Next to credit institutions, which are direct or indirect participants in T2-LU, ancillary systems may also participate directly:
The BCL has appointed Clearstream Banking Luxembourg (Clearstream) and LuxCSD as domestic central securities depositories for the collateral it requires from counterparties in exchange of credit. Indeed, according to its statutes, any credit granted by the BCL has to be fully collateralised. The intra-day credit facility is an important liquidity management tool in a payment system. It helps avoid payments becoming trapped in the system due to insufficient liquidity, which might otherwise block the settlement of payments sent to the system.
When they need to increase their intra-day credit facility, participants in T2-LU may pledge their eligible securities held in Luxembourg by depositing them on the BCL’s account at Clearstream or LuxCSD. Participants may also provide guarantees with securities issued in foreign securities settlement systems by using the links that Clearstream or LuxCSD have established with them.
Participants also have the possibility to make use of the Correspondent Central Banking Model (CCBM) organised by the Eurosystem in order to mobilise eligible securities held elsewhere in the euro area. For instance, a participant in Luxembourg wants to provide securities held in the Netherlands as collateral. He deposits them at the Dutch central bank, which will thereafter inform the BCL. The BCL is then sure to have eligible collateral as a guarantee and may accordingly grant a credit facility to the participant in Luxembourg. In this model, the Dutch central bank keeps the securities on behalf of its partner in Luxembourg and, in effect, plays the role of correspondent central bank.
CLS has been developed with the aim to mitigate the risks in foreign exchange operations. In a single transaction of this type, different currencies are involved, thus different payment systems, which are not correlated. In some instances, the settlement for each currency happens several hours apart.
The CLS Bank coordinates a payment vs. payment procedure to ensure that the settlement of the two legs of a transaction occur simultaneously. The Luxembourg participants in CLS use T2-LU for the settlement of their euro positions.
