DISCLOSURE FRAMEWORK FOR SECURITIES SETTLEMENT · PDF fileDISCLOSURE FRAMEWORK FOR SECURITIES...

Bulgarian National Bank

DISCLOSURE FRAMEWORK

FOR SECURITIES SETTLEMENT SYSTEMS

B N B G S S S

Fiscal Services Department

December 2008

7, Positano St., 1301 Sofia, Bulgaria Telex: 067 24090; Fax: +359 2 9802425

Bulgarian National Bank Disclosure Framework

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INTRODUCTION

The following document comprises the answers formulated by the Bulgarian National Bank regarding its

securities settlement system in response to the Disclosure Framework questionnaire published in February 1997 by the

joint working group of the Committee on Payment and Settlement Systems (CPSS) of the Bank for International

Settlements and the International Organization of Securities Commissions (IOSCO).

The Disclosure Framework has been completed in order to assist potential participants in developing a clear

understanding of the organization, operations and procedures of the Bulgarian National Bank's Government Securities

Settlement System (BNBGSSS) and to help them assess the risks associated with its securities settlement activities.

Therefore, this document provides only a general overview of the system and it should not be considered as a

part of the rules and procedures of the system, as an agreement between the Bulgarian National Bank and any person or

as an amendment or addition of the aforesaid texts.


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I. Basic information

The Bulgarian National Bank (BNB) acts as the exclusive Depository for Government Securities (GS) and acts

as cash clearing agent for primary and secondary market transactions in government securities. The government

securities, issued by the Bulgarian Government are dematerialized and transferred by book-entries. The Bulgarian

National Bank's Government Securities Settlement System consists of ESROT (the Electronic System for Registration

Of and Trade in Government Securities) and SDCK (The Electronic System for Government Securities Settlement).

Registration of all government securities transactions in the primary and secondary market is performed by ESROT.

The settlement of government securities is handled through SDCK, where the participants' securities accounts are

located. SDCK has a link to RINGS (the Bulgarian RTGS system), which is used to settle the cash leg of all DVP

government securities transactions. Transfer of government securities and same-day funds is done simultaneously on a

gross basis in real time, in compliance with the DVP principle (Model 1; settlement cycle T + 0).

A. What is the name of the SSS?

Bulgarian National Bank's Government Securities Settlement System (BNBGSSS)

B. Where and in which time zone is the SSS located?

7, Positano St.

1301 Sofia

Bulgaria

Time zone: CET +1 hour

C. What functions does the SSS perform?

1. Does the SSS serve as a securities depository and/or provide securities settlement services?

Yes. The System serves as a securities depository and provides securities settlement services.

(a) What types of instrument are eligible for deposit at the SSS (e.g. debt, equities, warrants,

etc.)?

All domestic government debt instruments (T-bills, notes and bonds) issued by the Ministry of Finance are

eligible for deposit at the System.

(b) What types of instrument are eligible for transfer within the SSS?

All securities, mentioned in question a) are eligible for transfer within the System.

(c) Please describe whether eligible securities are dematerialized, immobilized or transferred

physically.

Government securities held at the BNBGSSS are dematerialized and registered as book-entry records.

(d) Does the SSS provide safekeeping for physical certificates?


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No. The system does not provide safekeeping for physical certificates.

2. Does the SSS provide cash accounts and/or provide funds transfers in conjunction with securities

transfers? If so, in what currencies?

BNBGSSS uses the cash accounts of participants at the BNB for transfer of funds in conjunction with

securities transfers. Cash and securities movements are linked and simultaneous in compliance with the DVP principle.

The only currency used for providing cash accounts is BGN.

3. Does the SSS provide a trade matching service? Do others provide such services for securities

settled at the SSS?

The BNBGSSS is the only entity providing a trade matching service for securities registered in the System.

4. Does the SSS provide a trade netting service (as distinct from undertaking the settlement of

securities transfers on a net basis)? Do others provide such services for securities settled at the SSS?

In either case, what types of netting (bilateral or multilateral), if any, are performed?

The System does not provide a trade netting service.

5. Does the SSS offer a securities lending or borrowing programme?

The System does not offer such a facility.

6. Does the SSS provide custodial and/or related services such as the collection of interest, dividends,

principal or withholding tax reclamations? Which types of service are provided?

Yes. The System provides custodial services and some related services as calculation and payment of principal

and interest, fees and commissions charged on GS transactions, etc.

7. Does the SSS act as a central counterparty or principal to transactions with its participants?

No.

8. Other? Please specify.

No.

D. What type of organisation is the SSS?

1. Please indicate whether the SSS is a public sector or private sector entity.

The System is a public sector entity.

2. Please indicate whether the SSS is organised on a for-profit or a non-profit basis.

The System is organised on a non-profit basis.

3. What is the legal basis for the establishment of the SSS and for securities transfers made

through it?

Law on the Bulgarian National Bank; Law on the Government Debt; Ordinance No. 5 on the Terms and

Procedure for Acquisition, Registration, Redemption and Trade in Government Securities, jointly issued by the MoF

and the BNB; Ordinance No. 15 of the MoF and the BNB on the Control over Transactions in Government Securities;


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Ordinance No. 31 of the BNB on Government Securities Settlement; Ordinance No. 3 of the BNB on Fund Transfers

and Payment Systems; Agency Agreement between the Ministry of Finance and the BNB on government debts.

E. Please describe and provide a diagram outlining the organisational and ownership structure of the SSS.

1. Who are the owners of the SSS?

The BNBGSSS is owned and managed by the Bulgarian National Bank.

2. What entity or entities operate the SSS? Which functions of the SSS, if any, are outsourced to third

parties?

The System is not a separate legal entity and operates within the Government and Government Guaranteed

Debts Depository Directorate at the Fiscal Services Department of the BNB. No functions are outsourced to third

parties.

3. Does the SSS have a Board of Directors?

The Governing Council of the Bulgarian National Bank is responsible for the BNBGSSS management.

(a) What is its composition?

The Governing Council consists of seven members: the Governor of the Bank, the three Deputy Governors,

and three other members.

(b) What are its responsibilities?

Full management responsibilities.

F. Please describe the financial resources of the SSS.

1. Amount of paid-in capital and retained earnings?

No capital structure.

2. Guarantees, insurance coverage or other similar arrangements?

Not applicable.

3. Credit lines or letters of credit?

Not applicable.

4. Powers to assess participants or equity holders?

The Bulgarian National Bank is empowered to assess the participants jointly with the MoF.

G. Please describe whether the SSS or its operator is subject to authorisation, supervision or oversight by

an external authority.

The BNBGSSS is subject to supervision and oversight by regulatory authorities (MoF and BNB), independent

external authorities and the National Accounts Office.


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II. Rules and procedures of the SSS

A. Does the SSS maintain a complete list of the rules and procedures governing the rights and obligations

of participants and the duties of the SSS?

The rules and procedures concerning the rights and obligations of the participants in the System and their

duties are described in the legal framework (see I. D. 3 above).

1. How can participants obtain a copy of the rules and procedures?

The System notifies participants by means of official public announcements, press releases, references to web

site, e-mail, telex and by post.

2. Does other documentation provided to participants (e.g. user guides) have the same status as the

rules and procedures?

Joint letters of the MoF and the BNB concerning the GS market operation, as well as user guides, have the

same status as the rules and procedures.

3. Describe the process for changing rules and procedures, including any need for regulatory approval.

(a) What authority is required, and how does this differ depending on the type of change involved?

Rules and procedures laid down in the respective ordinances, agreements, etc. should be changed or updated

by a decision of the MoF and the BNB. Those envisaged by laws are subject to Parliament approval.

(b) How are participants notified of changes in rules and procedures?

Please see ІІ. A.1.

(c) Is there a procedure for participants or others to comment on proposed rule changes?

There is a consultation procedure by which participants are notified of particular rule changes and invited to

send their comments. Joint meetings between participants and representatives of the BNB and the MoF are regularly

organized as well.

B. Are the rules and procedures binding on the SSS as well as its participants? Under what conditions

and on whose authority can written rules and procedures be waived or suspended by the SSS?

Yes, the rules and procedures are binding on the System as well as its participants. Rules and procedures can

be waived or suspended only by a decision of the Minister of Finance and the Governor of the BNB.

III. Relationships with participants

A. Please describe the types of membership offered by the SSS.

The System has direct and indirect participants. Direct participants are the interactive users of the services of

the System. Indirect participants do not have direct access to these services but may do so via a direct participant.

1. How do the types differ?

The following entities may become participants in the System: primary dealers of government securities;

subdepositories of government securities; banks (including banks from other Member States); investment


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intermediaries (including such from other Member States); the Bulgarian National Bank and other members of the

ESCB; member states� central securities depositories; the Ministry of Finance; the Reserve Guarantee Fund of which

the BNB keeps a register under Art. 7 of Ordinance No.5; other entities approved by the Minister of Finance and the

BNB Governor.

Government securities primary dealers shall be banks whose license includes the investment services and

activities under Art. 2, para. 2, items 8 and 9 of the Law on Credit Institutions or investment intermediaries which have

been granted a license to conduct investment services and activities pursuant to the Law on Markets in Financial

Instruments. Primary dealers shall be selected on the basis of criteria by a commission designated by the Minister of

Finance for a period of one year.

Subdepositories of government securities may be credit institutions under Art. 2, para. 5 of the Law on Credit

Institutions licensed to conduct depository and custodian activities.

Banks, other than the primary dealers and the subdepositories of government securities, whose licenses

provide for the services and activities under Art. 2, para. 2, items 8 and 9 of the Law on Credit Institutions are eligible

to become participants.

Investment intermediaries, other than the primary dealers of government securities, whose licenses provide for

the services and activities under Art. 5, para. 2, items 1, 2 and 3 of the Law on Markets in Financial Instruments are

also eligible to become participants.

2. Within each membership category, are all participants subject to the same rules and procedures?

Please describe important exceptions, including both differences in rules across participants and the rationale

for these differences.

Within each membership category all participants are covered by the same rules and procedures and by a

standard participation agreement.

The investment intermediaries and banks approved to be government securities primary dealers shall conclude

an agreement with the Ministry of Finance for primary dealership in government securities. The primary dealers are

allowed to participate both in the primary and secondary market.

Subdepositories of government securities shall maintain systems for registering government securities wherein

individual government securities accounts are kept to record government securities held by their customers and the

customers of those participants that are not subdepositories, on the basis of a contract concluded with such participants.

B. Can participants establish accounts for their customers' assets that are segregated from their own asset

accounts at the SSS?

Participants can establish accounts for their customers� assets which are segregated from their own asset

accounts at the BNBGSSS.

1. If so, is this accomplished through a single omnibus customer account or through a multiplicity of

accounts and/or sub-accounts?

It is accomplished through a single omnibus customer account in which government securities held by a

participant on behalf of its customers are kept.

2. Is the segregation optional or compulsory?


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The segregation is compulsory.

3. Does the fact that a sub-account at the SSS bears the name of a third party give any rights to that

third party as a participant under the rules of the system?

It is not possible to open an account in the System in the name of a third party.

C. Please describe participant requirements for each type of membership.

1. Are participants required to be domiciled or resident in a particular jurisdiction?

Participants could be domestic entities as well as entities incorporated within the EU.

2. Are participants required to be subject to a supervisory regime? If so, please describe.

Participants are subject to supervision by the competent authorities - the BNB, the MoF and the Commission

of Financial Supervision.

3. Are participants required to hold an equity stake in the SSS?

No.

4. Are there financial, economic, personal or other requirements (e.g. minimum capital requirements,

"fit and proper" tests)? If so, please describe.

The basic requirements are laid down in the Law on Credit Institutions (for banks) and the Law on Markets in

Financial Instruments (for investment intermediaries).

Ordinance No. 5 on the Terms and Procedure for Acquisition, Registration, Redemption and Trade in

Government Securities also specifies a set of organizational, operational and technological requirements for

participants: banks and investment intermediaries are required to have a relevant license for providing investment

services and activities; have a current account with the BNB or specify a bank�s current account with the BNB which

shall be used for the cash settlement of transactions in government securities pursuant to a contract concluded with this

bank; have technical communication facilities necessary to send instructions for and notifications of transactions in

government securities in the secondary market, as well as to receive notifications and confirmations on behalf of the

BNB. Each participant after submitting the required documents shall pass tests to prove its technical preparedness for

communication via SWIFT and/or a System WEB-based interface applying a universal electronic signature.

D. Does the SSS engage in oversight of its participants to ensure that their actions are in accordance with

its rules and procedures? If so, please describe.

The Bulgarian National Bank (BNBGSSS) together with the Ministry of Finance engage in oversight of the

participants in accordance with Ordinance No. 15 on the Control over Transactions in Government Securities.

E. Under what conditions can participants terminate their membership in the SSS? Does this mark the end

of all liabilities of the participant? If not, please describe what liabilities could remain.

Participation in the BNBGSSS can be terminated at the participant�s request with a one-month prior notice.

Within this month the participant shall transfer the administration of government securities owned by him or by his

customers to another participant. Transactions agreed upon in advance with a value date on or after the date on which

the participation is terminated shall not be registered in the System.


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F. Under what conditions can the SSS terminate a participant's membership in the SSS?

The BNBGSSS can unilaterally terminate a participant�s membership where: the license of the participant has

been revoked or insolvency proceedings have been instituted; the decision on termination has been taken by the

competent authority of the participant; the participant no longer meets the requirements for participation in the System;

in the cases provided for by the law where measures restricting the provision of investment services or conduct of

activities by the participant have been imposed.

G. Please describe the scope of the SSS's liability to participants, including the standard of liability

(negligence, gross negligence, wilful misconduct, strict liability or other), the force majeure standard, and any

limitation to the scope of liability of the SSS (e.g. indirect or consequential damages). Where are these liabilities and

their limitations set out (e.g. in statute or contract)?

In accordance with the Bulgarian civil code the scope of the System's liability is limited only to direct losses

incurred by participants (in the cases of negligence and wilful misconduct).

IV. Relationships with other SSSs and commercial intermediaries

A. Does the SSS maintain linkages (including sub-custodian or cash correspondent relationships) or other

relationships with other SSSs?

The System does not maintain links with other SSSs.

1. Please identify each of the other SSSs used and the type of securities transferred via the linkages.

(a) What is the name of the other SSS? Where is it located?

Not applicable.

(b) What securities are eligible for transfer via the linkage to the other SSS?

Not applicable.

(c) Are transfers of securities made via the linkage to the other SSS limited to only those that are free of

payment or are transfers against payment also made via the linkage to the other SSS? If against payment, please

describe the timing of the transfers and the corresponding payments.

Not applicable.

(d) Does the other SSS provide custody services to the SSS and, if so, who bears any credit or custody

risks?

Not applicable.

B. Does the SSS use securities custodians (other than the other SSSs addressed in the previous question)

and/or commercial cash correspondents? Please identify the custodians or cash correspondents used and the duties

that each performs.

No.


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C. Please describe the standards used in approving or reviewing relationships with other SSSs, custodians

or cash correspondents, including any financial or operational requirements or the presence of insurance or public

supervision.

Not applicable.

D. Does the SSS advance funds or securities to or on behalf of other intermediaries such as issuing or

paying agents? If so, please identify the circumstances in which such exposure could arise.

No. The System does not advance funds or securities to or on behalf of other intermediaries.

E. Please describe measures in place to protect the SSS and its members against the failure of other SSSs or

commercial intermediaries to meet obligations to the SSS, including risk controls, collateral or alternative sources of

funds and securities.

Not applicable.

V. Securities transfers, funds transfers and linkages between transfers

A. Please discuss whether and how settlement instructions are matched between participants prior to

processing by the SSS.

1. Is matching required for all transactions without exception?

Matching is required for all transactions except for internal transfers between the securities accounts of the

same participant.

2. What procedure is used when instructions do not match?

In case of a mismatch the Bulgarian National Bank waits till the end of the system day and if instructions are

still not matched, they are automatically cancelled and relevant participants are informed.

3. Are matched settlement instructions binding on participants?

Matched settlement instructions are binding on participants.

(a) If so, please describe the consequences of failure by participants to meet obligations (e.g. forced

settlement, penalties, short positions).

BNBGSSS checks automatically if the execution of a transaction is possible. If the seller of GS does not have

the sufficient amount of GS the transaction is not settled and it is put in ordered queue waiting to become

implementable. If by the end of the day it is still pending, it is cancelled and participants are immediately notified. In

case of buyer's lack of funds in his cash account at the BNB, the System waits till the end of operation time of the

payment system, and if he still can not provide the amount needed, the System cancels the settlement and informs the

parties concerned. The failing party has to pay a penalty according to the Tariff of the Fees and Commissions Charged

on Government Securities Transactions.

(b) Please describe whether this is a feature of the SSS's rules and procedures or of national law or

regulations.

This is a feature of Ordinance No. 5 of the MoF and the BNB.


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c) Please provide a time line indicating the points at which matched instructions become binding, as well

as any pre-matching process that takes place.

All matched instructions are binding and cannot be cancelled by participants.

B. Are securities transferred within the SSS registered?

1. Who is the registrar?

All securities transferred within the System are subject to registration in ESROT.

2. Is it normal practice to register the securities in the name of the SSS (or its nominee) or in the name

of the beneficial owner? Are there instances in which securities housed within the SSS are registered to neither

the SSS (or its nominee) nor the beneficial owner?

The System registers government securities in the name of the participants.

3. If the SSS offers custodial services, will it hold securities registered in the name of the beneficial

owner?

The participants in the System appear to be beneficial owners as regards their own holdings of government

securities. The participants (subdepositories) on their part are in charge of keeping book-entry registers where securities

of their customers, and the customers of those participants that are not subdepositories, are registered in the name of the

beneficial owners.

4. Under what circumstances does the SSS initiate registration of securities in the buyer's name?

On condition that the settlement is successfully accomplished.

5. How long does the registration process typically take? Are participants notified when registration is

complete?

The registration is performed immediately after the settlement and participants are informed via the WEB-

based interface of ESROT and SWIFT messages.

6. Can securities be transferred within the SSS before registration in the buyer's name is complete? If

so, do the rules and procedures of the SSS provide for an unwind or reversal of such transfers in case of

bankruptcy or other events which result in the buyer's name not being entered on the register?

No.

C. Please describe how securities transfers are processed within the SSS.

Instructions that have been sent to the BNB in the primary and secondary market are irrevocable after

matching and based on the principle of double notification. After matching the participants� instructions, the System

processes securities transfers by debiting and crediting the respective securities accounts (buyer and seller�s accounts)

on a trade by trade basis.

1. Please indicate whether the transfers are processed as debits and credits to members' accounts or via

some other method.

The transfers are processed by debiting and crediting the members� accounts.


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2. On a continuous (real-time) basis, or in one or more batches?

The System handles securities instructions on a continuous trade-by-trade basis.

3. If continuous, during what hours does the processing occur? If in batches, at what time or times is the

processing initiated and completed?

The processing of instructions occurs during the hours between 8:30 a.m. and 4:45 p.m. local time.

4. Do securities settlements occur daily? Please identify securities for which settlement occurs only on

specific days of the week or month.

The securities settlement occurs daily for all kind of securities.

D. Please describe whether final funds transfers in conjunction with the SSS are made as debits and credits

to balances held at the SSS, at one or more commercial banks, at the central bank, or via some other method.

Final funds transfers are made as debits and credits to balances held at the central bank.

1. Does the SSS maintain cash accounts for its participants? Are these accounts equivalent to deposit

accounts at a commercial or central bank or do they serve only as "cash memorandum" accounts?

The System is managed by the central bank, where the participants' cash accounts are held.

2. On what entity (SSS or other) does the participant bear cash deposit risk?

The participants do not bear cash deposit risk, as they have cash accounts opened at the BNB.

3. Under what circumstances does the SSS provide credit extensions or advances of funds to its

participants and thereby expose itself to credit risk?

The BNBGSSS does not provide credit extensions or advances of funds to its participants, so there is no such

credit risk exposure.

4. How long can such credit extensions last? How long do they typically last?

Not applicable.

E. Is the SSS a DVP system? If so, please describe the DVP model used according to the models outlined in

the DVP Report (see the Introduction). Please also provide a diagram indicating the timing of events in the

processing of securities and funds transfers in the SSS. Where the SSS provides more than one alternative for

settlement processing, please provide a response for each alternative and indicate the relative importance of each

alternative.

The securities transactions are processed in compliance with the main principle in the securities trade - the

DVP principle, defined as Model 1 (simultaneous gross settlement of securities and funds transfers). The necessary

technical, legal and contractual framework is established.

1. Are funds transfers and securities transfers processed within the same system or in different systems?

If different, how are they linked?


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Funds transfers and securities transfers are processed in two different systems, both managed by the BNB. The

settlement of the securities leg of transactions is handled in SDCK, while the settlement of the cash leg is processed in

RINGS. There is an automatic link established between the two systems.

(a) Please describe whether each securities transfer is linked to a specific funds transfer on a trade-by-

trade basis or on a net basis or via some other method.

The system runs a gross settlement process. It means that a securities transfer is linked to a funds transfer on a

trade-by-trade basis.

(b) Does the SSS "split" large transactions into multiple transactions or require participants to do so?

The System does not �split� large transactions into multiple ones and it does not require participants to do so.

2. When do securities transfers and funds transfers become final?

(a) At what time do securities transfers become final? After what event or events?

Securities transfers become final upon completion of each settlement process.

(b) At what time do funds transfers become final? After what event or events? Does this timing allow

for same-day retransfer of funds received in exchange for securities?

Funds transfers become final upon completion of each settlement process. The timing allows for same-day

retransfer of funds.

(c) If final delivery of securities precedes the final transfer of funds, can participants dispose freely of

such securities prior to funds finality? If so, what actions will be taken if funds are not received?

Not applicable.

(d) If final delivery of funds precedes the final transfer of securities, can participants dispose freely of

such funds prior to securities finality? If so, what actions will be taken if securities are not received?

Not applicable.

(e) Does the timing of finality differ depending on the type of security transferred or the currency in

which payment is to be made? Please describe.

The timing of finality is the same regardless of the type of securities transferred or the currency of payment.

3. Please discuss whether participants are notified of securities or funds transfers while they are still

provisional, only when they are final, or both.

Participants are notified of securities or funds transfers when they become final.

F. Does the SSS itself "guarantee" funds or securities transfers?

The System itself does not explicitly "guarantee" funds or securities transfers.

1. Under what circumstances and at what point are transfers guaranteed by the SSS?

Not applicable.

2. What actions does the guarantee obligate the SSS to take?


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Not applicable.

3. Please indicate whether the guarantee is a feature of the SSS's rules and procedures or of national law

or regulations.

Not applicable.

VI. Default procedures

A. Please discuss the events or circumstances that would constitute default of a participant under the rules

and procedures of the SSS or that would lead the SSS to make use of exceptional settlement arrangements or

unwind procedures.

1. Failure by a participant to meet a test of its solvency under the applicable laws of its jurisdiction?

In case of a participant's insolvency the System employs adequate procedures in order to protect other

participants and their clients from the negative consequences this event entails.

2. Failure to make payments or deliveries of securities within the time specified?

The failure to make one payment or delivery is not considered as an event of default by the System. In such a

case the System just cancels the unsettled transaction.

The systematic non-fulfillment of participant's obligations concerning the payment and the securities delivery

may be considered as a default.

3. To the extent that the rules and procedures grant discretion in the determination of the use of default

or other exceptional procedures, please discuss where the authority to exercise such discretion resides and the

circumstances in which this authority would be used.

The System itself has not such discretion.

B. What procedures are followed by the SSS once it has determined that a default event has occurred or

that exceptional settlement arrangements are to be employed?

The procedures are described in Ordinance No.5 of the MoF and the BNB (Art. 36) and in the participation

contract (Art. 6, para. 2, item 2)

1. How and at what point are participants notified that this has occurred?

The participants are notified in writing, via electronic message or press release, issued by Banking Supervision

Department in the BNB (for banks) and press release, issued by the Commission of Financial Supervision (for

investment intermediaries).

2. Would the SSS be expected to continue to meet all its obligations to participants under these

circumstances? Please discuss the resources in place to ensure that this would occur (e.g. collateral, participants'

fund, insurance, loss-sharing arrangements, etc.).

The System does not act as a central counterparty, but only in the name and on behalf of the participants.

Therefore, in the event of a participant's default this does not have any impact on the fulfillment of the obligations of

the System. The System does not offer such facilities like collateral, participants' fund, loss-sharing arrangements, etc.


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3. Please describe and provide a time line indicating the order in which these resources would be used as

well as the timing of participant notifications and important deadlines (e.g. when the SSS's obligations to

participants would be met, when participants would need to cover their loss-sharing obligations).

Not applicable.

4. Please describe all conditions under which provisional transfers of securities or funds could be

unwound by the SSS.

Not applicable.

(a) How and on what authority would a decision to unwind securities or funds transfers be made by the

SSS?

Not applicable.

(b) When and how would participants be notified of a decision to unwind provisional securities or funds

transfers?

Not applicable.

(c) How long would participants have to cover any debit positions in their own securities or funds

accounts resulting from an unwind?

Not applicable.

(d) In the event of an unwind, would all transfers be unwound or would only a subset of transfers (e.g.

only securities purchases or only those of a subset of participants) be unwound?

Not applicable.

(e) If only a subset of transfers, what procedure would be followed to determine which transfers and in

what order?

Not applicable.

5. Can bankruptcy or insolvency be declared retrospectively in the SSS's jurisdiction (e.g. under a

"zero-hour" rule), and could this cause provisional securities or funds transfers to be unwound?

Bankruptcy or insolvency can not be declared retrospectively.

6. Please describe any circumstances in which transfers of securities or funds that were defined as final

in response to question V.E.2 above would ever be unwound.

Not applicable.

C. Has a participant in the SSS ever been declared in default or become insolvent?

No.

1. Have loss-sharing procedures been invoked?

Not applicable.


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2. Please describe whether any of these defaults or insolvencies resulted in losses for the SSS or its

participants and how they were absorbed.

Not applicable.

VII. Securities overdrafts, securities lending and back-to-back transactions

A. Is it possible for debit positions (overdrafts) in securities accounts at the SSS to arise?

Debit positions are not allowed by the System.

1. Under what conditions could such debit positions occur?

Not applicable.

(a) Do these conditions always result in debit positions in securities accounts rather than failed

transactions? If not, please explain the basis for differential treatment by the SSS.

Not applicable.

(b) Are these situations covered explicitly by the rules and procedures of the SSS?

Not applicable.

2. How long can such debit positions last? How long do they typically last?

Not applicable.

3. How are debit positions in securities accounts prevented, rectified or managed?

Not applicable.

4. What procedures would be followed by the SSS in case the debit cannot be rectified?

(e.g. failure by a participant with a debit balance in a securities account or unavailability of the

securities in the market)

Not applicable.

(a) Application of loss-sharing provisions allocating the loss to participants?

Not applicable.

(b) Absorption of the loss by the SSS?

Not applicable.

(c) Other? Please specify.

Not applicable.

B. Under what circumstances does the SSS provide for the lending of securities to ensure settlements?

The System does not provide for the lending of securities.

1. Is the process for lending securities automatic? If not, please describe the procedures used by the SSS

to determine whether a securities loan will be made.


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Not applicable.

2. At what point are participants notified that securities are being lent to them in order to complete

their settlements?

Not applicable.

3. Which securities on deposit at the SSS are eligible for lending? Do participants have the option to

make securities available for lending or is it mandatory?

Not applicable.

4. Are lent securities identified by the SSS with specific participants as lenders or only with a common

pool of securities available for lending? Does the participant whose securities are lent become a principal to the

transaction?

Not applicable.

C. How does the SSS settle back-to-back transactions?

The BNBGSSS settles back-to-back transactions. Securities may be redelivered on the same day only if they

have been received after settlement of the relevant trade.

1. Under what conditions are delivery instructions by participants receiving and redelivering securities

on the same day under back-to-back transactions settled for same-day value?

(a) Only if the participant has securities on deposit with the SSS that have been received pursuant to a

final securities transfer?

Yes.

(b) If the participant has securities on deposit with the SSS that have been received pursuant to a

provisional securities transfer?

No.

(c) Before securities have been received either provisionally or finally, but when a matched receipt

instruction exists for the same or greater value? Is such a practice limited to markets where matching is

binding?

No.

(d) Before securities have been received either provisionally or finally, but when a third party has

promised to deliver to the SSS securities of the same or greater value? Must the provider of the guarantee have

itself received the securities through a final transfer? Please describe how the SSS evaluates such promises, and

whether they are addressed by the written rules and procedures of the SSS.

No.

(e) Other? Please specify.

No.


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2. Please describe limits or controls in place with respect to any of the above arrangements for the

settlement of back-to-back transactions, including limits on amounts involved or related to the liquidity of the

underlying securities.

There are no such limits or controls applied in the settlement of back-to-back transactions.

3. Under what conditions are payment instructions by participants in the SSS under back-to-back

transactions settled for same-day value? Can participants use the proceeds of an on-delivery of securities

without the need for an extension of credit?

Please see VІІ. C. above.

VIII. Risk control measures

A. Please describe the roles and responsibilities of those areas of the SSS responsible for risk management

and control.

The rules for risk management and control are included in the legal basis - Law on the Bulgarian National

Bank, Ordinance No.5 of the MoF and BNB, Ordinance No. 31 of BNB and particularly Ordinance No. 15 of the MoF

and BNB. The Ordinance No. 15 on the Control over Transactions in Government Securities establishes the main

purposes, procedures and manner of exercising control on the transactions in government securities.

1. Please describe the process for the internal review of risk management policies and procedures.

The Bulgarian National Bank has introduced a risk management system compliant with the ECB requirements.

In 2007 the BNB Governing Council approved the Operational Risk Management Policy which outlined the scope,

principles and responsibilities of the participants. The Operational Risk Management Committee was set up with

responsibilities for planning, coordinating and monitoring the operational risk management activities in the central

bank. Based on the information and contributions provided by the risk managers from the operational departments

within the bank (conducting self-assessments of their particular business area) the Committee shall prepare the

consolidated operational risk report and forward it to Governing Council for consideration. The BNBGSSS was one of

the BNB structural units where in 2008 the new risk management system was first tested and built in.

2. Is there a risk management policy that addresses the review and approval of new products and

services offered by the SSS? At what level of the organisation is risk management approval given for a new

product or service?

Yes.

3. Does the SSS have a risk management function with clear independence from and authority over

operational or marketing functions?

There is also a risk management and control function confined to a unit within the structure of the System

operator itself, which is separated and independent from operational divisions, in charge of exercising daily control

over the registration and settlement of government securities transactions, the users of the System, etc.

4. Does the Board of Directors review risk management policies and procedures? Does the Board have a

risk management or audit committee?


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Yes, the Governing Council determines and reviews the risk management strategy and policy.

Please see VIII. A. 1.

B. Please describe any internal or external audits or supervisory/regulatory examinations that are

performed with respect to the SSS. For each such audit or examination, please address the following questions.

1. Who performs the audit or examination?

The BNBGSSS is subject to internal and external audit. Internal audits are carried out by the BNB Internal

Audit unit. The external auditor is appointed by the Governing Council for a term of three years on the basis of a

procedure under the Public Procurement Law.

2. What is the scope of the audit or examination?

(a) Please indicate whether and how it addresses the sufficiency of and compliance with internal

controls.

(b) Please indicate whether and how it addresses the SSS's compliance with its own rules and

procedures.

The internal audit addresses both the assessment of the adequacy and sufficiency of the internal controls and

the assessment of the compliance with the legal base and internal rules and procedures. The assessment of the

implemented controls in the BNBGSSS, ensuring data integrity during the input, update and storage as well as the

information security are also included in the scope.

The external auditor performs a financial audit of the Bulgarian National Bank as a whole, which includes

audit of the government securities accounts as well.

3. What is the frequency of the audit or examination?

Internal audit on the BNBGSSS is performed once every two years and external audit is performed once a

year.

4. Are audit or examination reports available for review by participants?

The audit reports, prepared by the Internal Audit unit, are available for review by the BNB Governing

Council, the Ministry of Finance and the units that have been audited. The findings of the external auditor are publicly

available.

C. Please discuss whether the SSS has the capacity to value (i.e. mark to market) the securities that it holds.

The System has not the capacity to value the securities it holds. At present the securities transactions are

recorded in nominal values.

1. Please describe how these valuations are used by risk control systems at the SSS.

Not applicable.

2. How frequently are securities revalued?

Not applicable.

3. What are the sources for security valuations?


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Not applicable.

(a) What outside price or data sources are used?

Not applicable.

(b) If pricing models are used, please describe how the models are chosen and how the model inputs are

obtained.

Not applicable.

D. Please discuss whether the SSS has a lien on the securities held in or transferred through it.

The System can not impose a lien on participant accounts.

1. Does the lien apply only to the securities owned by the participants themselves or does it extend to the

securities beneficially owned by customers of participants?

Not applicable.

2. Under what circumstances and in what manner would such a lien allow the SSS to use the securities?

Not applicable.

E. Please discuss the circumstances in which the SSS requires collateral to limit or mitigate risks.

1. Does the SSS manage its own collateral system?

The BNBGSSS does not manage its own collateral system.

2. Does the SSS share a collateral system with another SSS or payment system?

Not applicable.

3. Can collateral at the SSS be posted and returned on the same day?

Not applicable.

4. What types of transaction at the SSS involve the use of collateral?

Not applicable.

5. What are the policies with regard to the type of collateral used or haircuts required?

Not applicable.

6. How are collateral valuation methodologies developed and reviewed?

Not applicable.

7. To what extent are collateral policies described in the written rules and procedures of the SSS?

Not applicable.

F. Please describe the SSS's use of limits on exposures to monitor or control risks.

1. Please explain the types of limit used and the exposures to which they apply.

There are no limits on exposures for risks control.


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2. Do the limits apply to all participants and/or to other SSSs with which the SSS is linked? What are

the exceptions to the limits?

Not applicable.

3. Do limits apply to participants individually or in the aggregate or both?

Not applicable.

4. Do limits apply to implicit as well as explicit extensions of credit or securities (e.g. when on-deliveries

of securities are permitted pursuant to provisional but not final delivery of securities)?

Not applicable.

5. Does the SSS automatically reject transactions that exceed limits or is compliance determined ex

post?

Not applicable.

6. How are limit policies developed and reviewed?

Not applicable.

7. To what extent are limit policies described in the written rules and procedures of the SSS? Where

does additional authority to set or amend limit policies reside?

Not applicable.

G. Please describe other controls to mitigate or reduce risks at the SSS.

1. Does the SSS or its participants have the capacity to monitor participants' accounts continuously

during processing?

The participants have the capacity to monitor their accounts continuously during processing.

2. Is there a special risk control regime that the SSS would apply to a participant known to be

experiencing financial difficulties?

The System does not apply a special control regime.

3. Does the SSS maintain or administer loss-sharing arrangements other than those applicable to events

of default and addressed in Section VI above? Are these loss-sharing pools pre-funded by participants?

No.

IX. Operational risks

A. Please provide assessments of the operational reliability of the computer and other systems used by the

SSS, including any criteria that the SSS uses internally for this purpose.

1. What is the percentage uptime of the systems used by the SSS?

(a) Whole system overall?

(b) Broken down by major components? (e.g. communications network, central processing facility)


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(c) During critical processing periods?

The operational reliability of the BNBGSSS is high. The percentage uptime of the systems used by the

BNBGSSS is higher than 99 per cent during the working hours.

2. Has the SSS experienced major operational problems during the past two years?

(a) Have settlements been delayed, been disrupted or otherwise failed because of operational problems

during this period?

(b) Please describe the nature of any such problems.

During the past two years the System has not experienced any major operational problems seriously

jeopardizing the settlement of GS transactions.

B. Please describe contingency or disaster recovery planning at the SSS.

1. Does the SSS have a formal plan for business continuity in place?

2. Is this plan available for review by participants?

3. How often is this plan tested? Does this involve participants in the SSS?

4. What are the major elements of the business continuity plan?

5. How long would it take the SSS to resume operations if primary systems become unusable?

The System has a formal plan for business continuity in place, designed to provide reasonable assurance. This

plan is tested annually and is available for review by participants. The major elements of the business continuity plan

are the backup system and the off-site data storage. Backup facilities are kept outside the premises of the BNBGSSS. In

the event of complete unavailability of the system, the BNBGSSS resume operations for about 2 hours. A changeover

of power supply is available, which ensures uninterrupted power supply for 72 hours of operation.

Both systems � ESROT and SDCK � have been included in a Grid Control environment, allowing for a

centralized monitoring of their hardware and software components and a timely signalling of disruptions occurred in

the normal performance.

C. What are the key features of the internal controls covering operations and security at the SSS (e.g.

change controls or those covering remote access)?

1. Please describe controls or security procedures in place to ensure that the SSS acts only on authentic

settlement instructions from valid participants.

The Bulgarian National Bank has instituted a broad range of access controls to its systems including external

linkages, as well as to its premises. The BNB maintains formal operating procedures and controls, but this information

is not made available to the public. The access to the building is controlled by guards, video surveillance, electronic

keys and personal ID cards.

The participants are obliged to use SWIFT (applying ISO 15022 international standard) and/or the System

WEB-based interface (when using a universal electronic signature) to send their instructions to the System. Every

instruction has an ID-number and is signed by authorized employees of the respective institution, thereby confirming its

authenticity.


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2. Are internal operational and security controls included in the internal and/or external audits of the

SSS?

Yes.

3. Are internal operational and security controls covered by regulatory requirements applicable to the

SSS?

Yes.

D. Does the SSS impose minimum operational or performance standards on third parties (e.g.

communications providers)?

On SWIFT communication services used by the System.

1. How does the SSS ensure that such standards are met on a continuing basis and what sanctions are

available to the SSS if they are not?

2. How would the SSS allocate losses incurred due to operational problems caused by third parties?

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