Meeting on 9 June 2011 at Eesti Pank

ESTONIAN NATIONAL USER GROUP FOR THE TARGET-2 SECURITIES PROJECT (EENUG)

9 June 2011, 14:00-16:30
Eesti Pank, Tallinn

Minutes of the Meeting

Chairman of the meeting: Kadri Martin
Secretary of the meeting: Tiina Soosalu

Participants at the meeting: Kadri Martin, Innar Vainre, Tiina Soosalu (Eesti Pank); Marek Pajussaar (Financial Supervision Authority); Ahto Kink, Kersti Kiop, Mait Kivimets, Kristel Vanasaun (AS Eesti Väärtpaberikeskus); Kristiina Kaljurand, Kadri Siibak, Lembit Olev, Thomas Auväärt (Ministry of Finance); Jaana Otsasoo, Kärt Mets, Viktoria Viira, Gerd Laub (AS SEB Pank); Elo Tempel, Kristi Kaseväli (AS Swedbank); Anna Krasnova (AS Eesti Krediidipank); Merle Peldes, Helen Kliimask (Danske Bank A/S Estonia Branch); Piret Tamm (Marfin Pank Eesti AS), Monika Tooming (AS LHV Pank), Katrin Kruustükk (Nordea Bank Finland PLC Estonia Branch)

Agenda of the meeting

1. The impact of the TARGET2-Securities (T2S) project on the Estonian market
2. The ECRS cost analysis for T2S
3. Agenda of the T2S Advisory Group meeting of 30.06.-01.07.2011
4. Overview of events held and activities organised:

5. Further activities and events

   1. The impact of the TARGET2-Securities (T2S) project on the Estonian market

Kadri Martin briefly commented on the Estonian market analysis prepared by Eesti Pank ("The impact of the TARGET2-Securities project on the Estonian market"). The analysis reflects the current status of the T2S project and its key challenges, the current situation on the Estonian market and its future challenges, the positive and negative impact of joining the T2S Framework Agreement from the point of view of the Estonian market. Kadri Martin added that the Executive Board of Eesti Pank discussed the accession to T2S at its extended meeting in May, and decided to support the ECRS joining the T2S Framework Agreement. Kadri Martin proposed to the account operators to prepare the account operators' common position, which would be added to the existing analysis. The purpose of the analysis is to prepare background information for the accession decision. If the ECRS, Ministry of Finance and account operators take a different position to accession, the Executive Board of Eesti Pank will raise the subject once again.

Thomas Auväärt said the Ministry of Finance had not yet discussed the subject in detail, but as soon as the final version of the analysis was completed, Eesti Pank should definitely send it to the Ministry of Finance. A simplified summary should be added to the analysis for those people who are not experts in the area.

Marek Pajussaar pointed out that the figure[1] included in the analysis is incorrect, as a majority of the transactions of Swedish investors have not been included in the data submitted to the Financial Supervision Authority, as the transactions are mainly concluded between the subsidiary banks owned by Swedish institutions and the parent bank. To correctly reflect the transactions of Swedish investors, the EENUG decided to update Figure 2 by using the data provided by the ECRS. The meeting also discussed the necessity of including the perspective of the issuer in the impact analysis, as well as the impact of the T2S accession on the issuer.

Elo Tempel pointed out that the accession would generate duplicate costs, which would be borne by the final investor. Kristel Vanasaun remarked that the accession would incur development costs on the ECRS. At the same time, the cost of new links between CSDs should prove lower for the ECRS in the future. New links should only be established, if feasible - there is no point in establishing links with the CSDs of all countries. Kadri Martin added that, according to the information available to her, Danish, Swedish and Lithuanian markets are seriously considering accession to T2S. It is unlikely that a CSD of a euro area country will not join up. The United Kingdom will probably declare its decision before long.

Thomas Auväärt pointed out that the opportunity cost for the Estonian market should be calculated for non-accession to T2S. Kadri Martin stated that, upon the ECRS’s non-accession, the Estonian market would have to provide an alternative solution, ensuring interoperability with CCBM2 and TARGET2 (auto-collateralisation).

Gerd Laub added that the small size and low liquidity of the Estonian market would have to be taken into consideration in weighing the options. As market activity is already low, the cost increase would exert further pressure on market activity. Ahto Kink pointed out that the transaction price would be raised, as the ECRS would need to cover the development costs. As the transaction price is currently among the lowest in Europe, the price will remain competitive. The market will be significantly affected by other factors, such as the listing of major corporations.

Resolutions:

a) EENUG members shall send Eesti Pank the aspects and subjects to be added to the impact analysis by June 17.

b) The banks shall send Eesti Pank their input to the impact analysis, including the additions to clause 2 of chapter III "Assumptions and current situation" by June 22.

c) The meeting agreed that the impact analysis shall reflect the common position of the account operators, the position of the final investor (the banks' input) and the position of the issuer (the ECRS' input). Eesti Pank and the ECRS shall include in the analysis an alternative scenario for accession to T2S (specifying the opportunity cost), ensuring interoperability with CCBM2 and TARGET2.

d) Figure 2 in the impact analysis shall be replaced in order to ensure fair representation of the transactions of Swedish investors.

   2. The ECRS cost analysis

Kristel Vanasaun specified the ECRS cost analysis. The meeting discussed the scenarios presented in the cost analysis and made proposals for amendments. Elo Tempel proposed to include corporate events in the analysis, and distinguish between Estonian and cross-border transactions.

Thomas Auväärt added that, in its memorandum, the Ministry of Finance had addressed the legal issues related to T2S accession within the valid legal framework. In order to allow accession to T2S, the valid legal framework would have to be changed. In addition, the need for amendment of the contract concluded between the ECRS and the Ministry of Finance should be looked into. The Ministry of Finance received the T2S Framework Agreement from the European Central Bank on June 8. The Estonian comments must be submitted to the European Central Bank by the end of June.

Resolutions:

a) EENUG members shall send to Eesti Pank the aspects and scenarios to be included in the cost analysis by June 17.

b) EENUG lawyers shall send their comments on the T2S Framework Agreement to the Ministry of Finance and the ECRS by June 17[2].

c) Comments to the memorandum shall be submitted to the Ministry of Finance by July 8.

   3. Agenda of the T2S Advisory Group meeting of 30.06.-01.07.2011

Kadri Martin stated that the agenda of the T2S Advisory Group meeting had been sent to all EENUG members for their information, and raised the question of whether a preparatory EENUG meeting should be held before the T2S Advisory Group meeting. The meeting discussed whether to hold an EENUG meeting on June 28 and whether a market participant beside the ECRS and Eesti Pank could serve as a member of the T2S Advisory Group upon entry into the T2S Framework Agreement if feasible.

Resolutions:

a) No EENUG meeting shall be held on June 28; the materials shall be submitted for written procedure.

   4. Overview of events held and activities organised:

a. Kadri Martin gave a brief overview of the meeting between the European Central Bank and the Finnish and Estonian markets, adding that the transaction price had been established at 3 euro cents if using the all-in model only by joining the T2S. On the proposal of the Estonian representatives participating at the meeting, additions were introduced in the initial analysis of the European Central Bank, as forwarded to the EENUG members for review and comment.
b. The ECRS's proposal was forwarded on behalf of EENUG to the European Central Bank within the framework of the UDFS consultation.
c. Innar Vainre gave an overview of the "Schedule of Settlement Day" seminar held on May 13 with the participation of Viive Sumberg from Eesti Pank, and informed of his own participation at the "Business Process Description" seminar to be held on July 15.

   5. Further activities and events

Kadri Martin stated that the next T2S info session would be held on July 12 in Zurich. The EENUG discussed whether or not to organise an info session in Estonia. Kristiina Kaljurand mentioned that this could prove very useful for Estonia, if the host country is able to add interesting subjects to the agenda.

Resolutions:

a) The subject shall be further discussed in the future.

[1] Figure 2. Transactions of the clients of investment firms operating in EEA (except for Estonia) member states with securities listed in Estonia (percentage of total transactions in 2010)
[2] As the European Central Bank specified the timeframe after the EENUG meeting, the ECRS will establish a new deadline.