Securities Industry Payments Messaging: Challenges & Solutions

1. Securities Related Payments • Goal of Today’s Discussion: • ISITC is looking to raise awareness within the securities industry of issues/concerns of payments messaging across MT and MX • Background: • Multiple messages are used in both MT and MX for IM to Custodian and Custodian to Sub-custodian messaging • Securities Industry cash processing needs do not always match Payments Industry requirements • Ultimate goal is a set of messages that meets the needs of the securities world for cash processing.

2. Securities Related Payments • Business scenarios classified as payments related to securities processing: • Clean cash wire instruction between IM and Custodian • Cash Collateral (Options, Forwards, Swap, Repo, Lending) • Payments related to accounting-only security instructions (Bank loans, Swaps) • Cash netting (TBA pair-off wire nettings, FX forward nettings) • Sample of Issues Identified by ISITC for Securities Industry: • Need for a cash purpose codeword on instruction for accounting purposes and segregation of cash held at the custodian • Bulking/Netting of clean cash payments and receipts which have underlying accounting processes occurring • ACTION: SMPG members to review within their markets and add additional securities related payment processing scenarios

3. Securities Related Payments • MT Usage: • Differences in message use by securities and payments industries • Refer to table on next slide highlighting MT messages currently used by the payments industry vs. what are the ISITC (securities industry) recommended messages • ISITC currently has market practices recommending format of MT202, 210 and 103 messages • Usage of 202/210 vs. 103 are not consistent between global participants even within the securities industry • There is no differentiation of messaging between IM to custodian vs. Custodian to Sub-custodian/CSD

4. Securities Related Payments

5. Securities Related Payments • MX Usage: • Proposed usage of messages inconsistent between Securities and Payments industries • Table on next slide highlights the inconsistency in MT vs. MX recommendations communicated to the securities industry by SWIFT Standards • PAIN001 recommended for IM to custodian payment • CAMT057 recommended for IM to custodian receipt • PACS008 recommended for custodian to Sub/CSD payment • PACS003 recommended for custodian to Sub/CSD receipt

6. Securities Related Payments

7. Securities Related Payments • Next steps • Take information back to your NMPG subject matter experts for feedback and agreement • Participate in upcoming global conference calls to document recommendation by Securities Industry on Payments • Cross industry discussions and harmonization between: • Payments • Securities • Investment funds • Goal of Securities related payments sub-group • ISITC is looking for agreement by the securities industry globally on the set of messages to be used for cash processing.

8. T2S input: Messages in T2S - principles • Use of full ISO 20022 only, implementing coexistence to facilitate the needs of the markets and minimising the technical impact for participants; • For the development phase, apply a lean T2S approach:re-use existing messages as much as possible, try and have the same functional approach across business areas, in particular in the domain of reference data, from securities to parties.

9. Messages development in T2SSuggestions by SGMS • re-use existing messages as much as possible: • Suggest enriching payment messages (e.g. camt.053) with settlement instruction related information; • try and have the same functional approach across business areas, in particular in the domain of reference data, from securities to parties: • Consultation of the Cross-SEG Harmonisation Team on the apparent heterogeneous application of the granularity principle across business areas (specific case of reference data)