Decision of the European Central Bank of 16 November 2011 establishing detailed rules and procedures for implementing the eligibility criteria for central securities depositories to access TARGET2-Securities services (ECB/2011/20) (2011/789/EU)

ANNEX DETAILED IMPLEMENTATION RULES FOR THE FIVE CENTRAL SECURITIES DEPOSITARY ACCESS CRITERIA

For the purposes of this Annex:

• ‘basic custody services’ means the holding and administration of securities and other financial instruments owned by a third party by an entity entrusted with such tasks. Such services include the safekeeping of securities, the distribution of interest and dividends on the securities in safekeeping and the processing of corporate actions on such securities,

• ‘investor CSD’ means, in the context of central securities depositary (CSD) links, a CSD that opens an account in another CSD (the issuer CSD) to enable the cross-CSD settlement of securities transactions,

• ‘issuer CSD’ means the CSD in which the securities have been issued and distributed on behalf of the issuer. The issuer CSD is responsible for processing corporate actions in the name of the issuer. The issuer CSD maintains accounts in its books in the name of investor CSDs for the transfer of securities to the investor CSDs,

• ‘technical issuer CSD’ means an investor CSD that holds securities with an issuer CSD not participating in T2S and is considered an issuer CSD for the functioning of T2S with respect to such securities,

• ‘investment fund shares’ means portions of ownership of an investment fund’s net assets that investors receive in return for their investments of capital.

I. Implementation details for CSD access criterion 1

In order to receive a positive assessment against this criterion:

(a)

for a CSD located in a European Economic Area (EEA) country, the CSD must be included on the list of designated systems maintained in accordance with Article 10 of Directive 98/26/EC; and

(b)

for a CSD located in a non-EEA country, a legal opinion, as updated from time to time when there are material changes that might have an impact on the legal opinion or when requested by the T2S Programme Board, from a firm approved by the T2S Programme Board must be submitted, confirming that the CSD operates under a legal and regulatory framework equivalent to the relevant one in force in the Union.

II. Implementation details for CSD access criterion 2

Where a CSD does not fully comply with all ESCB/CESR recommendations, the respective CSD will inform the T2S Programme Board of the relevant details and provide explanations and evidence regarding those ECSB/CESR recommendations with which it does not comply. The CSD will also provide the T2S Programme Board with the conclusions by the relevant competent authorities in the assessment report. The assessment conclusions will be processed in accordance with the relevant application procedures for access to T2S services and ongoing compliance with the five CSD access criteria. Where a CSD with access to T2S services no longer complies with one of the five CSD access criteria, the T2S Programme Board will initiate the procedure provided for in the contracts with the CSDs.

A CSD will fulfil this CSD access criterion where:

(a)

for a CSD located in an EEA country, the relevant competent authorities have given that CSD a positive assessment under the ESCB/CESR recommendations; and

(b)

for a CSD located in a non-EEA country, the relevant competent authorities have given that CSD a positive assessment under the ESCB/CESR recommendations or equivalent standards, such as the proprietary standards of a relevant competent authority or the CPSS/IOSCO Recommendations(1). In the latter case, the T2S Programme Board or the Governing Council respectively must be provided with evidence that the CSD has been assessed against standards of a similar level and nature.

Where the relevant competent authorities’ assessment contains confidential information, the CSD must provide a general summary or the assessment conclusion to show its level of compliance.

III. Implementation details for CSD access criterion 3

A CSD with access to T2S services is not required to hold all its accounts and balances in T2S for every security/ISIN it issues or for which it acts as technical issuer CSD. However, it must make a security/ISIN available at no additional cost, without delay, and with a contract that does not impose unreasonable conditions on requests by the users of the investor CSD in T2S. Some investment fund shares may not be automatically available to the investor CSD opening an account with the issuer CSD due to legal restrictions on cross-border distributions applicable to the investment fund share issuers.

An issuer CSD is required to comply with the national regulatory framework, but may not pass on costs resulting from the application of this framework to other CSDs in T2S. This requirement ensures that the costs of complying with the national regulatory framework stay local and that there is reciprocity among CSDs in T2S. In addition, this requirement promotes a harmonised settlement processes in T2S to the extent possible.

An issuer CSD is required to comply with the national regulatory framework, but it must support an investor CSD requesting access and it may not apply an additional settlement cost. Any delay caused by compliance with the national regulatory framework must apply equally to all parties.

The investor CSD may request a security/ISIN that is not yet available in T2S from the respective issuer CSD or technical issuer CSD. Upon receiving such a request, the issuer CSD or technical issuer CSD enters all the security’s reference data in T2S and makes them accessible within the time-frame defined in the Manual of Operational Procedures to be provided by the Eurosystem to the CSDs and the CBs.

Provided the investor CSD has signed the required contractual terms, the issuer CSD opens, without undue delay, at least one securities account for a specific security/ISIN for the investor CSD. Refusal by an issuer CSD to open a securities account and provide the investor CSD with access to the issuer CSD’s securities constitutes non-compliance with CSD access criterion 3.

The investor CSD must report to the T2S Programme Board every case of non-compliance with CSD access criterion 3 by an issuer CSD. Depending on the nature and occurrence of non-compliance, the T2S Programme Board will determine if the issuer CSD shows a consistent failure to comply, in which case the procedure provided for in the contracts with the CSDs, pursuant to Article 16 of Guideline ECB/2010/2, will apply.

IV. Implementation details for CSD access criterion 4

This CSD access criterion conforms to the Access and Interoperability Guideline(2) which states that investor CSDs shall have access to issuer CSD services based on the same terms and conditions as provided to any other standard participant of the issuer CSD.

In order for an investor CSD to provide settlement services for securities issued by an issuer CSD, the investor CSD must also provide its participants with basic custody services in relation to those securities. T2S offers core cash and securities settlement in central bank money, where the basic custody services are provided outside T2S.

The issuer CSD must comply with the T2S Corporate Actions Subgroup Standards(3) and all relevant T2S standards or market practices.

The investor CSD must be treated as any other issuer CSD client. An issuer CSD may not impose technical barriers or offer preferential conditions to investor CSDs to access basic custody services.

V. Implementation details for CSD access criterion 5

A level playing field must be maintained between direct and indirect holding markets in implementing CSD access criterion 5. A CSD from a direct holding market may in principle migrate to T2S either by integrating all its securities accounts into T2S or by using the layered model with technical participant accounts in T2S and the end-investor accounts remaining on the local CSD platform. CSD access criterion 5 is fully met where a direct holding market chooses to fully integrate and maintain all its securities accounts in T2S. However, where a direct holding market chooses to migrate to T2S with the layered model, the T2S Programme Board’s evaluation of the associated processes inside and outside T2S, taking into account the essence of CSD access criterion 5, must indicate whether the market needs to request a derogation from CSD access criterion 5.

(1)

Committee on Payment and Settlement Systems (CPSS)/Technical Committee of the International Organization of Securities Commissions (IOSCO) Recommendations for securities settlement systems, available on the Bank for International Settlements website at: www.bis.org

(2)

The Access and Interoperability Guideline of 28 June 2007, defining the principles and conditions for access and interoperability in line with the Code of Conduct, available on the European Commission’s website at: http://ec.europa.eu

(3)

Available on the European Central Bank’s website at: www.ecb.europa.eu