South Korea: Enhancement of settlement instructions processing and reporting – Update
Note: This announcement, originally published on 16 February 2024, and updated on 29 February 2024, 14 March 2024 and 28 March 2024, has been further amended with new implementation and cutover dates. Changes have been highlighted.
Following Announcement A20162, Clearstream Banking1 informs clients that effective
22 April 2024
the handling of receive and delivery against payment instructions on the South Korean market will be enhanced to enable more efficient straight-through processing.
Impact on clients
Clients are no longer required to use the “Immediate Release” flag (:22F::STCO/CEDE/IREL).
As the market only allows settlement in South Korean Won (KRW, restricted currency), settlement is done through a preliminary U.S. Dollar (USD) to KRW conversion.
Clearstream Banking has developed a new reservation process to support the cash leg provisioning of receipt against payment instructions that will bring the following benefits:
- Automatic generation of payment free of delivery instructions (MT545 confirmation visible to clients – :22F::STCO/CEDE/RESA) triggering a reservation against available cash in USD (or an available collateralised credit line in USD);
- Multiple reservation attempts until the end of the provisioning period for the requested settlement date;
- Automatic generation of payment free of delivery instructions (MT547 confirmation visible to clients – :22F::STCO/CEDE/RESR) triggering the reversal of a reservation to subsequently process the adjustment of the final foreign exchange (FX) rate applied;
- Final booking of the USD amount done via MT202 on the client account.
The new process is described below:
Purchase of securities – receipt against payment (funding/provisioning) | |
SD-2: | Client instructions sent to Clearstream Banking (please refer to Settlement times – South Korea) |
SD-2 or SD-1: | Funding/provisioning Clients must ensure that their account is provisioned with the requested amount in USD, that is, the equivalent to the KRW amount in USD plus a 5% buffer and an additional amount of USD 25 representing the allowed countervalue difference, that is, the market cash tolerance. Example: If the settlement amount is KRW 10,000,000 and the exchange rate is KRW 1 = USD 0.00086, the client must ensure that their account is provisioned with USD 8,600 + 5% (USD 430) + USD 25 = USD 9,055. Alternatively, the credit line is used if available. Successful reservation in USD which is based on a temporary foreign exchange (FX) rate, is notified via a payment free of delivery instruction MT545 – :22F::STCO/CEDE/RESA and a simultaneous credit in KRW is posted on the client account via a payment free of delivery instruction MT547 – :22F::STCO/CEDE/RESA. Alternatively, the credit line is used if available. Note: Clearstream Banking reserves the right to amend and update the buffer from time to time to reflect market conditions. It is also the responsibility of clients to ensure the timely availability and coverage of their accounts with USD, as appropriate.” |
SD: | Upon receipt of the settlement confirmation (MT545) from the depository, Clearstream Banking will:
|
Sale of securities – delivery against payment (repatriation) | |
SD-2: | Client instructions sent to Clearstream Banking (please refer to Settlement times – South Korea) |
SDa: | The depository:
Clearstream Banking:
|
a. If SD is a business day in New York, sales proceeds will be converted and remitted on SD; otherwise, the funds will be remitted on the next available New York business day.
Reporting
The specific reservation PFoD instructions will be reported as indicated in the table below:
Reservation steps | Message type | ||
MT545 | MT547 | MT536 | |
| Client receive against payment instructions (61) | |||
Reservation transfer (USD) | :70E::SPRO//KRW/USD RESERVATION | Not applicable | :22F::STCO/CEDE/RESA |
Reservation transfer (KRW) | Not applicable | :70E::SPRO//KRW/USD RESERVATION | :22F::STCO/CEDE/RESA |
Reservation reversal transfer (KRW) | :70E::SPRO//KRW/USD RESERVATION REVERSAL | Not applicable | :22F::STCO/CEDE/RESR |
Reservation reversal transfer (USD) | Not applicable | :70E::SPRO//KRW/USD RESERVATION REVERSAL | :22F::STCO/CEDE/RESR |
Client delivery against payment instructions (8M) | |||
Release FX DVP transfer (KRW) | :70E::SPRO//KRW/USD RESERVATION | Not applicable | :22F::STCO/CEDE/FXRT |
Release FX DVP transfer (USD) | Not applicable | :70E::SPRO//KRW/USD RESERVATION | :22F::STCO/CEDE/FXRT |
The cash movements resulting from the instructions described in the above table will be available in cash reporting.
In the MT950, under Sequence B, for against payment securities transactions, in Subfield 9, RVP/DVP will be mentioned for South Korea FX instructions linked to automatic reservation.
Cut-over processing
Settlement processing on Receipt versus payment instructions (RVP) will be stopped on Friday, 19 April 2024 at 12:00 CEST (noon) with depository 1K to ensure a smooth implementation. Clients are invited to send instructions before that time.
Receive against payment instructions provisioned, and not settled by 12:00 CEST on 19 April 2024, will be cancelled in Clearstream Banking’s books, but not on the market.
Once the settlement confirmation is received from the market, Clearstream Banking will manually book the securities entry via MT544 and a separate cash debit in USD.
There is no impact on delivery against payment instructions.
Settlement activities will resume normally as of Monday, 22 April 2024.
Xact Web Portal
Xact Web Portal offers a new reporting subscription option for MT54X Settlement Confirmations used for the Reservation/Reversal process on the South Korean market.
A new tick box called "Reservation/Reversal for Settlement on South Korea" will be automatically selected. The report can be deselected under Reporting & Monitoring > Report Centre > Manage Report Subscriptions.
To query the MT54X, go to Settlement > Securities > Security Instructions > Settlement parameters & trade details, and select CEDE/RESA, CEDE/RESR or CEDE/FXRT from the “Sett. Transaction cond.” drop down menu.
Note: Access to the South Korean market is subject to conditions and criteria assessed on a case-by-case basis. Please contact your Relationship Officer to confirm or make any arrangements, as necessary. Clearstream Banking reserves the right to revoke client access to the market if such conditions and criteria are not fulfilled.
Further information
The Market Link Guide – South Korea and the Xact via Swift User Guide will be updated accordingly.
For further information, please contact Clearstream Banking Client Services.
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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 clients using Creation accounts), registered office at Mergenthalerallee 61, 65760 Eschborn, Germany, and registered in Register B of the Amtsgericht Frankfurt am Main, Germany, under number HRB 7500.