The correspondent central banking model (CCBM)
The correspondent central banking model (CCBM) was introduced by the Eurosystem together with the euro in January 1999. Its main purpose is to ensure that all marketable and non- marketable assets eligible for use in monetary policy operations or to obtain intraday credit in TARGET2 are made available to all Eurosystem counterparties, regardless of where the assets or the counterparty are situated.
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. It is also possible for Eurosystem counterparties to use eligible links in combination with the CCBM for the purposes of Eurosystem credit operations. Triparty collateral management services offered by eligible triparty agents (TPAs) on a cross-border basis are supported via the CCBM, subject to the respective TPAs having been approved as eligible for use in Eurosystem credit operations.
In the case of mobilising marketable assets 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 SSS (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 with CCBM (as of 29 September 2014)
The collateral will then be made available to the central bank of the country where the respective SSS/TPA is located (i.e. the correspondent central bank - CCB), and it will hold the collateral on behalf of the central bank granting the credit (i.e. the home central bank - HCB).
In the case of non-marketable assets , such as credit claims and non-marketable retail mortgage-backed debt instruments (RMBDs), which are not governed by domestic law, specific CCBM solutions have been implemented for their mobilisation. These specific assets can be used through the CCBM using a transfer/assignment/pledge or floating charge on behalf of and in the name of the home central bank. A specific variant has been implemented to allow the cross-border use of Irish Mortgage-Backed Promissory Notes (MBPNs).
More information can be found here:
CCBM market practices
In principle, the use of the CCBM does not require counterparties to adopt special procedures beyond arranging the transfer of the securities in a different country. But counterparties should be aware that market practices in other countries may be different to those in their own country.
Different types of collateralisation techniques (repos, assignments, pledges and floating charges) and different methods of holding collateral (pooled and earmarked collateral systems) are used in the EU. Moreover, securities settlement systems (SSSs) in the EU have different operating procedures that the counterparty must take into account when transferring collateral held in a different country.
See below for an overview of information related to the CCBM in each country. This information is not intended to be exhaustive, and should be read together with the publication
For further details, consult:
- the manual of procedures of local SSSs,
- information on national market practices as published by SWIFT, or
- the national central banks (NCBs) of the Eurosystem and the ESCB (as relevant).
Best practices
Custodian banks play an important role in the CCBM processing chain when delivering marketable assets to the CCB on behalf of the counterparty.
The major European credit sector associations (the European Banking Federation, the European Savings Banks Group and the European Association of Co-operative Banks) have established "best practices" for custodian banks involved in CCBM transactions. They provide market participants with guidelines for optimising the efficiency of the CCBM. The guidelines include time benchmarks, clear input deadlines and communication channels.
The following are best practices for market participants involved in CCBM operations as agreed by the European Banking Federation, the European Savings Banks Group and the European Association of Co-operative Banks:
- Custodians shall ensure that their customers are informed of their rules/procedures for CCBM-related instructions. These rules/procedures shall be based, to the largest extent possible, on the official local market practices. Customers must abide by these rules/procedures to ensure a swift and efficient processing of their instructions.
- Whenever possible, the processing of CCBM instructions should rely on automatic procedures. In this respect, electronic communication channels between custodians and their customers shall be used to the largest extent possible and instructions shall be based on ISO 15022 standards.
- Under normal circumstances and on a best effort basis, custodians shall submit their customers' CCBM-related instructions to the local SSS within 30 minutes of receipt provided that the instructions are complete and correct and that the customer has the securities to be delivered.
- The custodian's deadlines for same-day processing of its customers' CCBM–related instructions shall be 30 minutes before the deadline of the relevant local SSS (see the regularly updated CCBM market practices). However, as good practice, customers are encouraged to submit their instructions well in advance of the custodian's deadline in order to avoid building up instruction queues and to provide the custodian with sufficient time to react to mistakes or unforeseen problems.
- Market participants shall ensure that information is readily available to their customers to enable them to monitor the status of their CCBM instructions.
- Custodians shall agree with their customers on the usage of the code “CNCB” – for Central Bank Collateral Management – as a way of identifying and prioritising (when necessary) CCBM-related instructions. This code, based on ISO 15022 standards, is present in field 22F, in the mandatory sequence E – Settlement Details, and indicates that the transaction relates to a CCBM collateral delivery to and receipt by an NCB.
- Given that the CNCB code allows custodians to recognise CCBM instructions as such, they shall inform their customers, on a best effort basis, of settlement problems within 15 minutes of their discovery.
Procedures for non-marketable assets
Eligible non-marketable assets for Eurosystem credit operations comprise of credit claims and Irish mortgage-backed promissory notes. Due to their specific characteristics, these assets cannot be transferred through an SSS hence distinct CCBM procedures have been set up for their use on a cross-border basis.
Credit claims
In the case of credit claims, when the jurisdiction of the law governing a credit claim and that of the NCB of the counterparty (i.e. the HCB) do not coincide, the credit claim can be mobilised via the NCB of the jurisdiction of the law governing the credit claim (which acts as the CCB) on the basis of a transfer, pledge, assignment or floating charges on behalf of and in the name of the HCB.
Counterparties should follow the handling procedures and legal requirements as specified in the terms and conditions stipulated by each NCB acting as a CCB.
For details, see
Irish mortgage-backed promissory notes
A specific variant of the CCBM has been introduced for Irish mortgage-backed promissory notes.
For details see the following publications:
Pricing
Counterparties who make use of marketable and non-marketable assets as collateral in Eurosystem credit operations on a cross-border basis (excluding triparty services) via the CCBM must pay a transaction fee of €30 for each delivery of assets to their HCB. In addition, a combined custody and administration fee of 0.0069% per annum is charged on the nominal value of the assets held each month.
When triparty services are being used via the CCBM, counterparties must pay a transaction fee of €30 for each processed instruction initiated by them, and a monthly service fee of €50 per TPA used.
Taxes are not included in these fees. HCBs may also charge local fees.
Further information on the procedures for fee collection is provided by NCBs in the domestic legal documentation governing monetary policy and intraday credit operations.