International Finance Bank LTD

Securities Transfers, 

SSS

The Securities Settlement System (SSS) 

plays a pivotal role in the financial markets by acting as the operational framework that facilitates the settlement of securities transactions between banks and the Central Securities Depository (CSD). While the CSD is responsible for the safekeeping and accurate recording of securities ownership, the SSS provides the mechanisms and processes through which securities and funds are transferred between parties. 

 

Here’s how the SSS functions between banks and the CSD: 

 

1. Facilitating the Settlement Process 

  • Transaction Processing: When banks engage in securities transactions (such as buying or selling), they submit settlement instructions to the SSS. 
  • Instruction Matching: The SSS matches these instructions to ensure both the buyer and seller agree on the transaction details (security type, quantity, price, settlement date). 
  • Coordination with the CSD: Once instructions are matched, the SSS coordinates with the CSD to update the ownership records, effectively transferring the securities from the seller’s account to the buyer’s account within the CSD. 

 

2. Ensuring Delivery Versus Payment (DvP) 

  • Simultaneous Exchange: The SSS ensures that the delivery of securities and the corresponding payment occur simultaneously. This mechanism minimizes the risk that one party defaults after the other has fulfilled their obligation. 
  • Risk Mitigation: By enforcing DvP, the SSS reduces counterparty risk and enhances the integrity of the settlement process. 

 

3. Acting as an Intermediary Between Banks and the CSD 

  • Communication Hub: The SSS serves as the central point of communication for settlement instructions between banks and the CSD. 
  • Standardisation: It uses standardized messaging formats (such as SWIFT messages) to facilitate clear and efficient communication. 

 

4. Providing Settlement Finality and Legal Certainty 

  • Irrevocable Settlements: The SSS ensures that once a transaction is settled, it is final and cannot be reversed. This provides legal certainty to both parties involved. 
  • Regulatory Compliance: It operates under a legal framework that complies with national and international regulations, providing confidence in the settlement process. 

 

5. Managing Cash Settlements 

  • Funds Transfer Coordination: For transactions involving payments, the SSS coordinates with payment systems (often central bank systems) to transfer funds from the buyer’s bank to the seller’s bank. 
  • Integration with Payment Systems: This integration ensures that the cash leg of the transaction is settled efficiently alongside the securities leg. 

 

6. Enhancing Operational Efficiency 

  • Automated Processes: The SSS automates settlement processes, reducing manual errors and increasing speed. 
  • Real-Time Processing: Some SSS platforms offer real-time or near-real-time settlement capabilities, improving liquidity and reducing settlement cycles. 

 

7. Supporting Risk Management 

  • Monitoring and Controls: The SSS monitors settlement exposures and can implement controls such as blocking unsettled transactions to manage risk. 
  • Default Handling Procedures: It has procedures in place to handle defaults or failures in the settlement process. 

 

8. Facilitating Cross-Border Settlements (If Applicable) 

  • Linkages with Other SSS/CSDs: For international transactions, the SSS may have connections with other settlement systems to facilitate cross-border securities transfers. 
  • Currency Management: It can handle settlements in multiple currencies, coordinating foreign exchange transactions when necessary. 

 

Key Takeaways: 

  • Operational Backbone: The SSS acts as the operational backbone that enables the practical settlement of securities transactions, ensuring that the theoretical transfer of ownership agreed upon in trades becomes a reality. 
  • Risk Reduction: By managing the processes that ensure simultaneous exchange of securities and funds, the SSS reduces settlement risk and promotes stability in the financial system. 
  • Efficiency and Standardization: The SSS enhances efficiency through automation and standardized procedures, benefiting all market participants by reducing costs and settlement times. 
  •  Regulatory Alignment: It ensures that all settlements comply with relevant regulations and standards, providing a secure environment for securities transactions. 

T2S

T2S, or TARGET2-Securities, is not a Central Securities Depository (CSD) but rather a pan-European platform for the settlement of securities transactions from one electronic settlement account to another. It was launched in 2015 by the European Central Bank (ECB) and is operated by the Eurosystem, which consists of the ECB and the central banks of the European Union member states that have adopted the euro as their currency.

The primary goal of T2S is to harmonize and integrate the post-trade landscape in Europe, providing a single platform for settling securities transactions in central bank money across multiple European markets. T2S connects with various CSDs, allowing them to use its services for the settlement of securities transactions.

T2S operates on a Delivery-versus-Payment (DvP) model, ensuring that the transfer of securities and the corresponding payment occur simultaneously. This process reduces settlement risk and enhances the efficiency of securities transactions.

In summary, T2S is not a CSD but a platform that facilitates the settlement of securities transactions across Europe. It works in conjunction with multiple CSDs to provide a more efficient and integrated post-trade infrastructure in the region.

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T2-Securities

When investors buy and sell securities the security and payment need to change hands – a process called securities settlement. TARGET2-Securities, or T2S, is a safe platform where the exchange can happen simultaneously, i.e. where delivery versus payment is possible.

To understand how T2S works, please, see the video, for the manual here

Target 2 Securities (T2S) is a platform for the settlement of domestic and cross-border securities transactions in the European Union. It was developed by the Eurosystem, which is the collective of the central banks of the EU countries that have adopted the euro as their currency.

T2S was created to improve the efficiency and cost-effectiveness of securities settlement in the EU by providing a single platform for the settlement of all types of securities, including government bonds, corporate bonds, and equities. It aims to reduce the number of intermediaries involved in the settlement process, which can help to lower costs and reduce the risk of errors or delays.

T2S operates on a "delivery versus payment" (DvP) basis, which means that securities are delivered to the buyer only after payment has been received from the seller. This helps to ensure that securities are transferred safely and securely, reducing the risk of fraud or errors.

In addition to its core settlement function, T2S also offers a range of other services, including asset servicing, safekeeping, and collateral management. These services are designed to help market participants manage their securities portfolio more efficiently and effectively.

Overall, T2S is an important part of the infrastructure that supports the functioning of the European securities market. It helps to ensure that securities transactions are settled quickly, safely, and cost-effectively, which helps to promote confidence and stability in the market.

CASCADE-RS 

Clearstream's CASCADE-RS (Real-time Settlement) system is a securities settlement platform designed to facilitate the real-time settlement of German domestic securities, including government bonds, corporate bonds, and equities. It is operated by Clearstream, a leading Central Securities Depository (CSD) and a member of the Deutsche Börse Group.

The CASCADE-RS system streamlines and accelerates the post-trade process for German domestic securities by providing real-time settlement services, which can improve the efficiency and security of securities transactions.

Here's how the CASCADE-RS system operates:

  1. Trading: Investors buy and sell German domestic securities through brokers or trading platforms. Once a trade is executed, the transaction details are sent to a central counterparty (CCP) for clearing.
  2. Clearing: The CCP acts as the buyer for every seller and the seller for every buyer, reducing counterparty risk. It calculates the net obligations of each participant and ensures that they have the required collateral to cover their positions.
  3. Real-time settlement: CASCADE-RS receives the cleared transactions from the CCP and facilitates the settlement process in real-time, rather than waiting for a specific settlement cycle or window. This real-time settlement capability enhances the efficiency and reduces the risk associated with securities transactions.
  4. Delivery-versus-Payment (DvP): CASCADE-RS operates on a DvP model, ensuring that the transfer of securities and the corresponding payment occur simultaneously. This process minimizes settlement risk and promotes the security of securities transactions.
  5. Reconciliation and reporting: CASCADE-RS reconciles the settled transactions and provides reporting services to participants, allowing them to keep track of their positions and transaction details.


By offering real-time settlement services, Clearstream's CASCADE-RS system enables market participants to settle their German domestic securities transactions more efficiently and securely. This innovation in the post-trade process can contribute to a more stable and robust financial ecosystem.

The largest Securities Settlement Systems (SSSs). 

 

1. TARGET2-Securities (T2S) - Europe 

  • TARGET2-Securities is a centralized platform developed by the European Central Bank (ECB) and the Eurosystem to harmonize and streamline securities settlement across Europe. Provides Delivery-versus-Payment (DvP) settlement in central bank money for securities transactions. 
  • Integrates multiple European Central Securities Depositories (CSDs) into a single technical platform. Settles transactions for over 20 European CSDs. Handles significant volumes of both domestic and cross-border settlements, enhancing liquidity and efficiency in European financial markets. 

 

2. Fedwire Securities Service - United States 

  • Operated by the Federal Reserve Banks, the Fedwire Securities Service is a real-time gross settlement system for securities. Facilitates the issuance, transfer, and settlement of U.S. Treasury securities, government agency securities, and mortgage-backed securities. 
  • Provides real-time, DvP settlement in central bank money. Processes a high volume of high-value transactions daily, crucial for the U.S. financial system. Integral to the functioning of the U.S. government securities market. 

 

3. CREST Settlement System - United Kingdom 

  • CREST is the UK’s securities settlement system, operated by Euroclear UK & International. Settles UK and Irish equities, bonds, and money market instruments. 
  • Offers real-time, DvP settlement in central bank money. Processes millions of transactions annually. Essential for the smooth operation of the London Stock Exchange and other UK financial markets. 

 

4. DTC Settlement Services - United States  

  • While the Depository Trust Company (DTC) is a CSD, it also operates one of the largest SSSs through its settlement services. Provides settlement for equities, corporate bonds, municipal bonds, and money market instruments. Utilises netting and real-time settlement processes to enhance efficiency. 
  • Processes securities transactions valued at over $1.85 quadrillion annually. Serves thousands of participants, including broker-dealers and banks. 

 

5. JASDEC Settlement System - Japan 

  • The Japan Securities Depository Center (JASDEC) operates Japan’s primary SSS. Settles transactions for equities, corporate bonds, commercial paper, and other securities. Provides DvP settlement and book-entry transfer services. 
  • Supports one of the largest securities markets globally. Handles substantial daily transaction volumes essential for Japan’s financial system. 

 

6. Clearstream Settlement Services - Germany and Luxembourg 

  • Clearstream operates settlement systems for both domestic (Germany) and international securities. Offers settlement services for bonds, equities, and investment funds. Provides both free-of-payment (FoP) and DvP settlement options. 
  • Processes over 60 million international transactions annually. Integral to European and international securities settlement. 

 

7. ASX Settlement and Austraclear - Australia 

  • Operated by the Australian Securities Exchange (ASX), these systems provide settlement services for equities and fixed-income securities. ASX Settlement: Manages the settlement of equities and warrants. Austraclear: Handles the settlement of debt securities and derivatives. Both systems offer DvP settlement. 
  • Crucial for Australia’s financial markets, processing significant transaction volumes daily. 

 

8. China Securities Depository and Clearing Corporation (CSDC) Settlement System - China 

  • While CSDC functions as a CSD, it operates China’s primary SSS. Settles A-shares, bonds, and other securities traded on the Shanghai and Shenzhen stock exchanges. Implements DvP settlement mechanisms. 
  • Supports one of the fastest-growing and largest securities markets in the world. Handles millions of transactions daily. 

 

9. National Settlement Depository (NSD) Settlement System - Russia 

  • NSD acts as both Russia’s CSD and SSS. Provides settlement services for a wide range of securities, including equities and bonds. Offers DvP settlement in central bank money. 
  • Essential for Russia’s financial infrastructure, processing large volumes of domestic and cross-border transactions. 

 

10. Strate Settlement System - South Africa 

  • Strate operates South Africa’s main securities settlement system. Settles equities, bonds, money market instruments, and derivatives. Provides DvP settlement to reduce counterparty risk. 
  • Processes millions of transactions annually, vital for South Africa’s financial markets. 

 

Key Characteristics of Major SSSs: 

  • Delivery-versus-Payment (DvP) Settlement: Ensures that the transfer of securities occurs if and only if the corresponding payment is made, reducing settlement risk. 
  • Integration with Payment Systems: Many SSSs are linked with real-time gross settlement (RTGS) systems operated by central banks to facilitate the cash leg of transactions. 
  • Central Bank Money Settlement: Using central bank funds for settlement minimizes credit risk compared to commercial bank money. 
  • Standardisation and Efficiency: Employ standardized protocols and messaging systems (e.g., SWIFT) to enhance operational efficiency. 
  • Regulatory Compliance: Operate under stringent regulatory frameworks to ensure financial stability and compliance with international standards. 

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