Harmonisation of French debt denomination and accrued coupons to 7 decimals

Context and overview

Harmonisation of French debt denomination

Following the implementation of ESES in 2007, a working group under the supervision of CFONB¹/AFTI² was set up in 2009 in order to harmonise the denomination of bonds on the French market with the rest of the ESES zone.

The harmonisation of the denomination from unit (UNT) to facial amount (FMT) will both simplify the data flow exchanges and procedures and the competitiveness of the French bonds market.

Accrued coupon to 7 decimals

In parallel to the harmonisation of French debt denomination, LCH.Clearnet SA will extend the reform of the accrued coupons from 3 to 7 decimals for French debt. As a reminder, this reform is already in place on the French institutional markets since 2005.

This market place driven project aims at harmonising the calculation rule of the French bonds accrued coupons with the international usage i.e. commercial rounding to 7 decimals following the recommendation of the CNO³.

All clients active on French bonds are impacted by both projects which are expected to go live on Monday 24 October 2011.

Scope and principles

Bonds with the following characteristics will be impacted by the project:

• Government and corporate bonds;
• Bonds which quantity is currently expressed in units (UNT)
• Bonds which CSD of reference is Euroclear France or Euroclear Bank for non-euro bonds;
• Bonds quoted in percentage.

More information is provided in the CFONB Specifications document available in the project dedicated section at: http://www.lchclearnet.com/cash_equities/projects/management_of_debt_in_capital/

The full list of bonds expected to be converted in October will be available in April.

The objective is to have limited impact for market participants / clients and consequently the report file and message formats will remain unchanged.

Both projects have an impact on clients clearing French debt activity on LCH.Clearnet SA’s both Cash and Fixed Income platforms. This means that clients trades eligible for clearing coming from the NYSE Euronext Paris bonds market and from the matching platforms MTS, ETCMS and ICAP are concerned by the projects.

Please note that the change from UNT to FMT applies to the NYSE Euronext regulated bonds market and does not include the new NYSE BondMatch™ MTF, due to be launched in the first half of 2011, on which all instruments will be traded in facial amount (FMT).

External testing approach

Harmonisation of French debt denomination

Three phases testing approach is envisioned for clients:

• 1st UNT/FMT migration rehearsal + guided test phase: 4 weeks with infrastructures and pilot clients only.
• 2nd UNT/FMT migration rehearsal + free test phase: 6 weeks minimum of free tests will be facilitated for all market participants.
• 3rd UNT/FMT migration rehearsal + free test phase: 4 weeks of free tests will be facilitated for all market participants.

Planning and schedule

After each migration rehearsal, LCH.Clearnet will perform a roll-back in UNT. This will cause an impact on the test platform. As a consequence, the platform will not be available for the affected bonds for a certain period. More information will be provided in due course.

Accrued coupon to 7 decimals

As far as testing on accrued coupons to 7 decimals is concerned, the reform will be set up on the test platform at the same time as the 2nd UNT/FMT migration rehearsal.

There will be one single rehearsal on 17 June followed by a free test phase until the launch. The test platform will remain with 7 decimals from 20 June until the launch.

Free tests are not mandatory for clients but highly recommended.

Launch strategy principles

The target launch date for both projects is Monday 24 October 2011, which will be the first production day in FMT with accrued coupons to 7 decimals for French bonds.

During the migration weekend and before the launch, all the products in scope, static data, stocks, flows and fails will be converted in « one-shot » from UNT to FMT.

The impacted clients’ files are the Position Result 3rd Resume file (PR3), the Settlement Information File (SIF) and the Buy-in Information File (BIF).

In the batch session of Friday 21 October, clients’ files and messages will be available in two phases:

• As from close of business until migration: Trade Leg Reconciliation Files, PR3 files as well as Margin Account Results files and Span parameter file will be available following the regular schedule with a denomination in UNT.

• After migration: SIF and BIF will be available once the migration/conversion will be completed with a denomination either:

  • in UNT: for positions settled on Friday 21 October,
  • in FMT: for the positions which Intended Settlement Date is Monday 24 October or after.

As from Monday 24 October, all clients’ messages and files will be available with a denomination in FMT and accrued interest with 7 decimals.

A specific client’s support will be set up during the launch to support clients in their migration.

For further information, please contact:

Your LCH.Clearnet SA Product Implementation manager:

Dorothée Fresneau: +33 (0) 1 70 37 66 05 – [email protected]
or
your account manager.

Customer and Market Management LCH.Clearnet SA

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Footnotes:

1. Comité Français d'Organisation et de Normalisation Bancaires - the French Banking Standards and Organisation Committee is an industry body tasked with studying and finding solutions to technical problems affecting banking activities in the fields of payment systems, payment instruments and securities.

2. Association Française des Professionnels des Titres – AFTI is a French professional association which aims to promote and represent the post-trade business on the Paris marketplace and within the European Union.

3. Comité de Normalisation Obligataire - The mission of the French Bond Association is to simplify and harmonize calculations rules used by the Euros fixed income markets and the derivatives markets, particularly for yield indices, indexation and portfolio samples.