U.S.A.: Processing change for rollover events on U.S. Treasury Bills - Update
Note: This announcement, originally published on 16 January 2020, has been updated to provide additional information on situations where the customer fails to provision their account with the exercise price of a rollover event on payment date.
Clearstream Banking1 informs customers of the changes to the handling of rollover events for U.S. Treasury Bills that becomes effective on
18 May 2020
Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on the European Central Securities Depositories Regulation (CSDR) introduces several measures to prevent and address the unsecured exposures. To facilitate the implementation of the credit prudential requirements set out in the CSDR, Clearstream Banking will adapt and introduce changes to the handling of corporate actions requiring payment of exercise price as described below.
Impact on customers
The following changes will be introduced to the current process of debiting and crediting customers as result of the customer’s election of re-investment:
- On the payment date of the redemption event, Clearstream Banking will generate a domestic receipt against payment instruction on the customer account.
- This settlement instruction will be generated under high settlement priority with the settlement date equal to the payment date of the redemption event and will include a narrative referring to the rollover corporate action.
- The settlement of this instruction will be subject to a standard provisioning check that is, cash or credit line availability. The straight-through processing of the re-investment election of the customer depends on the successful provisioning of the customer's against payment settlement instruction. If the settlement instruction is not provisioned on time, an exceptional operational procedure will be deployed by Clearstream Banking to meet the commitment with the market as explained below.
Customers are, and remain, liable for such payment or payment default in these circumstances.
The unsuccessful cash provisioning of the account on the payment date will lead to penalties2and the retention of securities rollover proceeds by Clearstream Banking.
If there is insufficient cash provisioning of the account on the payment date by 17:00 Central European Time (CET), the pending settlement instruction of the customers will be canceled by Clearstream Banking and replaced by a cash debit instruction.
Customers failing to fund their account on the payment date will automatically be granted a grace period by Clearstream Banking to provide the required funds and settle the newly created cash debit instruction. The grace period will be activated on the payment date and will end on the payment date and within two business days. The credit of securities proceeds to the customer’s account will be dependent on the settlement of the cash debit instruction during this grace period.
If the customer fails to fund their account by the end of the grace period, starting from the next business day, Clearstream Banking will reject the corporate action instruction of the customer, the pending cash debit instruction will be canceled and the proceeds will be sold on the market3. The resulting cash difference (a difference between the amount due to be paid by the customer and the market price of proceeds), if any, will be booked to the customer’s account through Clearstream Banking S.A. (CBL) via cash instruction with an appropriate narrative to ease the cash reconciliation. No credit of securities proceeds will follow.
To facilitate proper handling of the rollover events by customers, the following enhancements will be implemented to the current reporting:
- The rollover related MT564 Corporate Action Notification (with qualifier OTHR) will include a narrative ADTX reminding customers that the execution of this corporate action will be handled with an against payment settlement instruction on their account “Upon receipt of a valid re-investment instruction, Clearstream Banking will generate a receipt versus payment instruction on their account. Such instruction will be subject to a standard cash provisioning step before release to the market”.
- The against payment settlement instruction generated on the customer account will include a narrative referring to the rollover corporate action.
- If the against payment settlement instruction fails due to a lack of cash or collateral, or is cancelled by operations as explained above, it will be reported with an appropriate settlement status.
- The customer will receive confirmation of successful settlement of an against payment settlement instruction via an MT566 Corporate Action Confirmation.
For further information, customers may contact Clearstream Banking Client Services or their Relationship Officer.
1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for Clearstream Banking AG customers using Creation Accounts), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.
2. The implementation date of daily penalties is still to be determined. In the meantime, any costs incurred by Clearstream Banking caused by a customer who failed their payment obligation, will be recharged to this customer via monthly invoice.
3. If the customer failed to fund their account on the payment date, it is important to understand that Clearstream Banking will be debited by the market and will receive the securities proceeds as the corporate action instruction submitted by Clearstream Banking on behalf of the customer would be exercised by the issuer/agent. If during the grace period, the customer account is duly funded, the customer will receive the securities proceeds against debit of its cash account. However, if at the end of the grace period the customer account is still not duly funded, the securities would still belong to Clearstream Banking who will sell them on the market on a best effort basis, and the customer agrees and undertakes to indemnify Clearstream Banking for the cash difference.