ACSDA 15 TH General Assembly CSD Settlement Liquidity Management ECCSD Settlement Model Trevor Blake ECCSD

ECCSD Settlement Model ECCSD settles on a T+1 cycle Market rules require buying broker to receive cleared funds prior to placing buy order selling broker to take possession of securities and move them to segregated account at ECCSD before placing sell order

ECCSD Settlement Model Settlement – DVP Model 2 Securities settled gross Cash settled Net in Central Bank money All brokers-dealers linked to a clearing bank, which must be a Participant in Central Bank payment system sign tripartite Agreement with ECCSD & Central Bank

ECCSD Settlement Model Tripartite agreement provides mandate to ECCSD to issue instructions to debit Clearing bank account at Central Bank Binding on Clearing bank On T, Clearing bank must confirm sufficient funds available for settlement on T+1 Once confirmation received, ECCSD debit instructions cannot be countermanded

ECCSD Settlement Model On T+1, ECCSD simultaneously moves securities from Selling Broker segregated account to Buying Broker segregated account debits and credits Brokers’ Clearing Banks accounts at Central Bank with net funds

ECCSD Settlement Model Pros virtually eliminates risk of broker default no need for CSD liquidity support no need for collateral Cons pre-funding ties up investor funds securities immobilized could impact on activity risk of Clearing Bank default remains!

ECCSD Asset Servicing Corporate actions separate and distinct from settlement activities; no co-mingling payments made in commercial bank money ECCSD holds accounts at beneficial owner level payment made direct to investor, not to broker

ECCSD Asset Servicing Exceptions: payment made to broker on instructions from investor typically for reinvestment of debt redemption proceeds in new debt auctions provides liquidity to primary market by eliminating need for investor to put up new monies for auction