Views from the French NUG T2S on central bank auto-collateralisation Frankfurt 29 November 2013

2 1.Reminder of some T2S benefits for cash & collateral 2.French NUG T2S position 3.Expectations Agenda

3 Cross-border settlement as efficient as domestic settlement Lower liquidity / collateral needs for settlement thanks to auto-collateralisation Auto-collateralisation on cross-border and domestic settlement instructions For multi-market / CSD participants : possibility to have one single DCA Netting effect of having all purchase and sell instructions settling into one DCA Opportunity to rationalise back offices if part of bank’s strategy 1.Reminder of some T2S benefits for cash & collateral

4 Strong interest to use the auto-collateralisation in T2S with Banque de France However, banks raise two major concerns 2.French NUG T2S position 1)Auto-collateralisation with NCBs as from wave 1 AFTI letter on 12 April 2013 raising the point that “the ability to use auto-collateralisation for the payment bank settlement activity in Monte Titoli as from wave 1 is key while choosing Banque de France to access intraday credit”  A payment bank aiming to use one (domestic) NCB and one DCA for multiple CSDs should have the possibility to set-up its cash account and benefit from auto-collateralisation in this chosen NCB as from wave 1 regardless of whether its national CSD has migrated

5 2.French NUG T2S position Alternatives if no access to the auto-collateralisation from its domestic central bank in wave 1 Open the DCA in the domestic NCB without immediate access to the auto- collateralisation Issue : economically not viable to settle big markets in T2S without any auto-collat if such process already available today in the CSD Open the DCA in the foreign NCB linked to the CSD migrating to T2S with immediate access to auto-collateralisation Issue : no cash consolidation

6 2.French NUG T2S position 2)Issue on linking securities and cash accounts AFTI letter on 1 August 2013 raising the point that “The Eurosystem praised many times the ability of T2S to optimise collateral through the pooling of cash and collateral and NCB auto-collateralisation. Custodians intend to pass on these benefits to their clients, in consistency with their general services and account structure requirements…One of the goals is to allow a bank to appoint a unique central bank (its national central bank) to provide intraday liquidity to cover the T2S needs, but using assets deposited in other jurisdictions (CSDs) and possibly held through different branches/subsidiaries.”  To access the central bank auto-collateralisation, the securities account(s) of the custodian must be identified with the same identifier (BIC8) than the DCA. This is not specified in the URD or UDFS  The branch of a French custodian using its own local BIC (e.g. in Italy) cannot access the auto-collateralisation (intraday credit) offered through its head office via its chosen central bank (e.g. Banque de France)

7 2.French NUG T2S position Alternatives if no flexible way to link securities and cash accounts Change the BIC of the custodian branch Issue : operational risk to manage the changes in standard settlement instructions (SSI) database of banks, risk of settlement fails Rely on the client collateralisation for branches Issues : not equivalent to central bank auto-collateralisation, additional operational procedures, settlement cost

8 3.Expectations 1.A ‘workaround’ to access the auto-collateralisation as of wave 1 from the domestic central bank 2.An adaptation of the primary CMB parametrisation with full technical flexibility to link securities accounts and the DCA for the auto- collateralisation Strong expectations to have both issues cleared for wave 1 to enable banks to reap full benefits of T2S whatever the set up of the bank

9 Q & A