CC&G will make available to the Clearing Members and their Settlement Agents via ftp this pre-settlement information (also illustrated in details in the attached document “Clearing Data Services”):

- Every hour: D01D, flow related to the contracts settling in the ICSDs traded during the day. This flow will be sided to the one already existent related to the contracts settling in Express II and traded on the date;

- At the end of the day, during the night batch: D04A, flow related to the provisional balances. To each net-to-net identifier

will be associated. D01E, flow related to the contracts which contributed to the determination

of the provisional balances. A net reference will be attached to each contract which contributed to the determination of that net.

- On S-1 morning:

D04B, flow related to the “definitive” nets which will be submitted during

the day to the ICSDs. These nets will be the same as provisional flows, unless some non standard nets should occur or shaping is applied. In these cases, the new nets will be related to the previous one by the “provisional net reference” which will be reported in the “definitive nets”.

Furthermore the settlement instruction reference code (22F code of SWIFT MT54X messages) will be created by adding up to the “provisional net reference” three characters which will be used are as follows:

-The first one to indicate whether the instruction has been determined:


By the netting of sales and purchases; By the aggregation of the purchases; By the aggregation of the sales

-The last two values will have values ranging from 01 to 99 and will allow, in case of shaping, the identification of shaped instructions.

Submission of the Instructions to the ICSDs

Settlement instructions will be submitted to the ICSDs at S-1 within 12:00 CET. CC&G will send instructions through the POA and will input Members instruction in Euroclear or Clearstream.

1.10 Validation, matching and sequencing of instructions

The instructions will get matching status in the settlement systems after validation. The settlement of the instructions will follow the FIFO principle.

For further information about how the settlement procedure works, please refers to technical manuals of the respective settlement systems available on the websites: https://www.euroclear.com/site/public/EB/ http://www.clearstream.com/ci/dispatch/en/kir/ci_nav/1_settlement/020_icsd/010_types/020_bridge

1.10 Settlement Info

Clearing Members or their Settlement Agents will be receiving Settlement info directly from the Settlement System. With reference to the reconciliation of Settlement info with Pre-Settlement info, we hereby point out that the reference code assigned by CC&G to the bilateral net, and indicated in the pre-settlement flow delivered by CC&G, will be reported also in ICSDs’ settlement info. CC&G will make available for the members and their Settlement Agents the usual information related to failing positions through the clearing reports (see chapter 1.17) Please consider that CC&G will not use a specific MIC for the settlement activity.

1.11 Settlement Period The settlement date of the contract must coincide with a Target 2 open day. Settlement window for Members (Members deliveries to CC&G) will close at 14.00 hours CET.

https://www.euroclear.com/site/public/EB/

http://www.clearstream.com/ci/dispatch/en/kir/ci_nav/1_settlement/020_icsd/010_types/020_bridge

http://www.clearstream.com/ci/dispatch/en/kir/ci_nav/1_settlement/020_icsd/010_types/020_bridge


Settlement window for CC&G (CC&G deliveries to Members) will close at 17.00. However, it should be noted that CC&G will deliver until 16.00 hours CET. In more details, after the closing of Members settlement window and up to 16.00 hours CET, CC&G, on the basis of titles on his own account, will make partial deliveries to Members through a cancellation of the instruction to be reduced and the input of the two new instructions. CC&G will make available to Clearing Members and to their Settlement Agents the information related to the partial delivery through a new clearing report1.

1.12 Deliveries of Members to CC&G Clearing Member or its Settlement Agent may request CC&G to make partial deliveries to CC&G on the end of validity date, terms for which will be established later as long as the bonds are not subject to a corporate event..

1.13 Fail management and Buy In Execution

The unsettled positions at the end of the intended settlement date (so called fail) are repeated the next settlement day, until the "end of validity date" equal to ISD +102. The calculation of the end of validity date will follow the Target 2 calendar. In case of fail with settlement currency other than the euro period of repetition will also take into account the opening days of the payment system of the settlement currency of the financial instrument. Buy in management will be analogous to the one used for the fails of the Bond Section, with the following differences: On the “end of validity day” the instruction will not be automatically cancelled by the ICSDs, thus CC&G, to submit the cancellation request. CC&G will give an order to the Buy-In Agent for purchasing the Securities. Upon the receipt of the Securities themselves, CC&G will deliver them to the “in bonis” Member using a CC&G settlement account dedicated to the buy in, on the same settlement date of the settlement of the purchase made by the Buy-in Agent. The settlement of the Securities undergoing the Buy-in will be performed versus the “in bonis” member partially and during various different settlement days. In case the countervalue of the Securities purchased by the Buy-in Agent should be above the original instruction’s countervalue, the delta shall be delivered by the “in malis” member on the day following the purchase day by the Buy-in Agent:

1 Attached an example of this report.

2 The CSD Regulation currently in consultation provides that the recycling period for fail is set equal to +4

for all financial instruments. CC&G has decided to maintain the current timing for fail recycling waiting for the definition of the Regulation.


- Should the delta be in euro, by the direct debit of the Member or its Settlement Agent Target 2 account

- Should the delta be in a different currency, it shall be transferred by the “in malis” Member on CC&G Bank Account at Euroclear Bank. CC&G is evaluating the possibility to charge that amount in euro through Target 2 by applying the exchange rate between the euro and the settlement currency

As it currently works, in case the Buy-in Agent should be unable to purchase the Securities within the two following business days after the buy-in order, CC&G will be considering the Securities as not purchasable and will be triggering a Cash Settlement in Euros versus the “in malis” member and in favor of the “in bonis” member. In case on the “end of validity” day the “in bnois” Member should not receive securities and there are no conditions to trigger the Buy-in, CC&G will be delaying the delivery to the Member.

1.14 Sell Out

In case a Member should be unable to receive the securities for lack of cash, CC&G could trigger the Sell out of the unsettled securities.

1.15 Corporate Actions

Corporate Actions related to ICSDs settling trades will be automatically managed in Euroclear in case the settlement is between CC&G and a member with account at Euroclear, Should the event not be managed by Euroclear, CC&G will be taking the appropriate actions.

1.16 Fees, penalties and other costs suffered by CC&G

CC&G will be debiting failing Members for the ICSDs costs born and the penalties levied due to the Securities deposited on its account at Euroclear Bank or as a consequence of unsettled position on the intended settlement date.

1.17 Reporting CC&G will make available to Clearing Members clearing reports and data files concerning the ICSDs Bond Section through its own technological infrastructure (ICWS). Reports and Data Files will be in line with the current ones described in the Technical Manual available on CC&G website. Some enhancements are envisaged in order to take into account the distinctive characteristics of the Section, for example the settlement currency . CC&G will make available the layout of the clearing report with a further notice and update of the technical manual.


1.18 Membership Banks and Investment Firms already members of other Sections of CC&G (the Bond Section, Equity or Derivatives) can apply to new Bond Section following a simplified process by providing through BIt Club the simplified Services Request Form and providing the additional documentation. Banks and brokers that are not allowed to serve as CCP should carry membership standards. 1.19 Tests CC&G will be informing in advance by a dedicated notice the date for the tests.


.

2. Flows Scheme

EuroMOT / Market

X - TRM Trade router X - TRM

Trade router

ICSD Clearstream

ICSD Clearstream

CC&G Settlement netting CC&G

Settlement netting

Trades

Trades

ICSD Euroclear

ICSD Euroclear

Members or Settlement

Agent

Members or Settlement

Agent Trades vs settlement

Instructions

Pre & settlement info

Black: net settlement instructions Red: pre & settlement info

Real time settlement info

Pre & settlement info

Bridge


3. Report for Partial

The report is delivered to the Clearing Member or to its Settlement Agent and reports the partials done by CC&G.

Report example Ader: GKK

Parzializzazioni ICSDs RP-MD21 18LUG12 21:10:00 Pag. 1

Comparto obbligazionario- ICSDs )

CASSA DI COMPENSAZIONE E GARANZIA

Parzializzazioni del: 20LUG12

Conto: TERZI

Si informa che CC&G ha effettuato le seguenti parzializzazioni:

Data di Scadenza Titoli da Titoli da

Titolo Tipo Titolo ISIN regolamento fail consegnare ricevere Controvalore Valuta

2012072000001N01 C Deutsche Tel DE000A0GTCB9 18LUG12 03AUG12 0 100.000 100.123,23 EUR

2012072000001NP1 I Deutsche Tel DE000A0GTCB9 18LUG12 03AUG12 0 70.000 70.086,26 EUR

2012072000001NP2 I Deutsche Tel DE000A0GTCB9 18LUG12 03AUG12 0 30.000 30.036,97 EUR

end

clearing service for corporate and government bonds settling at

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