Correspondent central banking model (CCBM): Procedures for Eurosystem counterparties

Correspondent central banking model (CCBM)

Procedures for Eurosystem counterparties

Introduction

The correspondent central banking model (CCBM) was introduced by the Eurosystem at the start of Stage Three of Economic and Monetary Union (EMU) in January 1999. Its main purpose is to ensure that, in principle, all marketable and non- marketable assets eligible for use in Eurosystem credit operations (i.e. monetary policy operations and the provision of intraday credit) are made available to all its counterparties, regardless of where the assets or the counterparty are situated. The eligibility criteria for the use of marketable and non-marketable assets as collateral in Eurosystem credit operations are listed in the Guideline (EU) 2015/510 of the European Central Bank of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (ECB/2014/60) (OJ L 91, 2.4.2015, p. 3).

Counterparties are under no obligation to use the CCBM if there is an approved alternative. All eligible assets may be used cross-border by means of the CCBM and, in the case of marketable assets, also through eligible links between SSSs in the European Economic Area (EEA)1.

Links between securities settlement systems (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 CCBM. In addition to the standard CCBM, it has also been possible since May 2014 for Eurosystem counterparties to use the aforementioned links in combination with the CCBM for the purposes of Eurosystem credit operations (CCBM with links). In addition, triparty collateral management services offered by triparty agents (TPAs) on a cross-border basis are supported via the CCBM (triparty CCBM) since September 2014, subject to the respective triparty agents having been approved as eligible for use in Eurosystem credit operations2.

The purpose of this brochure is to explain to the Eurosystem's counterparties and other market participants involved in CCBM procedures how the CCBM works, and

1. Eligible euro-denominated assets issued in SSSs based in non-euro EEA countries will only be available for use as collateral in Eurosystem credit operations once a link with a euro area SSS has been established and assessed as eligible by the Eurosystem.
2. Eligible triparty agents (TPAs), ECB website.

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	to give a general overview of the model's main features. For further information,
	counterparties should contact the national central banks (NCBs) of the Eurosystem3.
1	How the CCBM works
	Eligible counterparties to Eurosystem credit operations can only obtain credit from
	the central bank of the country in which they are based - their home central bank
	(HCB) - by mobilising as collateral eligible marketable and non-marketable assets4.
	Through the CCBM, they can use assets issued or held in other countries, using the
	respective local central bank as a correspondent central bank (CCB).
	In the case of mobilising eligible marketable assets cross-border via the CCBM,
	counterparties must make arrangements to mobilise these assets with one of the
	following:
	•	the issuer SSS (the SSS in which the securities have been issued) [standard
		CCBM];
	•	the investor SSS5 (the SSS in which the securities are held), provided that an
		eligible link exists between the issuer SSS and the investor SSS [CCBM with
		links];
	•	the TPA of the triparty model being used [triparty CCBM].
	The collateral will then be made available to the central bank of the country where
	the respective SSS/TPA is located (i.e. the CCB), and it will hold the collateral on
	behalf of the central bank granting the credit (i.e. the HCB).
	In the case of mobilising eligible assets which are deemed "non-marketable" in the
	Eurosystem collateral framework cross-border via the CCBM, the Eurosystem
	distinguishes between (a) debt instruments backed by eligible credit claims
	(DECCs); and (b) credit claims and retail mortgage-backed debt instruments
	(RMBDs).
	The cross-border mobilisation of DECCs, which is performed via the standard
	CCBM, will follow similar procedures as those for marketable assets.
	In the case of the cross-border mobilisation of credit claims and retail mortgage-
	backed debt instruments (RMBDs), the Eurosystem has implemented specific CCBM
	solutions for their mobilisation. These assets can be used through the CCBM using a
	transfer/assignment/pledge or floating charge on behalf of and in the name of the
	3	The Eurosystem comprises the ECB and the NCBs of those countries that have adopted the euro. In
		principle, the CCBM is also available to counterparties of Sveriges Riksbank. Such counterparties are
		advised to contact Sveriges Riksbank as CCBM procedures outside the Eurosystem may differ slightly
		from those described in this brochure. It is understood that Sveriges Riksbank does not offer the CCBM
		to its counterparties at the current juncture.
	4	Article 148 of the General Documentation stipulates that fixed-term deposits cannot be used cross-
		border.
	5	Counterparties using the CCBM in combination with eligible links must ensure that assets are held in
		an account in the relevant investor SSS before the actual mobilisation takes place.

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HCB. An ad hoc variant has been implemented to allow the cross-border use of Irish Mortgage-Backed Promissory Notes (MBPNs). More information about these procedures can be found in the Annex.

1.1 Using the CCBM

Although counterparties do not generally need to adopt special procedures (beyond arranging the transfer of the collateral in a different country) to use the CCBM, they should be aware that market practices may vary across countries. Counterparties should be particularly aware that various types of collateralisation technique (repo, assignment, pledge or floating charge) and methods of holding collateral (pooled and earmarked collateral systems) are used across the euro area, and that the CCB may use a different procedure from that of their local NCB. The collateralisation technique to be followed is chosen by the lending central bank (the HCB), provided that the CCB offers alternatives; the HCB has sole responsibility for determining the collateralisation method. HCBs may also implement local (non-CCBM) procedures for the mobilisation of a credit claim that is subject to the law of a different jurisdiction than that of the counterparty and the HCB (foreign law credit claims). For more information on this possibility, counterparties should contact their local NCB.

The eligible marketable assets, eligible SSSs and eligible links are listed on the ECB's website6. In the event of problems or for further information, an e-mail hotline is also available (see the "Collateral" section of the ECB's website for ECB and NCB contact details7).

Further details on legal and procedural aspects can be found via http://www.ecb.europa.eu/paym/ccbm/html/index.en.html and in the "CCBM market practices" section8 of the ECB's website.

1.2 CCBM opening hours

The CCBM is used to support Eurosystem credit operations. Under normal circumstances, it is open for instructions from counterparties from 09:00 to 16:00 CET. This means that its operating hours cover the normal time frame in which regular open market operations are carried out by the Eurosystem, but not the full operating hours of TARGET2. CCBM users that need to use collateral on a cross- border basis after 16:00 CET should deposit the assets with the CCB before that time. In order to ensure the settlement of same day value operations, counterparties using the CCBM with eligible links must ensure that assets are delivered to an account in the relevant investor SSS by 16:00 CET on the settlement date. Any request for mobilisation received by HCBs from their counterparties after 16:00 CET,

1. http://www.ecb.europa.eu/paym/coll/html/index.en.html
2. http://www.ecb.europa.eu/paym/coll/contacts/html/index.en.html
3. http://www.ecb.europa.eu/paym/coll/coll/ncbpractices/html/index.en.html

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or the delivery of eligible assets to an account at the relevant investor SSS after 16:00 CET, will be treated on a best effort basis.

The closing time of the CCBM may be extended in exceptional circumstances, for reasons related to monetary policy or to ensure the smooth closing of TARGET2, TARGET2-Securities, and depending on the SSS(s) concerned.

1.3 Which NCB is the CCB?

For marketable assets, each eligible asset may have one or more CCBs. The general rule is that the CCB is:

the NCB of the euro area country in which the collateral was issued (in an SSS which fulfils the respective eligibility standards established by the Eurosystem - the issuer SSS [standard CCBM];

• any Eurosystem NCB, provided that (one of) its domestic SSS(s) has an eligible (direct/relayed) link to the issuer SSS [CCBM with links];
• the NCB of the euro area country where collateral is mobilised via triparty services provided by a triparty agent that fulfils the respective eligibility standards established by the Eurosystem [triparty CCBM];

However:

• for euro market and international securities issued simultaneously in Euroclear Bank and Clearstream Banking Luxembourg, the Nationale Bank van België/Banque Nationale de Belgique acts as CCB for holdings in Euroclear Bank, and the Banque centrale du Luxembourg acts as CCB for holdings in Clearstream Banking Luxembourg;
• for Irish government bonds held in Euroclear Bank, the Central Bank of Ireland acts as CCB.

Since multiple CCBs could exist for a particular security (due to the use of the CCBM with links for marketable assets), whenever a counterparty wishes to mobilise collateral on a cross-border basis via the CCBM, it should indicate in the instruction to its HCB (according to local market practice rules) the details allowing the identification of the NCB that will be the CCB for the respective mobilisation.

For DECCs9, which are treated as non-marketable assets in the Eurosystem's collateral framework, the CCB is:

9 While considered as non-marketable assets in the Eurosystem collateral framework, the procedures for mobilising DECCs for use in Eurosystem credit operations are similar to the procedures for mobilising marketable assets. Cross-border mobilisation of DECCs is only permitted by using the standard CCBM (see 2.1.1).

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• the NCB of the euro area country where the DECC is issued and held through an account with an SSS which fulfils the respective eligibility standards established by the Eurosystem [standard CCBM]

For other non-marketable assets, i.e. credit claims and RMBDs, when the CCBM is being used, the general rule is that the CCB is the NCB of the country whose law governs these assets.

2	CCBM procedures

2.1 CCBM Procedures for marketable assets and DECCs

2.1.1 Standard CCBM

If a counterparty holds eligible assets in the foreign SSS in which these assets have been issued and wishes to use them as collateral with its HCB, it instructs the HCB and the SSS to transfer the assets to the central bank of the relevant foreign country (CCB) for the account of the HCB.

The CCB provides the necessary information to the HCB on the delivery of the securities, while the HCB processes that information, conducts the valuation process (including margin calls and valuation haircuts) and provides liquidity to the counterparty (by means of a cash payment or by increasing a counterparty's credit line, if applicable). The HCB will not advance funds until it is certain that the mobilised securities have been safely received by the CCB on its behalf.

Example

A Spanish bank wishes to obtain credit from the Banco de España (the national central bank of Spain) on the basis of marketable assets issued and held in the Italian SSS Monte Titoli.

Step 1 - The Spanish bank contacts the Banco de España (the HCB) requesting the credit and stating that it intends to use the CCBM to mobilise marketable assets that it holds in Italy.

Step 2 - On the basis of the information provided by the counterparty, the Banco de España sends a CCBM message to the Banca d'Italia (the national central bank of Italy) requesting that it receives Italian securities from the counterparty on its behalf. At the same time, the counterparty issues instructions for the marketable assets to be transferred (or instructs its custodian in Italy to transfer them) to an account managed by the Banca d'Italia at Monte Titoli. In this example, therefore, the Banca d'Italia acts as the CCB for the Banco de España, the HCB.

Step 3 - Once the Banca d'Italia has received the Banco de España's CCBM message, it takes all the necessary steps to ensure that the marketable assets arrive at its account at Monte Titoli (e.g. matching). In the meantime, the counterparty (or its custodians) delivers the marketable assets to the Banca d'Italia account in accordance with to Monte Titoli's delivery procedures.

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