Spain: Reform of securities clearing, settlement and registry system

The Spanish regulator CNMV and the Spanish CSD Iberclear have published further details of the application of the legal framework of Law 32/2011, dated 5 October 2011, modifying Securities Market Law 24/1988, dated 28 July 1988, that sets down the main guidelines of the reform in line with the future TARGET2 Securities (T2S) implementation.

Spanish “Reforma” timeline

Phase 1: Pre-T2S for SCLV / equities

Phase 1, planned for implementation on 9 October 2015, will include the following:

• New securities clearing, settlement and registry system, first for Spanish equities compatible with T2S;
• As a consequence, the SCLV platform will be decommissioned;
• Introduction of a central clearing counterparty (CCP) in the post-trade environment;
• The CADE platform will still continue without any change;

and, planned for November 2015:

• Settlement cycle will be shortened to T+2.

Phase 2: With T2S Wave 4 for CADE / fixed income securities

Phase 2 will be implemented with Wave 4 Iberclear migration to T2S planned in March 2017, with testing in April-June 2016 and functional developments expected not before mid-2014.

Phase 2 will include the following:

• Spanish fixed income securities will be included in the new securities clearing; settlement and registry system.
• The CADE platform will be decommissioned.
• The Spanish settlement process will be in line with the procedures and deadlines of T2S, also for equities.
• Registry and settlement for both Spanish equities and fixed income securities will be unified.

For this second phase, no detailed information has yet been released from the market.

Key milestones of the Spanish “Reforma”

• The change of the time at which equity trades executed in the markets become final: from the moment of trading to the moment when the settlement is final and the exchange of securities and cash is confirmed. This change involves the integration of the current CADE and SCLV platforms into a single platform.
  
• The introduction of clearing services through the creation of a CCP for equities.
  
• The switch from the current system of numerical tracking of ownership based on the “Referencias de Registro” (RRs) to a more agile and flexible system to be applied after settlement.
  
• Integration of fixed income securities and equities within a single platform (currently CADE and SCLV respectively).
  
• With the introduction of the CCP, Spain’s Stock Exchange markets will be organised around three infrastructures:
  
  
  • The trading platform (SIBE);
  • The Central Counterparty (a new segment of MEFF CCP); and
  • The central securities depository (Iberclear).

Main changes with the Spanish “Reforma” Phase 1

• Entities may be participants in one, two or all three of the above infrastructures.
  
• Each Stock Exchange member must have a contract in place with a General Clearing Member of the CCP (unless it is a member of both infrastructures).
  
• Each member of the CCP must have a contract in place with at least one Iberclear participant (unless it is a member of both infrastructures).
  
• The CCP will enable trades to be netted before settlement instructions are generated.
  
• In combination with the possibility of netting, transaction management procedures will be introduced to delimit the scope of netting.
  
• Iberclear will implement and manage a settlement optimisation procedure to maximise the settled trades where there is a delay in the delivery of securities.
  
• The current Guaranty Fund will be replaced by the CCP's system of margins.
  
• Communications between participants and members of the infrastructures will be managed through an ancillary system, called Post Trading Platform (PTI), which should simplify the requirements and burdens on those entities.

Introduction of a CCP

• The CCP will offer inter-position and clearing services for Stock Exchange trades and for other non-multilateral transactions in benchmark financial instruments, provided that the parties so decide (this last upon bilateral agreement only).
  
• The equity instrument types that will be handled by the CCP are shares, subscription rights, warrants, certificates and ETFs.
  
• The CCP will maintain the Central Registry of the Clearing Account and the breakdown of the clearing clients.
  
• Management of failed trades at CCP level.

Registry

The system will maintain a two-level structure for registry purposes:

• Central Registry, under the responsibility of Iberclear, which records all aggregate security balances in Iberclear, registering the nominal amount (equities) or number of securities (fixed income).
  
• Detailed Registry, managed by participant entities entrusted to manage the accountancy of the individual accounts in reference to each security type. It will be identified by the CCV (unique account number reference). Entities must keep the detailed registry up to date at all times by entering every single trade performed by the entities with third parties (PTI).

Settlement procedures

• General trade settlement procedure: Settlement in cycles runs on settlement days, at intervals of around two hours, between 08:30 and 16:00 CET.
  
• Real-time settlement: Settlement in real-time will run every settlement day, between 07:30 and 16:00 CET (for DVP transactions) and between 07:30 and 18:00 CET (for FOP transactions).

Tolerance level / Managing failed trades

• Allowed countervalue difference
  
  The allowed countervalue difference in Iberclear will be aligned to the TARGET2 standard in EUR, which is EUR 2.00 for cash amounts less than or equal EUR 100,000 and EUR 25.00 for cash amounts above EUR 100,000.
  
• Partial Settlement
  
  Iberclear will allow partial settlement of any type of instruction, including free of payment transactions. In settlement instructions for bilateral operations, the entities may indicate whether they wish their instructions to be partially settled.
  
• Recycling
  
  Where transactions have not been settled by the date on which registry/settlement is due, settlement attempts will continue on subsequent settlement days until the transaction is settled or the counterparties cancel it bilaterally. In principle, there is no limit on recycling matched transactions once their intended settlement date has passed.

Corporate Actions

• Harmonisation and use of international standards of the CAJWG at European level will be applied;
  
• Cash settlement in entities’ cash accounts in TARGET2;
  
• Issuers will have to assign one unique agent entity;
  
• Issuers must make the charges and credits deriving from the corporate action event through Iberclear using the same system as for other cash movements, that is, through the entities’ cash accounts in TARGET2.
  
• New classification of corporate action in two categories referring to both mandatory and elective corporate actions:
  
  
  • Distributions in cash and/or securities;
  • Reorganisations: other type of action.

Entitlement rules for mandatory corporate action events

• Settled position on record date minus transactions with trade date on/after ex-date;
• Ex-date=Payment date -3;
• Record date= Payment date -1.

Market Claims - Cash

Market claims in cash will be confirmed according to the following rules:

• Trade date before ex-date and settlement date after record date (until payment date +20):
  
  Market claims detection will take place at the end of record date. Adjustments between entities will be generated on record date and will settle once the related trade settles.
  
• Trade date before ex-date and settlement date on/before record date:
  
  Iberclear will include the adjustment within the resolution of the corporate event.

Market Claims - Securities

• Same procedures as for Market Claims in cash;
• Market claims will be generated in pre-advice form.

Further information

Further information may be obtained in CNMV and Iberclear respective websites.

We continue to monitor the Spanish market and will provide more information, including any future major impacts for Clearstream Banking and its customers as it becomes available.