Clearstream And Bundesbank Unveil Improvements In Settlement Process For The German Market

On Tuesday, Clearstream Banking AG and the Deutsche Bundesbank presented details of the new German Settlement Model developed together with the banking industry. The Deutsche Bundesbank supports Clearstream Banking AG in its sustained efforts to improve the efficiency and security of German securities settlement. The new process will replace the current cash clearing, which is based upon post-batch cash debits. Thereby Clearstream will fulfil in future the requirements of the central banks with regard to the elimination of unwinding risk.

These requirements have been defined for settlement systems considered important for the stability of financial markets. The new model will change the cash settlement procedures for securities transactions. It is foreseen that central bank liquidity (cash holdings and / or available collateral) will be blocked at the Bundesbank and therefore considered available for use before the start of each processing batch. The usage of central bank liquidity is beneficial from a risk perspective and was also required by market participants due to its credit- and liquidity-risk-free nature. Market participants will benefit from possible cash proceeds resulting out of securities settlement significantly earlier in the day. For example, future cash receipts resulting from night-time settlement will be available as of 07:00 am to cover outgoing, time-critical, large payments (e.g. to fulfil pay-in obligations for the International FX settlement system CLS).

The model will follow a phased introduction beginning in Q4 2003. In the first phase, the new model will be introduced for night-time processing. The next phases will include enhancements to day-time processing and further central bank links. The model will be implemented on the CASCADE platform with the focus on minimising the need for customers to undertake technical adjustments. New dedicated cash management on-line functions and enhanced reporting will be delivered to support the new German Settlement Model. Clearstream is working closely with the customers to ensure the smooth introduction of the model and a comprehensive 'customer readiness' programme has already commenced.

The development of the model and the implementation schedule has been completed through an extensive consultation period with the customer community. This includes the Market Rules Committee, a body consisting of representatives from a wide variety of financial institutions active within the German securities markets, the members of which are as follows:

Bayerische Landesbank, ING BHF, BNP Paribas, Deutsche Bundesbank, bws (Co-operative sector), Citibank, Commerzbank, Dresdner Bank, etb (Deutsche Bank), FMS Bank (HypoVereinsbank) and WPS Bank (West LB).