T2S cross-border settlement: Already matched instructions

General introduction: What are already matched instructions?

In the case of instructions with the "already matched" indicator, the matching process is skipped. Only the delivery or the receipt must be instructed. The “already matched” indicator will then trigger the automatic generation of the matching counter-instruction on the account of the counterparty. The service is only offered between accounts of the same owner or actors with appropriate authorisations, such as service providers or central counterparties (CCPs), based on the account owner’s power of attorney given to them¹.

Scope of the T2S Service for already matched cross-border instructions

TARGET2-Securities (T2S) offers already matched settlement, also cross-border, between European central securities depositories on T2S ("T2S In-CSDs") that are linked to each other and offer the already matched cross-border settlement services, as Clearstream Europe AG (CEU) does. Therefore, CEU clients can participate in the settlement processes irrespective of their chosen connectivity channel to T2S (Indirectly Connected Participants (ICP) or Directly Connected Participants (DCP)).

The scope covers the following instruction types:

• Free of payment (FoP);
• Versus payment (DvP) against settlement currency EUR; and
• Payments free of delivery (PFoD) resulting for instance from a netting.

For the setup of already matched cross-border instructions, the validation rules of the affected T2S In-CSDs with T2S are applied independently of each other. If one or more criteria are not met, the instruction will be rejected or set on hold. A blocked instruction must be cancelled by the party who sent the instruction.

T2S dedicated rights management for already matched cross-border instructions

To ensure that all T2S actors using this service are authorised to do so, T2S created a dedicated rights management for these specific instructions. Clients and their counterparties must inform the involved T2S In-CSDs about their intention to send already matched cross-border instructions, so that both CSDs can set up the necessary Power of Attorney (PoA). The PoA can be established for a T2S Party or for a T2S Securities Account (SAC). CEU offers only already matched cross-border PoAs on SAC level.

The rights (called privileges)

• give the instructing party the power of attorney (as "PoA taker") to automatically trigger counter-instructions on the counterparty’s accounts with one of the linked CSDs, by initiating already matched instructions on defined accounts with the other CSD;
• confirm the power of attorney which the instructed counterparty (as "PoA giver") granted to the initiating party to automatically set up counter-instructions on the counterparty’s accounts.²

Therefore, there are two forms to set up the ALM XBDR privileges with T2S (see attachments):

• One for the instructing party (PoA taker, initiator); and
• One for the instructed party (PoA giver, acceptor).

CEU processes linked to the T2S Service for already matched cross-border instructions

CEU requests, changes or deletes the ALM XBDR T2S rights on the T2S platform for the client who submitted one of the forms attached. For this purpose, CEU requires a copy of the corresponding form filed with the T2S In-CSD of the counterparty’s account. If a client files with CEU a form as instructing party, they must present the form the counterparty submitted as instructed party to the linked T2S In-CSD (and vice versa).

Depending on the implementation procedures of the individual CSDs, it is necessary to perform a test in the T2S Pre-Production environment (UTEST) before using the functionality in production. Once the privileges are set up in the test and/or the production environment, clients have the possibility to initiate or accept already matched instructions towards another T2S In-CSD.

The table below provides an overview of the T2S In-CSDs linked to CEU that currently offer the already matched functionality for cross-border settlement:

a. As per current restriction at ESM, CEU participants can use this service only if the instruction accepting client of ESM is a DCP.

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1. If the service provider or the CCP disposes of a PoA for both the delivering and the receiving party, they do not need to appear in any of the instructions.

2. The T2S rights as "PoA taker" and "PoA giver" for cross-border instructions with the flag "already matched" are not identical to the general power of attorney that an account holder gives to another party (for example, a service provider or a CCP) to set up instructions on their accounts. If a CCP sets up an instruction on its client's account with another T2S In-CSD against its CCP account with CEU, it is a "PoA giver" in T2S for cross-border instructions with the flag "already matched", but a "PoA taker" vis-à-vis its client on the basis of the general power of attorney to issue instructions.