U.S.A.: Prospective changes : New matching scheme : Update IV

We hereby provide updated details of the improved Clearstream Banking¹ settlement services that we will offer to customer as of

25 August 2014

This is further to and supersedes our Announcement A14056, dated 17 April 2014, with regard to the initiative launched by the Depository Trust & Clearing Corporation (DTCC) to set up a matching scheme.

Background

In an “Important Notice” dated 22 May 2014, DTCC advised that the implementation of Phase III of the finality settlement initiative with regard to deliver orders will be subject to a new time line as follows:

As a consequence, CBL has decided to postpone its implementation to remain in sync with the industry and align as far as possible with DTCC.

Note: The service changes, described below, will remain as previously published in our Announcement A14056.

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:

1. The enhanced reporting for transactions to be settled via DTCC, reflecting the new RAD approval process in DTCC;
2. The improved timing for settlement confirmation for deliveries to a DTCC counterparty;
3. The request for a receipt instruction for all transactions, which will avoid the undesired receipt of securities.

1. 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 the new scenarios that need to be considered and the corresponding reporting that will be provided.

Securities receipt by CBL customers from US counterparties

As from the implementation date, the receipt instruction from CBL customers will serve as approval for the RAD approval process; in the absence of a receipt instruction, the delivery to CBL will be refused.

The table below describes the different scenarios from the receipt of an initial allegement to its removal once a receipt instruction is in place at CBL against the concerned delivery.

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 CBL customers that want to return securities from a settled delivery against payment will be required to instruct a new delivery instruction in cooperation with their counterparty, as in the past.

For free of payment deliveries, DKs remain possible.

2. 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.

3. 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.

DTC ID transactions

• DTC ID instructions will be subject to RAD settlement as of Q1 2015.
• The applicable rules are expected to be the same as for non-DTC ID settlement.
• Further details will be provided as soon as made available by DTCC.

Further information

For further information, customers may contact Clearstream Banking Client Services or their Relationship Officer.

------------------------------------------
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. RAD - Receiver Authorised Delivery - is a DTCC function that enables receivers to review and either approve or cancel incoming deliveries before they are processed.
3. An allegement is a message sent by our Agent in the U.S.A. to indicate that no matching Instruction from a CBL customer has been identified against the U.S. delivery instruction.