Countdown to lift-off


John Gilchrist

The introduction of the euro is now only a few months away. This change, which is one of the most fundamental in the history of the capital markets, heralds the beginning of a new era in Europe. Cedel Bank (the Bank) is committed to making the transition to the euro as smooth as possible for customers and for the market as a whole.

It has to be recognised that the successful launch of the euro can only be achieved through effective co-operation between the many organisations and institutions involved. Careful development of systems and procedures with thorough testing is essential for success. The need for a contingency plan to take care of any unforeseeable problems is vital. Cedel Bank began internal systems testing in May 1998, well in advance of others in the business. This required the formulation of a comprehensive test plan, spanning suppliers and customers since they are immediately impacted by the euro. It is anticipated that that a significant number of market participants will undertake testing with the Bank in order to be fully and completely assured of the market’s overall capacity to execute and validate instructions during the transition period and beyond. The Bank firmly believes that the widest possible participation in testing by its customers, with simulations and international exchange of information will be of great benefit to the whole market.

This article is to serve as a reminder of the key dates and times leading up to the changeover weekend and an overview of the Bank’s test plan. Further, the Bank’s approach to contingency planning is briefly explained as are the most frequently asked questions regarding the euro, together with answers.


Issuers of securities can decide to convert the denomination currency of their debt instruments and shares from an EMU national currency unit into euro. The issuers will choose the conversion method and the conversion date, which can be at any time from 1st January, 1999. The governments of all participating member states have decided to redenominate their benchmark government bonds and federal issues into euro. They have indicated that they will redenominate these issues immediately at the start of EMU, over the conversion weekend, from 1st January, 1999 to 4th January, 1999.



Cedel Bank customers’ securities holdings and pending instructions will be redenominated according to the redenomination method chosen by the issuer. The country of issue of the security does not determine the redenomination method. Consequently, the same rule can be applied to issues from different countries and different rules can be applied to issues from the same country. Also, an issuer can use different rules on its various issues when, for example, these are in different currencies.

Cash countervalues

Cross-border instructions involving Cedel Bank customers and counterparties in domestic markets will follow the rule of the domestic market concerned for cash countervalues. Therefore, if the domestic market is dealing and settling in euro only, settlement instructions must be submitted in euro. Pending instructions, i.e. the cash countervalues of instructions caught in the cut-over weekend will be automatically converted into euro regardless of whether the issues have been redenominated or not. The instructions submitted for settlement within Cedel Bank or via the electronic bridge with MGT/Euroclear will continue to be processed in either EMU national currency units or in euro. For redenominated securities which are in transit over the cut-over weekend, the settlement currency will be automatically converted to euro if the nominal value is the same as the currency of the countervalue in the original instruction. If the two currency units are different, only the currency unit of the nominal value is converted.

What will be the earliest possible date that transactions can be settled in euro?

Monday, 4th January, 1999. Instructions may be input with EUR as the settlement currency prior to 1st January, 1999, as long as they reflect a value date of 4th January, 1999 or later. The Bank will not accept settlement instructions for securities to be redenominated with nominal amounts in euro until the redenomination process has taken place. Instructions received for securities to be redenominated before this process will be considered as being denominated in its original EMU national currency unit.

Cash balances

The only currency balances to be converted automatically by Cedel Bank to the euro will be XEU balances. These balances will be converted on a 1:1 basis. Conversion will not be mandatory for other EMU national currency unit balances until 1st January, 2002. While Cedel Bank expects that the market will take a ‘Big Bang’ approach, customers will nevertheless be allowed to operate cash accounts both in euro and EMU national currency units during the transitional period.


31st December, 1998

19:45 hours:

Cedel Bank will check all instructions received up to this deadline for inclusion in the redenomination process. Instructions received after 19:45 for securities that are to be redenominated during the changeover weekend will be rejected. The nominal value of the selected instructions will still be in EMU national currency units. All instructions received will be processed in pre-settlement matching run.

22:00 hours:

The results of the pre-settlement matching run will be made available.

1st January, 1999

12:01 hours:

The Council of Europe is expected to announce the official conversion rates and the redenomination process can start.

15:00 hours:

The redenomination process within Cedel Bank is expected to be complete at approximately 15:00 hours. Reconciliation with Morgan Guaranty Trust as operator of the Euroclear System (MGT/Euroclear) and depository banks is expected to begin immediately.

17:00 hours:

Conversion reports will be available for customers. The debits of securities balances denominated in EMU national currency units and the credits of securities balances denominated in euro will be reported in a special General Report. The redenomination of pending instructions will be reported as a cancellation and re-entry of the instruction in its redenominated form in the Suspense Report. A Portfolio Report will also be made available.

2nd January, 1999

09:00 hours - 19:45 hours:

There will be a special input window at this time so that new instructions for any securities can be submitted or previously rejected instructions can be re-input (for settlement processing with value date 4th January, 1999 or later).

How will Cedel Bank handle income payments and redemptions on securities denominated in euro or in EMU national currency units?

All income and redemption proceeds of securities denominated in euro or in EMU national currency units will be credited to customer accounts in euro unless a currency option exists on the issue that allows the payment to be in a non-EMU currency, and the customer exercises this option. Customers will receive both payment and reports in the requested currency. There will be no automatic conversion to any other currency and no dual currency reporting. Income and redemption proceeds resulting from issues denominated in a non-EMU currency will continue to be paid in that currency.

22:00 hours:

The results of the pre-matching run will be available at approximately this time for all pending, redenominated or new instructions that have been processed. Following the completion of pre-settlement matching, the normal settlement cycle for value date 4th January, 1999 will begin. Normal settlement reports are expected to be available at the usual time of 06:00 hours on 3rd January, 1999.


The Bank will provide details of the issues to be redenominated, the redenomination rules, changes to ISIN, common codes, fungibility and any amalgamation with other issues. This information will be issued within four weeks of the redenomination date, subject to such information being received from the issuer, through one or more of the following media:

Details of all securities accepted by the Bank will be available on the Cedel Bank web site from October, 1998. This information will be updated every working day. The Bank recommends that interested parties use the Bank’s web site during the changeover weekend.


Cedel Bank began very early on to design the infrastructure and test the procedures needed to meet the challenge of the euro. It is ensuring that the system changes implemented by its depository banks and cash correspondent banks to support the euro are compatible with its own systems changes and vice-versa. Nevertheless, contingency procedures have been put in place to manage any unexpected problems during the changeover weekend. The procedures target around three key areas: business, information technology, and the customer-supplier relationship. For each of these areas, potential problems have been identified and the procedures to deal with them have been defined.

Cedel Bank’s website will provide progress information throughout the changeover weekend.

In what currency will Cedel Bank pre-advise, pay, and report dividends and other income payments on all securities eligible in Cedel Bank’s system?

Cedel Bank will pre-advise, credit and report income received to customers in the currency received by the Bank’s cash correspondent bank for securities denominated in a non-EMU currency. Otherwise, the Bank will pre-advise, credit and report in euro.


The business components of the introduction of the euro, such as redenomination and reconventioning rules, have been thoroughly analysed. The impact of these components on the Bank’s settlement cycles, sequences and systems have been assessed and potential sources of difficulties have been identified and outlined. The probability of each of these problems occurring has been statistically estimated, disaster scenarios have been run and internal as well as external consequences have been evaluated. The euro contingency plan incorporates these scenarios and gives detailed procedures for dealing with them.

Will Cedel Bank continue to settle transactions against payment in EMU national currency units?

Yes, as long as settlement instructions are received from both counterparties in the same EMU national currency unit. Cross matching of EMU national currency units will not be offered to customers.

Instructions given in different settlement currencies by the counterparties will remain unmatched. For other external transactions, settlement in EMU national currency units will only be possible if the underlying domestic CSD or depository continues to settle against EMU national currency units.


Cedel Bank is currently testing systems and procedures that have been developed or upgraded to allow the euro to be integrated successfully into the settlement process. The market has concluded that end-to-end testing would be virtually impossible given the complexity of the changeover. That said, customer testing within the Bank will take place during September and October using test parameters which have been agreed to ensure that the Bank is fully prepared. The Bank’s Crisis Management Guide, which covers all of the Bank’s IT systems (and is regularly reviewed and updated), will serve as the backbone for the contingency plan for the IT area. Potential IT problems have already been identified and necessary actions documented.


The Bank’s depository and cash correspondent bank network will play a crucial role during the changeover process. Any problems in this area could impact Cedel Bank’s ability to perform and, in consequence, put its customers at risk. The Bank is already testing with all of its suppliers to ensure that systems and procedures ‘dovetail’ in order to achieve a smooth transition to the euro. Nevertheless, contingency procedures have been put in place to address any problems that might occur in the supplier chain.

How will EMU national currency units be converted into euro?

The European Council has published the conventions by which EMU national currency units will be converted into euro and vice-versa. In summary, the principles followed by Cedel Bank are:


Customer service officers will, of course, be available to assist customers at all times during the changeover weekend and a special euro help desk is already in operation. A company-wide training programme is taking place to ensure that staff have up-to-date information and a clear understanding of procedures should any problem arise. A simple but efficient decision matrix has been established to ‘trigger’ the most appropriate response to any situation. The Bank is confident that, as a result of the extensive and comprehensive testing it is performing in both the business and IT sides of the business, the changeover weekend will pass without incident. However, should it be necessary to take action over any issue, Cedel Bank is well prepared to put its contingency plan into action.


The different formulas or rules that the Bank will use to calculate nominal values in euro for redenominated securities are described in this section.

These rules are according to information that Cedel Bank and MGT/Euroclear have defined for testing purposes. These formulas or rules are based on the redenomination methods that issuers have indicated that they will adopt. The country of issue does not determine the redenomination method. Consequently, the same rule can be applied to issues from different countries and different rules can be applied to issues from the same country. Examples of the use of each of these rules are given.

What is the expected practice for dividends of domestic and Eurobond issues announced prior to 1st January, 1999 but not paid until after 1st January, 1999.

All dividends with payment date after 1st January, 1999 will be posted in euro to Cedel Bank customer accounts.


The following rounding definitions are used within the Cedel Bank redenomination engine (the software application used by Cedel Bank to redenominate securities):

LG EMU-defined rounding rule. This rule is also applied to euro cash rounding, where values from 0 to 4 are rounded down and from 5 to 9 are rounded up.

DN Round down or truncate

UP Round up


The number of decimal digits to be considered in calculating intermediate nominal euro values is defined in the redenomination algorithm for a given security and can vary between issuers.


Two types of cash compensation quotation are possible:

The type of cash compensation will be decided by the issuer for each issue to be redenominated. The issuer will then calculate a factor that represents the accrued interest or accrued interest times the market price.

The examples that follow use a notional factor set by Cedel Bank for testing purposes.


A redenomination rule name is the name given to a redenomination process as defined by the issuer of the security. The process includes the redenomination functional rules (mathematical rules) and the order in which these functional rules are to be processed.


There are two possible choices for the redenomination method: bottom-up or top-down. The bottom-up method gives two possible choices for the redenomination basis: by customer holding or by minimum denomination of the issue. All participating member states are expected to adopt the bottom-up method.


Cedel Bank’s test strategy and outline timetable for customer testing in preparation for European Monetary Union and the introduction of the euro are as follows.

The redenomination of securities can be tested throughout both of the announced test periods (14th September to 14th October and 19th October to 27th November) using production data from the two reference dates (31st July, 1998 and 31st August, 1998). Cedel Bank will provide sample reports to customers who do not have holdings in any of the securities in the preliminary list of about 3000 securities prepared jointly by Cedel Bank and MGT/Euroclear. Notification of the final list of securities that will be redenominated by their issuers will be published prior to 31st December, 1998.


The objectives of the test strategy are to permit customers to:

In particular, customers’ software must comply with the changes to the machine-readable and human-readable formats used by the Bank’s connectivity services.


The securities used in test instructions must be present in the list of about 3000 securities prepared jointly by Cedel Bank and MGT/Euroclear. This will ensure that transactions using the Bridge (the electronic communications link between Cedel Bank and MGT/Euroclear) will be processed consistently by the two clearing and settlement systems. This list includes securities that are expected to be redenominated immediately at the start of EMU.

Will Cedel Bank supply a statement of securities in national currencies at the close of business on December 31st, 1998 and a statement of securities in euro after the conversion?

A statements of securities in EMU national currency units as of December 31st, 1998 will be produced for the year-end results at approximately 18:00 Luxembourg time on December 31st, 1998. All book-entry movements and instruction changes arising from redenominations will be reported to customers on the evening of January 1st, 1999.

A separate S.W.I.F.T. MT950 message will be provided for each currency, but no dual-currency reporting will be provided. The statement of security holdings (S.W.I.F.T. MT571 message) will also be produced and will contain all securities held in your safekeeping account in security code order. Redenominations during the changeover weekend will be reported on the actual day of redenomination, and the posting date of January 1st, 1999 will be used.

These reports will show the redenomination book-entry movements and the cancellations and the re-entry of the redenominated instructions into the system.


Testing will be performed using a special euro test environment that will be available during two separate periods. Each period has three key dates as follows:


Different sets of conversion rates will be used in each of the test periods. The first test period will use conversion rates set by Deutsche Börse Clearing A.G. The second test period will use rates set by SICOVAM S.A.


The data to be used for testing consists of all instructions, positions and holdings present in the Bank at the normal end-of-day cut-off time of 19:45 Luxembourg time on the production data dates as shown in the table overleaf. The appropriate data will be copied into the test environment at the start of each test period.


Customers who use S.W.I.F.T. or Cedcom connectivity services will be able to choose either the first, the second, or both test periods.


The changeover to the euro requires the concerted efforts of the markets and all of the participants within. Thorough planning and preparation are essential ingredients as are comprehensive test and business continuity and contingency plans. Cedel Bank has prepared, and continues to prepare, for both the foreseen and unforeseen events in the lead up to, during and in the wake of the changeover weekend. It has one simple overarching principle - to make life as easy as possible for its customers and the introduction of the euro a success.