Activities

A total of 24 T2S harmonisation activities have been identified, i.e. areas where action is needed to harmonise the T2S environment and maximise its efficiency. Activities are managed by the T2S team at the ECB under the guidance of the Harmonisation Steering Group and the endorsement of the T2S Advisory Group.

The T2S harmonisation list provides a short overview of all activities, their objectives, the responsible monitoring actors, the implementation deadline, and the monitoring process required (see Annex 2 of the Sixth T2S Harmonisation Progress Report).

In addition, the T2S community agrees on best practices for the T2S markets, aimed at increasing cross-border efficiency in T2S. Although these practices are not part of the T2S harmonisation activities, T2S actors are encouraged to support and adopt them in order to foster settlement efficiency.

Activities are broken down into "priority 1" and "priority 2".

Priority 1 activities

Priority 1 activities are necessary to ensure efficient and safe cross-CSD settlement in T2S. The HSG and the T2S team should focus on these activities as first priorities for resolution and implementation prior to the launch of T2S.

1. T2S ISO 20022 messages

T2S standard

T2S actors will communicate with the T2S technical platform using a set of ISO 20022 compliant messages (130 messages in total) – customised to the specific needs of T2S. The full catalogue is presented in Section 3 of UDFS v. 1.2.1 .

The objective of this activity is to monitor the development and implementation of the T2S ISO 20022 messages.

2. T2S mandatory matching fields

T2S standard

T2S Actors are required to use mandatory and non-mandatory T2S matching fields as described in the UDFS v. 1.2.1 , available on the T2S website.

3. Interaction with T2S (registration procedures)

T2S standard

Registration details should not be exchanged via T2S messages.

The standard resulted from the analysis done by the Task Force on adaptation to cross-CSD settlement .

4. Interaction with T2S (tax info requirements)

T2S standard

To avoid complexity and confidentiality issues, no tax-related information should be included in T2S settlement messages (for either intra-CSD or cross-CSD transactions). Some of these tax related information (non-exhaustive) are tax status of transaction, tax status or tax id of end investor, tax exempt identification number, alien registration number, passport number, corporate identification, driver license number, foreign investment identity number, BIC, proprietary id, name and address of investor. As ISO messages also provide fields that can be used to pass information about a particular transaction tax type (withholding tax, payment levy tax, local tax, stock exchange tax, transfer tax, value added tax, consumption tax) specifying amount, debit/ credit indicator, currency and other details, such fields should not be used to pass on any kind of tax related information.

The standard resulted from the analysis done by the Task Force on adaptation to cross-CSD settlement Task Force on adaptation to cross-CSD settlement .

5. T2S schedule of the settlement day and calendar

T2S standard

CSDs should be fully compliant with the T2S schedule for the settlement day and calendar as laid out in the T2S URD , available on the T2S website.

The use of a single schedule for the T2S settlement day and a single calendar per currency is one of the key harmonisation agreements in the T2S context.

6. T2S corporate actions standards

T2S standard

T2S markets should comply with the detailed list of T2S CA standards, endorsed by the AG and published on the T2S website, related to corporate actions on flows (in particular market claims, transformations and buyer protection in T2S).

A set of T2S standards to harmonise CSDs’ interaction with T2S as regards the settlement of corporate actions on flows (pending transactions) have been defined by the Corporate Actions Sub-group (CASG).

7. Settlement Finality I (moment of entry of transfer order into the system)

The Definition of the T2S standard for this activity is not yet complete.

The aim of this T2S harmonisation activity is to agree on a common T2S rule regarding the moment of entry of a transfer order into the system (so-called Settlement Finality I), and to ensure compliance by all T2S markets.

8. Settlement Finality II (irrevocability of transfer order)

T2S standard

The irrevocability of transfer orders in T2S is protected through the rule prohibiting the unilateral cancellation of instructions after matched status is achieved in T2S ( URD v5.0 ).

This is also in line with the T2S Framework Agreement (Art. 21/para. 4), according to which contracting CSDs shall make all necessary arrangements in order to adopt a harmonised definition of the irrevocability of transfer orders.

The aim of this activity is to adopt a harmonised definition of the irrevocability of transfer orders (so-called Settlement Finality II), in order to eliminate the risk of transfer order revocation in a T2S cross-border environment.

9. Settlement Finality III (irrevocability of securities transfer)

T2S standard

According to Article 21/para.4 of the T2S Framework Agreement, in order to facilitate legally sound, seamless cross-border DvP settlement, the regulatory/legal environments of the CSDs participating in T2S have to recognise account entries in T2S as unconditional, irrevocable and enforceable.

10. Outsourcing IT services

The Definition of a standard for this activity is not yet complete.

It is important to ensure that all participating CSDs obtain regulatory approval before outsourcing settlement services to T2S.

The current draft of the CSD Regulation is expected to harmonise the legal framework for IT outsourcing to bodies.

11. Settlement discipline regime

The Definition of a standard for this activity is not yet complete.

A harmonised settlement discipline regime is needed in T2S in order to avoid the risk of multiple inconsistent or incompatible regimes that would create operational complexity, to ensure a level playing field and avoid the risk of so called "regulatory arbitrage", and to reduce fails.

The future CSD Regulation is expected to harmonise settlement discipline regime in the EU.

12. Settlement cycles

The Definition of a standard for this activity is not yet complete.

The establishment of a single settlement cycle in the EU will be crucial for T2S participants’ technical infrastructures in rationalising back-office activities as well as in managing cross-border corporate actions.

The future CSD Regulation is expected to harmonise settlement cycles in the EU. In anticipation of Article 5 of the future CSDR that introduces T+2 as the standard settlement cycle, most T2S markets have decided to migrate to T+2 on October 6, 2014. To contribute to a consistent and coherent migration to T+2, a set of best practice proposals regarding the introduction of T+2 have been endorsed by the HSG. They are addressed to ESMA and have been provided in parallel to the European Commission.

13. Availability of omnibus accounts

T2S standard

Issuer CSDs in T2S must offer omnibus accounts to their foreign participants (investor CSDs and intermediaries) to ensure interoperability and cross-CSD settlement.

14. Restrictions on omnibus accounts

T2S standard

To make full interoperability, cross-CSD settlement and market access possible in T2S, issuer CSDs in T2S must provide appropriate services on omnibus accounts to foreign participants, as required by participants (e.g. withholding tax and proxy voting). These omnibus accounts should also include, as an option, holdings of domicile and non-domicile investors.

The objective of this activity is to ensure that issuer CSDs, in addition to offering foreign participants the possibility of opening omnibus accounts, also provide appropriate services on those accounts, as required by participants.

15. Securities accounts numbering

T2S standard

In securities account numbering, CSDs must use BIC 4 digits to identify parties of CSDs plus 31 digits of free text.

The objective of this activity is for CSDs to designate a harmonised number for the securities accounts in T2S, in order to facilitate identification of account holders and providers.

16. Dedicated cash account numbering

T2S standard

The DCA account numbering standard includes 34 characters (1 to designate the cash account, 2 for the country, 3 for the currency code, 11 for the BIC and 17 characters of free text for the account holder).

The objective of this activity is for T2S cash account providers to designate a harmonised number for the dedicated cash accounts in T2S, in order to facilitate identification of account holders and providers.

Priority 2 activities

Priority 2 activities are not essential to ensure safe and efficient cross-CSD settlement in T2S but they are key for enhancing the competitive environment and the efficiency of T2S, and could continue to be pursued after the T2S launch.

17. Location of securities account/ Conflicts of law

The Definition of a standard for this activity is not yet complete.

A harmonised rule for the location of securities accounts must be clearly determined and compatible with the set-up of T2S so as to mitigate legal risk for CSD links in T2S.

See also European Commission’s plan to introduce a securities law legislation.

18. Corporate actions market standards

T2S standard

T2S markets should comply with the corporate actions market standards defined by the CAJWG.

The market standards on corporate actions on stocks (settled balances) were finalised in October 2009 by the European Commission-sponsored Corporate Actions Joint Working Group (CAJWG). These market standards provide the basis for the T2S corporate actions standards (i.e. a market/CSD would need to comply with the corporate actions market standards in order to comply with the T2S standards).

Monitoring falls under the responsibility of the Broad Stakeholders Group (BSG) and the European Market Integration Group (E-MIG).

19. Place of issuance

The Definition of a standard for this activity is not yet complete.

This activity relates to the restrictions that are in place in national laws or market rules in EU countries as regards the place of issuance of securities. This barrier does not directly affect T2S. Nevertheless, it has an impact on the competition for issuer CSD services. Provisions in the direction of removing barriers to choosing the place of issuance are already part of the draft CSD Regulation.

20. Withholding tax procedures

T2S standard

T2S markets should comply with the 2009 Commission′s recommendation on withholding tax relief procedures and the solutions put forward by the 2013 TBAG report, available on the European Commission’s website.

21. Cross-border shareholder transparency and registration procedures

The Definition of a standard for this activity is not yet complete.

In most EU countries there are efficient models for identifying domestic shareholders. However, there is no common European model for enabling issuers to identify their owners in a cross-border (and T2S) holding.

The topic was analysed in 2009-11 by the Shareholder Transparency Task Force, reporting to the AG.

The European Post Trade Group is expected to follow up on the matter.

22. Market access and interoperability

The Definition of a standard for this activity is not yet complete.

The activity covers market practices or legislation that obligate (or restrict) the settlement of (stock exchange and/or central counterparty-cleared) transactions in a specific issuer CSD. The issue has no impact on T2S settlement processes, but it is important for competition and CSD access conditions in T2S-relevant markets.

Important provisions in this area are foreseen in the future CSD Regulation.

23. Securities amount data

T2S standard

In line with the current standard market practice in the EU, T2S markets should define securities amount data by using nominal value for debt instruments and units for non-debt instruments (i.e. debt instruments in FAMT and equities in UNIT).

The objective of this activity is to ensure that all T2S markets are aligned with the EU’s standard practice for defining securities amount data in the trading, clearing and settlement chain.

24. Portfolio transfer

T2S standard

Portfolio transfer information should be exchanged outside T2S (between custodians or via CSDs).

The objective of this activity is to define T2S best market practice that allows for smooth cross-CSD interaction with T2S as regards CSD ancillary services.

The standard resulted from the analysis done by the Task Force on adaptation to cross-CSD settlement.

Best market practices