U.S.A.: Prospective changes : New matching scheme : Update III
Reference
We hereby provide details of the improved Clearstream Banking1 settlement services that we will offer to customers as of
28 July 2014
This is further to our Marketflashes M13015, dated 10 April 2013, and M13031, dated 28 June 2013, containing details of an initiative launched by the Depository Trust & Clearing Corporation (DTCC) to set up a matching scheme.
Impact for customers
Note: Customers should carefully review the information below and make adaptations to their systems accordingly. Customers should also align with their DTCC counterparties as required.
The improvements concern three main aspects:
- The reporting on settlement: Deliveries against payment of DTCC eligible securities within the U.S. market will be subject to approval from the receiving party, using the DTCC Receiver Authorised Delivery (RAD) function.
- The timing of settlement confirmations: Given that the “Don’t Know” (DK) procedure will no longer apply for DTCC against payment transactions, we will be able to provide intraday rather than end of day confirmation against payment.
- The booking of securities without receipt instruction: As the U.S. market is evolving towards a “matching-like” market, we will make the use of a receipt instruction mandatory for both free of and against payment receipts, both for DTCC- and FED-eligible securities.
The following sections describe respectively:
| A. | The enhanced reporting for transactions to be settled via DTCC, reflecting the new RAD approval process in DTCC; |
| B. | The improved timing for settlement confirmation for deliveries to a DTCC counterparty; |
| C. | The request for a receipt instruction for all transactions, which will avoid the undesired receipt of securities. |
A. Reporting on settlement
Securities delivery by CBL customers to U.S. counterparties
The main change that will impact customers as of 28 July 2014 is that any delivery to the U.S. market will be subject to an approval by the receiving party in DTCC, using the DTCC RAD function.
The table below describes, by delivery status for instructions (excluding DTC ID instructions), the new scenarios that need to be considered and the corresponding reporting that will be provided.
| Message/Field/Value | Meaning | |
| Delivery awaiting approval | ||
| MT548 :24B::PEND//NCON | Confirmation not received from counterparty - awaiting counterparty approval. Note: NCON will be reported when CBL delivery instructions are submitted to DTCC the first time for settlement and are awaiting counterparty approval. | |
| Delivery refused by the receiving counterparty | ||
| MT548 :24B::NMAT//DTRA | Delivery will be cancelled by DTCC but the delivery instruction will be automatically resubmitted by CBL’s depository for 30 days, unless cancelled by the customer or settled. Note: This reporting will replace current MT548 DKNY customer reporting at the end of the day. | |
| Delivery with no action taken by the counterparty by the end of SD and dropped by DTCC | ||
| MT548 :24B::PENF//CLAT | Delivery has been cancelled by DTCC but the delivery instruction will be automatically resubmitted by CBL’s depository for 30 days, unless cancelled by the customer or settled. Note: This reporting will replace current MT548 DKNY customer reporting at the end of the day. | |
Securities receipt by CBL customers from U.S. counterparties
The main change that will impact customers as of 28 July 2014 is that any delivery to the U.S. market will be subject to an approval by the receiving party in DTCC, using the DTCC RAD function.
The table below describes, by delivery status for instructions (excluding DTC ID instructions), the new scenarios that need to be considered and the corresponding reporting that will be provided.
| Message/Field/Value | Meaning | |
| 1.a - No CBL customer receipt instruction in place - DTCC counterparty’s delivery instruction received on the market | ||
| MT578 NEWM | A new allegement2 is reported where there is no receipt in place from CBL customer. CBL customer EITHER instructs a receipt, meaning that it accepts the delivery of securities and settlement will be effected; OR does not instruct, which will be considered as a refusal to receive. | |
| 1.b - No CBL customer receipt instruction in place - DTCC counterparty’s allegement cancelled before matching at CBL’s depository | ||
| MT578 REMO | Transmitted if the U.S. counterparty cancelled the allegement before receipt of CBL customer instruction. | |
| 2.a - CBL customer receipt instruction in place - Upon receipt of CBL customer instruction | ||
| MT578 REMO | REMO will be reported upon receipt of CBL receipt instruction. | |
| 2.b - CBL customer receipt instruction in place - CBL customer instruction has been matched with counterparty DTC ID affirmation by CBL’s depository | ||
| MT548 :24B::NMAT//DTRA | This status will be transmitted only if the counterparty cancelled the DTC ID confirmation via DTC ID. This instruction will thereafter be transferred from DTC ID to DTCC RAD for further processing. | |
Return requests
Although the DK procedure will no longer apply for against payment transactions, DTCC still allows receiving counterparties to request a return of a previously settled position after the initial settlement as advised by DTCC, with no time limit.
As a major difference compared to the previous situation, the return request will be subject to the approval of the original delivering counterparty. In practice, this means that customers that want to return securities from a settled delivery will be required to instruct a new delivery instruction in cooperation with their counterparty, as in the past.
| Message/Field/Value | Meaning | |
| Return request triggered by the CBL customers counterparty | ||
| MT578 NEWM | Indicates that the receiving DTCC counterparty has issued a Return Request. The original settled transaction will not be referenced and will therefore be reported as normal allegement to CBL customers. Customers are requested to contact their counterparty to clarify the reason of the MT578 and, upon agreement, to submit a matching MT541 NEWM to CBL for further acceptance of the allegement. | |
| CBL customer as the receiving party takes no action | ||
| MT578 REMO | No approval will be given by CBL's depository in DTCC. Unanswered allegements will be dropped by DTCC at the end of day. | |
B. Timing of settlement confirmations
To date, CBL customers have received settlement confirmations for non-DTC ID and FED deliveries by the end of the processing hours at DTCC and the FED. This will change with DTCC’s initiative as follows:
Note: For DTC ID transactions, no change is foreseen for the time being.
Current situation
| DTCC-/FED-eligible securities | Timing of confirmation (CET) | |
| Receipts FOP & AP | ||
| DTCC- & FED-eligible securities | Intraday on SD Settlement results expected from 04:30 on SD until end of RTP on SD+1. | |
| Deliveries FOP & AP | ||
| DTCC- & FED-eligible securities | End of day on SD Settlement results expected from 22:00 on SD until end of RTP on SD+1. | |
Situation from 28 July 2014
| DTCC-/FED-eligible securities | Timing of confirmation (CET) | |
| Receipts FOP & AP | ||
| DTCC- & FED-eligible securities | Intraday on SD Settlement results expected from 04:30 on SD until end of RTP on SD+1. | |
| Deliveries AP | ||
| DTCC-eligible securities | Intraday as of U.S. start of settlement | |
| Deliveries FOP | ||
| DTCC-eligible securities | Unchanged Settlement results expected from 22:00 on SD until end of RTP on SD+1. | |
| Deliveries FOP & AP | ||
| FED-eligible securities | Unchanged Settlement results expected from 22:00 on SD until end of RTP on SD+1. | |
C. Receipt instructions required for all transactions
Currently, as the U.S.A. is a non-matching market, a delivery of securities does not require a corresponding receipt instruction to be processed. In the future, all deliveries, free and against payment, from a U.S. counterparty will require a corresponding receipt instruction in CBL to be processed and booked on CBL’s customer account.
Current situation
| Receipt instruction required | Comment | |
| Deliveries FOP from a U.S. domestic counterparty | ||
| NO | Securities can be dumped via MT544. | |
| Deliveries AP from a U.S. domestic counterparty | ||
| YES | ||
| DRS instructions | ||
| NO | ||
| Deliveries of physical certificates for a CBL customer | ||
| NO | ||
Situation from 28 July 2014
| Receipt instruction required | Comment | |
| Deliveries FOP from a U.S. domestic counterparty | ||
| YES | ||
| Deliveries AP from a U.S. domestic counterparty | ||
| YES | ||
| DRS instructions in DTCC | ||
| YES | ||
| Deliveries of physical certificates for a CBL customer | ||
| Further information on possible changes in deposit of physical certificates will be provided to customers as soon as available. | ||
DTC ID transactions
DTCC has targeted September 2014 for subjecting all DTC ID transactions to matching; details of the impact on DTC ID transactions are not yet known.
Further information
For further information, customers may contact Clearstream Banking Client Services or their Relationship Officer.
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1. Clearstream Banking refers to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).
2. An allegement is a message sent by our agent in the U.S.A. to indicate that no matching instruction from the CBL customer has been identified against the U.S. delivery instruction.