Corporate action processing in DKK with VP Securities
In Announcement D18033, Clearstream Banking AG, Frankfurt1 informed customers that the Danish CSD2 VP Securities (VP) will offer settlement in Danish kroner (DKK) in TARGET2-Securities (T2S). Since the business lauch on Monday, 29 October 2018, VP processes settlement instructions in DKK successfully on T2S.
CBF service offering
CBF maintains a cross-border link to VP. This link supports the settlement of free of payment (FoP) and delivery versus payment (DvP) in Euro instructions. Currently, CBF does not require a Dedicated Cash Account (DCA) in DKK for the instruction management on T2S. As for the time being DKK can be settled via Clearstream Banking S.A., Luxembourg (CBL).
After the migration of DKK, the existing procedures for corporate actions remained unchanged. With the CBF Release November 2018 the payment authorisation procedure was introduced and is applicable for the corporate actions management with VP, too. That means, that:
- The Corporate Action Notification (MT564) contains the information
” PAYMENT UPON RECEIPT OF FUNDS” in field “:70E::ADTX” and
the value date will be shown as unknown for cash events in the field “:98B::VALU//UKWN”.
- The original payment date of the event will be shown as today.
- After payment authorisation, usually on payment date, the related Corporate Action instruction in cash and / or securities will be transmitted to the respective settlement system intraday.
- In the event of late payment or late confirmation from the agent / Issuer CSD the credit bookings for CBF accounts could be delayed to the following business days.
Processing of income proceeds in DKK
VP uses the T2S settlement platform for the distribution of income events. Already matched Payment Free Of Delivery (PFOD) instructions are created. According to the CASG3 standards, these instructions shall be transmitted for the T2S NTS Cycle for the upcoming business day. Only after the issuer or paying agent credited the corresponding DCA, T2S will settle the instructions and transmit the settlement confirmation. In the following, CBF receives income proceed via VP on a fiduciary cash account held with the cash correspondent bank (Danske Bank A/S). Upon receipt of payment, a liquidity transfer to the Creation platform of CBL will be initiated. As soon as the cash has been made available, KADI4 will process the event. The income proceed will be distributed to the 6-series cash account agreed with the customer. Customers will receive the Corporate Action Confirmation (MT566) message and / or the cash movement reporting based on their existing message subscriptions.
Managing market claim and transformation instructions with a cash leg in DKK
With migration of DKK to T2S, VP enabled the market claims, reverse claims and transformations service.
In principle, VP transmits the relevant instructions as defined by the CASG standards using the settlement processes introduced by T2S. These instructions show the settlement details for the transaction in the party levels as well as the customer and counterparty data specified in the underlying instruction. Hence, a counterparty of a CBF customer will be informed via a status reporting that an instruction was created by VP. However, T2S will neither notify VP or their customer that no DCA for DKK is available for the CBF customer. CBF is notified by T2S via an allegement. CBF will inform the customer, when an allegement for market / reverse claim or transformation with a cash leg in DKK has been created.
The instructions created by VP will remain pending unmatched for 20 T2S settlement days and can be cancelled earlier, if required. CBF customers should inform their counterparties, that they should provide their cancellation as no matching instruction will be provided by CBF.
Neither VP nor CBF will create MT564 messages for market / reverse claims and transformation with a cash leg in DKK. As today, the compensation of pending instruction requires a bilateral agreement between the CBF customer and their counterparties. For compensations in cash or securities, customers can use their 6-series accounts for the settlement of securities and / or DKK.
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Usage of “Opt/Out flag”
CBF customers and their counterparties should consider the usage of the “Opt/Out flag” as additional matching criteria in their instructions. Based on this flag, VP will:
- Not create instructions for market claims.
- Cancel the pending instruction and not reinstruct the pending trade, if a transformation is executed.
Hence, there will be no need to release a cancellation instruction by the counterparty. Within the CBF processing, the “Opt/Out flag” is not applicable for reverse claim processing.
Based on the Corporate Action Notification (MT564) for an upcoming event that defines a cash leg in DKK customers can start using the “Opt/Out flag”. Also, if it is helpful for the customer's further processes, existing pending instructions could be bilaterally cancelled and newly reinstructed with the “Opt/Out flag”.
Customer acting in DCP mode
Even though for no CBF customer a DCA setup in DKK is available on T2S, customers acting DCP mode, may have set up a subscription to receive T2S reporting for the currency DKK. These customers will receive the respective allegement reporting from T2S. However, if a matching instruction will be transmitted to T2S, this is rejected with the error code:
- MVCA514/515 if the DVP instruction in DKK does not indicate a DCA.
- MVCA509/510 if the DVP instruction in DKK indicates a DCA which is not linked with the securities settlement account (SAC).
Clearstream Banking aims to migrate Danish securities for a processing via OneClearstream.
As part of this transition, the cross-border link with VP will be enhanced and will enable securities settlement for against payment (DvP) instructions in DKK to T2S. Once this enhancement has been introduced market claims, reverse claims and transformations created by VP can be executed via T2S and today's manual procedures can be replaced by an automated solution.
CBF will inform customers of further steps in a timely manner.
For further information related to this Announcement, customers may contact Clearstream Banking Client Services or their Relationship Officer. Particular questions will be routed to the experts of the T2S Settlement Functionality team.
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.
2. CSD = Central Securities Depository
3. CASG = Corporate Actions Sub-Group
4. KADI = CBF Application for Kapitaldienste (Corporate Actions)