05 January 2014

ECB: Framework for the assessment of securities settlement systems

The ECB published its Framework for the assessment of securities settlement systems and links to determine their eligibility for use in Eurosystem credit operations. The assessment of SSSs and links between SSSs to be used in Eurosystem credit operations is conducted under a two-layer approach.

For user standards which overlap with oversight requirements, the Eurosystem, in its user capacity, relies on the oversight assessments of CSDs/ICSDs; this constitutes the first layer of the user assessment. For user standards that reflect specific requirements related to the use of the securities market infrastructure for settlement of Eurosystem credit operations and are therefore not covered by oversight standards a dedicated assessment will be conducted by the Eurosystem; this constitutes the second layer of the user assessment.

Standard 1: Legal soundness

All SSSs and the links between such systems must have a sound legal basis, ensuring that the settlement of payment and securities transfers is final, and must provide for adequate protection for the rights of the NCBs and the ECB in respect of securities held in their accounts in such systems. The entitlement to securities held within a system shall not expose NCBs (or the ECB, under exceptional circumstances as decided by the Governing Council), as collateral takers to the insolvency of the system operator or of a third party (e.g. a depository). Any shortfall allocation and procedures to claim securities under the legal framework of an SSS should be clear and transparent.

Standard 2: Settlement in central bank money

SSSs shall enable the use of central bank money for the delivery-versus-payment (DvP) settlement of Eurosystem credit operations. If DvP settlement is not used, collateral shall be pre-deposited on a free-of-payment (FOP) basis. Eurosystem credit operations shall be settled on a DvP basis only if DvP is executed in central bank money, i.e. the settlement of the cash leg of the transaction takes place between accounts held within the Eurosystem. If DvP settlement is not used, collateral shall be pre-deposited on an FOP basis.

Standard 3: No undue custody risk

SSSs shall employ adequate measures to protect collateral provided to the Eurosystem by counterparties in credit operations against custody risk. CSD which operates an SSS shall have a unique and direct relationship with the issuer, or its SSS shall have a direct or relayed link with an SSS operated by a CSD which has this relationship. In the case of links where an operator represents the investor SSS in its relationship with the issuer SSS (operated links), the investor SSS shall ensure that the Eurosystem is not exposed to custody risk originating from the operator and that the Eurosystem has access to its collateral at any point in time.

Standard 4: Intraday finality of settlement

SSSs shall provide facilities to settle Eurosystem credit operations with intraday finality. An SSS used for the settlement of central bank transactions shall have facilities in place to allow the option of either intraday DvP settlement in central bank money or intraday FOP settlement (this may take the form of real-time gross settlement (RTGS) or a series of batch processes with intraday finality).

Standard 5: Operating hours and days

The operating hours and opening days of SSSs shall comply with Eurosystem requirements for conducting credit operations.

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