Spanish Clearing and Settlement Reform

London, 13th May 2015

Current situation of the Reform. Test and CalendarJesús Benito. Chief Executive Officer of Iberclear, BME

Participant Entities in IBERCLEARJesús Benito. Chief Executive Officer of Iberclear, BME

Members in BME Clearing. OnboardingManuel Andrade. Managing Director Sales, BME Clearing, BME

Market Members in BMEBeatriz Alonso-Majagranzas. Equity Unit Deputy Director, BME

Migration. Calendar and HighlightsBeatriz Alonso-Majagranzas Equity Unit Deputy Director, BME

Agenda

Reform current situation.Testing & calendar

Jesús BenitoCEO of Iberclear, BME

Spanish equity market

STOCK EXCHANGE

CCP

IBERCLEAR

BME

PROJECT IMPACT

STOCK EXCHANGEChanges in interfaces

BME CLEARING CCPNew infrastructure

ARCO – IBERCLEAR SYSTEMNew systemN

EW

TR

AC

EA

BIL

ITY

AN

D

SU

PE

RV

ISIO

N S

YS

TE

M

Reform Calendar

PHASE I- EQUITY

PHASE I PHASE II

PHASE II- EQUITY & FIXED INCOME

Current situation

Legal frameworkLegal frameworkLaw 24/1988Law 24/1988Royal DecreeRoyal DecreeRegulationsRegulationsCircularsCirculars

Migration designMigration designDocumentation Documentation CTA 27/04CTA 27/04

Functional designFunctional designFunctional doc.Functional doc.Procedures manualProcedures manual

Local CSDsLocal CSDsSFI ModelSFI Model

PTIPTIFeesFees

Testing Phase Testing Phase

2015MAY JUN JUL AUG SEP OCT

                                                       

                                                                                                              

                                                       

Testing Phase

Voluntary testing

Certification mandatory testing

Daily Activity

PRODUCTION connectivity

Start-up & Migration

18/05 – 17/07

22/07 – 28/07

01/07 - 30/09

29/07 – 05/08

26/08 – 02/09

09/09 – 16/09

23/09 – 30/09

10/08 – 14/08Settlement T+2

Participants in Iberclear

Jesús BenitoCEO of Iberclear, BME

Participants in Equity (SCLV platform)

Participants in Fixed Income (CADE platform)

Certification tests

Contents

Participants in Iberclear

Before the 15th of Maythey have to state their

intention of

PARTICIPATING IN arco

Indicating membership condition

NOT PARTICIPATING IN arco

Indicating to what Participant will they transfer the securities

18th of May – 17th of July CERTIFICATION TESTSMandatory for Participants using their own Technical Means

Before the 4th of SeptemberRequest for opening accounts in arcoIn order to undertake the migration process

Before the 31st of July Presenting arco membership contracts

Participants in Equity (SCLV platform)

Before the 17th of July

CERTIFICATION TESTSfor CADE Participants which are also acting

as the Agent Bank for any of the issuances registered in the platform

Participants in Fixed Income (CADE platform)

• SCLV Participants using their own Technical Means in arco• CADE Participants acting as Agent Bank for any of the registered issuances

• Performed in the FORM testing environment• Certification Guide with the details of tests• Specific testing ISIN codes

• Open period from the 18th of May to the 17th of July• Pending to determine the date for these tests:

Corporate Actions Supervision Sending registrations requested by the issuer

Who?

How?

When?

Results

Certification Tests

• IBERCLEAR will send each Participant a report after the end of the period• The Participant will send a suitability certificate to IBERCLEAR• IBERCLEAR will inform on the passing of the mandatory tests

Members in BME Clearing. Onboarding.

Manuel AndradeManaging Director Sales, BME Clearing, BME

A new segment for BME Clearing

Members in BME Clearing

Necessary Documentation

Conformance tests

Margins

Open accounts

Summary

Index

The onboarding process is very quick and simple

Membership dossier will be available by the end of this month

From August 11 till September 1 you can submit the dossier

BME Clearing approval till September 30

August 10 Expected date for approval of the new segment

From August 11You may sign in by sending the documentation

requested

Members in BME Clearing

Need to sign only:- In case of being a clearer: • Agreement CM and BMEC• POA (authorization to settle in Iberclear accounts)• LRSLoan (only for lenders)

- In case of NOT being a clearer:• Agreement NCM and BMEC• Agreement NCM and GCM

In case of just being an Ordinary NCM:• Agreement ONCM and BMEC• Agreement ONCM and GCM

• Form of general info and contact persons

• List of authorized signatories

Existing Members

Necessary documentation

Form/request to join as a member

Form of general info and contact persons

Request certification to Spanish regulator

Questionnaire with seven questions

Certification of Spanish regulator

Photocopy of bylaws

Agreement Member and BMEC

Agreement GCM and NCM

Target 2 account

Credit rating

New Members

Necessary Documentation

Who?

• List of tests and certifications: • Set-up allocation references, filters and parameters

• Trades with external and internal allocations with no parameters and with filters

• Trades with module of parameters

• Trades including the account or the allocation reference in the order

• Hold and release

• Cancelation of Last Resort Securities Loan

• Member certifies BMEC that it correctly receives and interprets the information sent by BMEC

• BMEC will confirm with Iberclear that member has passed test of submitting bilateral trades from Iberclear for clearing at the CCP

• BMEC will confirm with SIBE that kill button test has been passed

• Compulsory to achieve membership in BME Clearing• In case of ISV it will be sufficient to have its conformance test

• From May 18 till July 17

Conformance tests

When?

Tests

Position Margin (by October 6)

•October 7 at 9am trades will start to be booked.•The intra day limit to book trades increasing margins is set to be the Individual Margin plus 5% of your equity (with a cap of 10 m for less than BBB- or non rated).•From that moment, if you exceed the limit we call you to post the excess plus 20% of excess.•Strongly recommended to ADVANCE margin to cover risk of 1 day.•How much? Approximately the amounts obtained within the test we will be running with real trades.

Default Fund

Individual Margin(not mutualized)

Position Margin

MarginsContribution to the Default Fund (by September 30)

• ICM: 0.5 m• GCM: 1 m

2% of all position margins called for all the accounts (by September 30)

• ICM: min. 0.5 m and max. 1 m• GCM: min. 1 m and max. 1.3 m

You may open accounts sending an e-mail with a specific form.

By default we will open the accounts reported in the form with static data to be sent before June 12.

From September 9 you may send us modifications.

Open accounts

May 29: Membership dossier is available

May 18 till July 17: Conformance tests

August 10 or before: Approval of the new segment by CNMV

From August 10 or before till September 1: Members will be sending the dossier

From September 1 till 30: BME Clearing will approve memberships

From September 9: Modify account set-up

Till September 30: Post contribution to DF and Individual Margin

Till October 6: Advance position margin.

Summary

BME Clearing Member Area

BME Trading Members

Beatriz Alonso-MajagranzasEquity Unit Deputy Director, BME

BME Trading Members

BME Trading Members

Contracts for Trading Members

Conformance Tests

New Fields in Order Messages

Index

• Designation of Clearing Member (to perform conformance test with)

• Submit declaration of test performance with or without service provider (back office)

• Deadline for counterparty members in the SICAV segment to designate a Clearing Member and Clearing Account

Before May 15

BME Trading Members

Before July 31

Before September 4

• Submit certificate of suitability

• Distribution of Conformance Test results

• Market Member Contracts Signed

Adhesion Contract

All market members have to sign it (up to 4 member codes) Acceptance of new market regulation (stock exchange regulations)Uniformity along the rest of infrastructuresSimplify current process

Kill button contract

To be signed by Non-Clearing Trading Members (tripartite)Part of the Adhesion ContractRequires conformance test

Notice of February 24, 2015

Contracts for Trading Members

1. Adhesion contract to the condition of Member of a Stock Exchange To be signed by all members of the different Exchanges. In addition, it is foreseen:

The certification of traders designated by the member and those that will be needed in order to request their training

A notification by the market member to the Exchange of its Clearing member at BME Clearing

An authorization to the Clearing member to use the technical facilities that enable to interrupt its trading activity

2. Tripartite contract: Market member, Clearing member and Sociedad de Bolsas to grant access to technical resources (BME PC Terminal)

3. Tripartite contract: Market member, Clearing member and BME Clearing to enable the Kill Button facility

Contracts for Trading Members

CONTRACTS WITH THE GOVERNING BODIES OF THE EXCHANGES

• Order testing (FIX 4.0)• Kill Button function

Conformance Test

SIBE SMART

• Ownership communications• Market members will have to inform when testing

has been fulfilled in order to be verified

OWNERSHIP COMMUNICATIONS

TRANSACTION REPORTING

• Reception of files

Who?

When?

How?

Conformance TestKill Button

• Market members• To be completed together with the Clearing member

• From May 18 to July 17 • Market members will receive a proposal of dates to complete

the test

• Access of the clearing member through BME PC• The clearing member code used in the market will be used in

the CCP

Who?

When?

How?

Conformance TestOwnership Communications

Market members

From May 18 to July 17

Ownership communications and ammendments:• Ownership communication of trades with BME Clearing• Ammendments to ownership previously communicated

Reception of information:• Generated files for market members• Information requests and reception of requested information• Members will certify the reception and interpretation of information

1. Clearing Member*

2. Allocation Reference

3. Mnemonic

4. Clearing account*

1.Identification of the receiving participating entity2.Clearing account of the receiving entity3.CCV (Securities account) of the receiving participating entity4.Identification of delivering participating entity5.Clearing account of the delivering entity6.CCV (Securities account) of the delivering participating entity

* Fields that must be filled in by the counterparty member of SICAVs

MARKET ORDERS

New Fields in Order Messages

TRADES THAT ARE NOT SETTLED THROUGH IN CCP

Equities Private Web

The migration.Calendar and highlights

Beatriz Alonso-MajagranzasEquity Unit Deputy Director, BME

First day of

arco settlementLast day of SCLV negotiation

Start of the CCPStart of the PTI

Last day of SCLV settlementDisconnection of AUD for Equities

TU06/oct/15

W07/oct/15

TH08/oct/15

F09/oct/15

S10/oct/15

SU11/oct/15

M12/oct/15

Migration. Key dates

Migration

• Mailing of forms and documents completed by the entities for the configuration of the post-trading real environment: Market Members, BME Clearing members and Iberclear participating entities.

May 12

• Pre-production environment configured to test go live and migration

July 29

June 12• Last day for the entities to submit the Communication

Configuration

• Go live and migrationOctober 7 - 12

• Last window and ‘end of day’ process• Balance sent to all the entities (all the accounts and all the ISIN

codes)• Validation required by all the entities (vía e-mail)

(The process of sending balances will begin 3 weeks before the migration, to make it easier for the entities)

• Balance conversionarco

arco • Balance sent to all the entities • Validation of the balance conversion required by the all the entities• Reorganization of the balances among the entity accounts• Validation of the reorganized balance

MigrationIberclear

October 9

October 10

SCLV

FIX 4.0 protocol will be available in July

Incorporation of the new reform fields as an option (orders with validity post Octubre 7, 2015)

The current FIX protocol will be discontinued

Implementation of Information required for the Reform

AUD for Equities will be discontinued

MigrationThe Market

Members in BME Clearing. Onboarding.

Manuel AndradeManaging Director Sales, BME Clearing, BME

Conclusions

Risk management through a CCP

MIFID II traceability standards from trading venues till final custody

Practices and processes adapted to T2S