Amended admission procedure TEFRA D

14.09.2017

Effective

20 November 2017

due to the U.S. supervisory authorities changing their view of the TEFRA D process at CBF1, CBF must modify the process.

Background

To carry out the TEFRA D process for collective safe custody (CSC), CBF uses global certificates “UpTo”, that can be marked up or marked down in the amount of the issued position, with a maximum limit ("up-to nominal" ) of the issuance amount .

Up to now, no new TEFRA D deadline has been triggered by a markup (increase in issued (sold) position).
The U.S. supervisory authorities now interpret a markup as equivalent to an increase (increase of the issuance amount) and expect that the TEFRA D period for the entire issued position will begin again as a result.
This affects all co-issuing institutions that carry out new admissions in TEFRA D securities on behalf of their customers.

Impact on customers

This changed view of the U.S. supervisory authorities has prompted CBF to modify their admission process for TEFRA D securities.

This means primarily that although a temporary and a final global certificate “UpTo” must still be deposited, the temporary global certificate can only be deposited fully marked up and that the nominal of the certificate must correspond to the up-to nominal of the global certificate. The final global certificate must continue to be submitted with the nominal of the certificate = "0".

Both certificates are blocked against markups and markdowns for the entire life of the security.
As in the past, it will be possible to participate in either the "strict" or the "flexible" TEFRA D procedure.

At the end of the TEFRA D period, the certified (released) position is transferred from the temporary global certificate to the final global certificate as previously on the day "TEFRA D deadline +3 business days". The release process during and after the TEFRA D period also remains unchanged.

However, there have been adjustments to physical deposit instruction AA16, and from 20 November 2017 for TEFRA D securities the following applies:

  • Temporary global certificates must have an odd organisation number.
  • Final global certificates must have an even organisation number.
  • The reason for deposit instructions for temporary global certificates will change. Temporary global certificates must be entered in the AA16 instruction with EINLIEF-GRUND = 11.
  • The reason for deposit also changes for final global certificates. Final global certificates must be entered in the AA16 instruction with EINLIEF-GRUND = 12.
  • For temporary global certificates, in the instruction the nominal of the certificate must be equivalent to the up-to nominal.
  • The up-to nominal must correspond to the issuance amount for both the temporary global certificate and the final global certificate. It must therefore be equal to and greater than "0" for both certificates.
  • For final global certificates, in the instruction the nominal of the certificate must be = "0".

These conditions are checked when the instructions are entered in KVEW NV.

Increase within a TEFRA D period

It is possible to increase the stock during a current TEFRA D period both within the original ISIN and within an interim ISIN.

An increase within the original ISIN requires an extension of the TEFRA D period by another 40 days for the entire ISIN stock.

An increase within an interim ISIN means that the new TEFRA D period only affects this interim ISIN.

An increase always requires the deposit of a new temporary global certificate and a final global certificate. The same restrictions apply to these two new certificates as mentioned above. In addition, both global certificates must be deposited within the same ISIN. It is no longer permissible to deposit the temporary global certificate in the interim ISIN and the final global certificate in the original ISIN.

At the end of the TEFRA D period, the certified (released) position is transferred from the temporary global certificate to the final global certificate on the day "TEFRA D deadline +3 business days". The position that has not (yet) been certified remains on the temporary global certificate.

If the increase is made via an interim ISIN, an equalisation TA232 (PARI-PASU) is carried out after the reallocation in order to convert the positions and the certificates from the interim ISIN to the original ISIN.

Increase after the end of the TEFRA D period

If the TEFRA D period of the original ISIN has already expired, an increase can only be made using an interim ISIN.

An increase always requires a new temporary global certificate and a final global certificate to be deposited again. The same restrictions apply to these two new certificates as mentioned above. In addition, both global certificates must be deposited within the same ISIN. A deposit of the temporary global certificate in the interim ISIN and the final global certificate in the original ISIN is no longer permitted.

At the end of the TEFRA D period, the certified (released) position is transferred from the temporary global certificate to the final global certificate on the day "TEFRA D Deadline +3 business days". The position that has not (yet) been certified remains on the temporary global certificate.

Following the reallocation, an equalisation TA232 (PARI-PASU) is created in order to convert the positions and the certificates from the interim ISIN to the original ISIN.

Markdown with reduction of the up-to nominal

In the event of a repurchase, it must be possible to reduce the marked up nominal of a TEFRA D security. For this purpose, the existing withdrawal transaction "Revalutierung mit Reduzierung Rahmen-Nominale” (Markdown with reduction up-to nominal) can still be used. This transaction reduces both the booked positions of the ISIN and the global certificate's up-to nominal. This ensures that the ISIN cannot be marked up later.
This procedure can be processed both during and after the end of the TEFRA D period. During the period, the instruction refers to the temporary global certificate, and after the deadline, to the final global certificate.

New withdrawal transaction "Reducing up-to nominal"

A reduction of the up-to nominal through the transaction “Revalutierung mit Reduzierung Rahmen-Nominale“ (revaluation with reduction of up-to nominal) must also be carried out for TEFRA D securities on the corresponding second global certificate. For this purpose, a new withdrawal transaction “Reduzierung Rahmen-Nominale” (Reduction up-to nominal) is introduced. This transaction can only be triggered by CBF employees.

In CASCADE, the transaction results in a booking with nominal value = "0" and only reduces the up-to nominal of the global certificate specified in the instruction. Therefore, no booking confirmation MT546 will be sent. However, the instruction is reported in KVDU and in the "Clearing and Settlement Statement CSS" MT536 with the nominal value "0".

Further information

For further information, customers may contact Clearstream Banking Client Services or their Relationship Officer.
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1. This Announcement is published by Clearstream Banking AG (CBF), registered office at Mergenthalerallee 61, 65760 Eschborn, Germany, registered with the Commercial Register of the District Court in Frankfurt am Main, Germany, under number HRB 7500.