The new model being implemented by Clearstream is a so-called True-DvP using central bank liquidity. The settlement organization addresses the requirements of institutions (European Central Bank (ECB), CPSS/IOSCO) as well as market organizations, to eliminate potential unwinding risks in securities settlement and thus increasing efficiency. This will minimize the high costs arising from reverse settlement as well as the related damage to the image of the German market.
Moreover, the new settlement model implements all requirements that were defined with market participants. Efficiency in the provision of liquidity will increase, for example, because central-bank liquidity that is not used during the night can be used due to the automatic link to the Deutsche Bundesbank. Further positive effects include the early finality of the night-time processing with simultaneous cash payment of interest and redemption of German federal government bonds. Recommendations and market rules that have been drawn up jointly with the market participants and are in line with international practice, further increase the already high settlement efficiency. Moreover, foreign participants are given access to the German market at conditions that are similar to those for German participants in the form of attractive financing options that make use of deposited collateral.
The new settlement model, defined in collaboration with the Deutsche Bundesbank, market participants, banking associations and institutions, will be introduced in several phases. First, in mid-November, night-time processing will be implemented. In subsequent steps, the model shall be expanded to include day-time processing and a link to further central banks will be sought.
Clearstream is working closely together with the market participants to ensure a smooth launch. A 'customer readiness' program has been underway since October 2002, and is now in its final phase, the open customer simulation. The experience with the simulation indicates that the banks are at a very high readiness level. Clearstream will implement the new settlement model on the existing Cascade platform and thus keep the technical changes on the participants' side to a minimum.
