Preparing for co-operation with T2S

In 2010, KDPW and Eurosystem signed a Unilateral Undertaking, a counterpart to a Memorandum of Understanding. As a result, KDPW became the 29th European securities depository to take part in the TARGET2-Securities project (T2S), a European securities settlement system currently developed by Eurosystem. In line with the Unilateral Undertaking, KDPW participates in work aiming to define the functionalities of the European trade settlement platform and to draft the provisions of a Framework Agreement which will lay down the terms of use of T2S by securities depositories.

KDPW representatives participate in the work of international groups managing T2S:

• Advisory Group;
• CSD Contact Group;
• Project Managers Group.

As a part of the project, KDPW together with the National Bank of Poland has established a T2S National Users Group NUG_PL, a forum of consultation and presentation of positions concerning T2S for domestic market participants. The standing members of NUG_PL are the National Bank of Poland (NBP), banks and brokers, as well as observers: the Ministry of Finance, the Polish Financial Supervision Authority (KNF), and the Warsaw Stock Exchange (WSE).

In November 2011, Eurosystem approved the wording of the Framework Agreement and proposed that the securities depositories sign the Framework Agreement in April or June 2012. Depositories which sign the Framework Agreement at the earlier date and take part in the first or second wave of migration to T2S will be entitled to promotional fees until all depositories have migrated to T2S.

KDPW is currently performing impact analyses concerning the scope of modifications in the KDPW system required by migration of settlement to T2S. The final decision concerning KDPW’s co-operation with T2S is expected by the end of June 2012 following the completion of feasibility studies.

Target date: Q3 2016,

Hold-release mechanism of matching settlement instructions

The goal of the project is to enable the matching of settlement instructions according to the international standards published in 2006 (“Proposals to harmonise and standardise pre-settlement date matching processes throughout Europe”) drafted by the European Securities Forum (ESF, since 2008 the European Securities Services Forum - ESSF) in collaboration with the European Association of Central Securities Depositories (ECSDA). These modifications will facilitate the preliminary matching of settlement instructions, enable early matching and acknowledgement of the terms of clearing irrespective of the availability of cash or securities and, in case of participants for whom the availability of cash or securities is not critical, settlement will only require a single instruction. The list of modifications resulting from the implementation of the international standards additionally includes proposals of participants presented in meetings held in 2010 including S&R NMPG PL meetings.

• hold-release functionality;

• acceptability of settlement instructions with a back settlement date as a strict matching criterion;

• modification of the overdue status of settlement instructions – 30 calendar days after the expected settlement date or last status update;

• two tolerance limits depending on transaction amount (currently depending on operation type) for matched settlement instructions;

• general mechanism of transaction amount tolerance for matched settlement instructions;

• reporting the reasons for lack of matching in the instruction status message;

• use of the final client identifier in the matching of settlement instructions.

• Detailed requirements were  under consultation with participants in 2011.

Target date: May 2012,

Securities lending initiated by participants

In order to provide market participants with tools stimulating growth of securities lending in Poland, KDPW in collaboration with the Warsaw Stock Exchange developed a concept of the securities lending mechanism in 2010. Its main assumption is a simplified system of concluding lending contracts / transactions based on maximum utilisation of existing solutions and minimum modifications to the IT systems of KDPW and participants. A special application will enable KDPW participants to present anonymous offers as lenders or borrowers. Upon acceptance of an offer, the application will automatically generate clearing documents for kdpw_stream, where they will be cleared on the terms of the lending contract. The return of a loan will be guaranteed with the resources of the clearing guarantee system. The main collateral of loans will be initial margins contributed exclusively in cash and transferred to the lender. Other resources will include maintenance margins calculated by the SPAN module on each day of the term of the loan as well as the clearing fund and the own capital of the clearing house KDPW_CCP.

Target date: Q1 2012

Preparing for the management of omnibus accounts

The project will allow foreign CSDs and foreign investment firms and banks which do not operate securities accounts in Poland to open omnibus accounts in KDPW, in which financial instruments held by their clients can be recorded provided that such financial instruments are registered by such institutions outside the securities depository supervised by KDPW. As a result, foreign intermediaries which do not conduct operations in Poland will get access to clearing and settlement services offered by KDPW.

Target date: Q2 2012

Standardisation and automation of corporate actions

The project includes:
1. Automation and standardisation of the exchange of information with issuers concerning corporate actions involving the payment of entitlements due from issuers to holders of securities. An electronic system of communication with domestic issuers of securities via a secure website will support:

• electronic transmission of corporate action information by issuers;
• generation of corporate action messages for participants (dividend payment, interest payment, redemption of securities, investment certificates actions, etc.);
• monitoring of corporate actions by issuers;
• reporting the amount of entitlements to be paid by issuers.

2. Standardisation of corporate actions provided to foreign companies for which KDPW is not the home depository. Selected processes will be automated in the project including:

• corporate actions will be reported to participants in XML messages;
• instructions (information) for foreign CSDs/ICSDs will be generated on the basis of XML messages received from participants.

3. Participation in General Meetings including proxy voting:
The project will develop a fully automated electronic system of communication with issuers of securities and KDPW participants via a secure website and ISO20022 messages exchanged between KDPW and participants.

Target date: Q2 2012

Automation of subscription rights services – data exchange with participants

According to existing regulations, on the basis of ISO20022, automation of subscription rights services involving the exchange of information between KDPW and participants other than issuers will facilitate the exchange of information in the provision of subscription rights services and reduce the amount of paper documentation in relations with participants.

The development of system solutions for subscription rights services includes:

1. automation of services at KDPW level;
2. electronic exchange of documents between KDPW and participants;
3. implementation of new / modification of existing structures of messages in kdpw_stream used in subscription rights services under ISO20022.

Target date: Q1 2013

Automatic partial settlement

KDPW has begun preparations for the implementation of new functionalities of automatic partial settlement in kdpw_stream in order to support the optimisation of settlement. Automatic partial settlement will be used in internal system functions to optimise the volume of settled transactions as an element of risk management in case of KDPW participant default procedures and as an additional service offered to KDPW participants (clearing houses in case of transactions on the organised market, other participants in case of transactions outside the organised market). The implementation of automatic partial settlement will strengthen the liquidity of settlement in kdpw_stream.

Target date: Q3 2013

Modifications of the Compensation System

The planned modifications will improve the protection of investors’ interests in case of insolvency of an investment firm and streamline the procedures of the compensation system. This will be possible thanks to legislative amendments, which will on the one hand leave system management functions with KDPW and on the other hand:

• increase the investor protection threshold;
• modify the character of system resources and the rules of charging contributions from participants;
• shorten the deadline for the notification of compensation claims;
• regulate relations between the entity which prepares lists of eligible compensation beneficiaries and KDPW.

Target date: Q2 2012