On 8 March 2007, the Governing Council decided to review the current Eurosystem collateral management handling procedures, in particular, the Correspondent Central Banking Model (CCBM). It decided to develop a single platform, allowing the Eurosystem to manage collateral for both domestic and cross-border operations, based on existing systems such as that of the Nationale Bank van België/Banque Nationale de Belgique and De Nederlandsche Bank. Work will be conducted in parallel with the TARGET2-Securities (T2S) project in order to exploit all possible synergies and avoid any overlap.
As already announced in the press release of 8 March 2007 (see http://www.ecb.europa.eu/paym/t2s/decisions/html/nextphase.en.html), market participants are invited to contribute to the definition of the user requirements for this new arrangement, which will be called the Collateral Central Bank Management (CCBM2).
The current CCBM has been the main instrument for the cross-border provision of collateral for Eurosystem credit operations since the start of Economic and Monetary Union in 1999. It has contributed significantly to the smooth implementation of the single monetary policy and the soundness and efficiency of payment systems. Despite these achievements, the CCBM appears to have a number of shortcomings, mainly linked to the fact that it was designed as an interim solution pending the emergence of private sector market initiatives, which to date have not materialised. The main concerns relate to the non-homogeneous degree of automation between the central banks, the incompatibility of CCBM arrangements with domestic procedures and the lack of standardisation (repo, pool, earmarking, pledge, margining, procedures, cut-off times, communication protocols used at domestic level, messaging and pre-depositing), which prevent global players from having a centralised collateral management. However, as not all the aforementioned shortcomings fall within the remit of central banks, they cannot all be addressed by CCBM2.
The basic objective of CCBM2 is to increase the efficiency of the Eurosystem’s internal systems for collateral management, addressing to the extent possible the identified drawbacks by optimising the cost of mobilising collateral and enhancing liquidity management. The scope of CCBM2 goes beyond that of the current CCBM and will establish efficient methods for delivering and accepting both securities and credit claims at domestic and cross-border levels with a harmonised level of service based on SWIFT communication protocols. This standardised procedure will facilitate the interaction of counterparties acting as collateral providers with the Eurosystem, particularly for those active in more than one country of the euro area.
The CCBM2 will be implemented in line with the following principles.
The CCBM2 will provide a service to central banks in that it will rationalise their internal organisation when handling collateral in credit operations. CCBM2 will be based on existing systems such as that of the Nationale Bank van België/Banque Nationale de Belgique and De Nederlandsche Bank.
There will be a common communication tool with standardised interfaces and harmonised messaging protocols, allowing all participants, i.e. central banks and counterparties, to monitor the flow of messages in real time. In proposing the CCBM2 project, which is a medium-term project, it is recognised that initiatives undertaken to remove the Giovannini Barrier 1 (harmonisation of communication protocols) should result in an increased level of harmonisation in terms of communication standards. Furthermore, the CCBM2 will rely on a communication interface with the future market infrastructure consisting of TARGET2 and, subsequently, T2S.
CCBM2 will perform central bank functions related to the management of instructions regarding the domestic and cross-border delivery of collateral (automatic creation and sending of instructions; follow-up to settlement cycle until the final settlement status is reached).
The CCBM2 will perform central bank functions related to the custody of securities (keeping records of mobilised securities according to local securities accounting rules; processing of all corporate actions according to local practices; supporting tax services) ultimately held at the local Central Securities Depository (CSD). The work currently being undertaken (by the European Central Securities Depositories Association and European Credit Sector Association) for the removal of the Giovannini barrier 3 related to the processing of corporate actions should benefit CCBM2 as it will handle collateral and related corporate actions from all eligible Securities Settlement Systems (SSSs) in the Eurosystem.
In addition, CCBM2 will also incorporate a function for facilitating the use of credit claims as collateral.
The CCBM2 will process collateral transactions in real-time STP and allow for the speeding up of credit provision, whether in the provision of intraday credit in TARGET2, marginal lending facilities or settlement of reverse transactions.
Links between SSSs in various countries have been established for some time. Insofar as the ECB’s Governing Council has deemed such links eligible for use in Eurosystem credit operations, they represent a valid alternative to the current CCBM. They will continue to be an alternative for the cross-border transfer of collateral once the CCBM2 has been implemented.
Since the users of the CCBM2 will comprise the Eurosystem central banks and their counterparties, the Eurosystem is now consulting its counterparties and other interested parties, especially the CSDs, in order to obtain input regarding the user requirements for this project. Respondents are invited to communicate their suggestions and to raise any queries they might have at this stage of the project, as well as to address the following questions:
Comments are invited from all interested parties by 27 June 2007.
Any comments received will be made public on the internet, unless it is clearly indicated that the author does not consent to such publication. Comments should be sent in English or in the relevant official Community language to the ECB at the following address:European Central Bank
or to the respective national central bank of the Eurosystem.back to top