MT505 — Collateral Substitution
The swap of a collateralised asset against another, without changing the net cover amount. A daily routine when the collateral giver needs to recover a pledged security for an outright sale or to deliver on another repo.
Purpose
MT505 asks for the swap of an in-place collateralised asset against another asset equivalent in post-haircut value. Two main scenarios:
- Giver-initiated substitution — the giver wants to recover a pledged security (e.g. to sell it outright on the market or deliver it under another repo) and proposes a replacement asset.
- Taker-initiated substitution — the exposed party requests the substitution of a security that became ineligible (rating downgrade, residual maturity < minimum threshold, listing suspension).
The message lists the old collateral (OLDCOLL sequence) and the new one (NEWCOLL) with their respective values. The golden rule: PSTV(NEWCOLL) ≥ PSTV(OLDCOLL). Any over-collateralisation is returned separately via a new MT503 / MT504 cycle.
Sequence structure
- GENL — General Information: reference (SEME), function (NEWM), date, type (COLA/SUBS).
- COLLPRTY — Collateral Parties.
- OLDCOLL — Old Collateral: asset to remove, its quantity and post-haircut value.
- NEWCOLL — New Collateral: replacement asset, quantity, market value, haircut, post-haircut value.
- ADDINFO — Additional Information: settlement date and narrative.
Block 4 tags
| Tag | Name | Format | Usage |
|---|---|---|---|
:22F: | Indicator | :4!c/[8c]/4!c | COLA//SUBS (collateral substitution). |
:35B: | Instrument | 4*35x | Old ISIN (OLDCOLL) then new (NEWCOLL). |
:36B: | Quantity | :4!c//4!c/15d | AGGR + FAMT for bonds, AGGR + UNIT for equities. |
:19A: | Amount | :4!c//[N]3!a15d | MKTV (market value), PSTV (post-haircut value). |
:90A: | Price | :4!c//3!a/15d | MRKT — clean market price. |
:92A: | Rate | :4!c//[N]15d | HALF — haircut applicable to NEWCOLL. |
:98A: | Date | :4!c//8!n | SETT — substitution settlement date (usually T+1). |
Real-world example
Deutsche Bank wants to recover its 2027 Bund (pledged in the MT504) and proposes as substitution a French OAT 2032 with a 3% haircut. The new post-haircut value (74,496 EUR) widely covers the old (72,765 EUR):
{1:F01DEUTDEFFXXXX0000000000}{2:I505BNPAFRPPXXXXN}{3:{108:SUB20260520001}}{4:
:16R:GENL
:20C::SEME//SUB20260520001
:20C::RELA//CC20260516001
:23G:NEWM
:98A::PREP//20260520
:22F::COLA//SUBS
:16S:GENL
:16R:COLLPRTY
:95P::PTYA//BNPAFRPPXXX
:95P::PTYB//DEUTDEFFXXX
:97A::SAFE//CSA-2024-001
:16S:COLLPRTY
:16R:OLDCOLL
:35B:ISIN DE0001102408
BUNDESANLEIHE 0% 02/2027
:36B::AGGR//FAMT/75000,00
:19A::PSTV//EUR72765,00
:16S:OLDCOLL
:16R:NEWCOLL
:35B:ISIN FR0014007T87
OAT 0,50% 05/2032
:36B::AGGR//FAMT/80000,00
:19A::MKTV//EUR76800,00
:90A::MRKT//EUR96,00
:92A::HALF//3,00
:19A::PSTV//EUR74496,00
:16S:NEWCOLL
:16R:ADDINFO
:98A::SETT//20260521
:70E::ADTX//SUBSTITUTION BUND27 BY OAT32 SAME COVER LEVEL
:16S:ADDINFO}:22F::COLA//SUBS— substitution operation.:16R:OLDCOLL— 2027 Bund, PSTV 72,765 EUR to remove.:16R:NEWCOLL— 2032 OAT, PSTV 74,496 EUR to put in place.- 1,731 EUR difference: temporary over-collateralisation to be cleared later.
Common pitfalls
- PSTV(NEW) < PSTV(OLD) — the substitution undercovering the engagement is rejected. Always slightly over-collateralise the new one to absorb intra-day price variations.
- NEWCOLL ineligibility — check the proposed asset is in the CSA eligibility list. An OAT would be accepted in 99% of European CSAs, a corporate bond less so.
- No cross-currency — substitution must be intra-currency. Substituting USD with EUR requires a full MT503 / MT504 cycle + FX adjustment.
- Delayed settlement — the NEWCOLL delivery and the OLDCOLL return must be DvD (Delivery vs Delivery) on the same day, otherwise the giver bears double-position risk.
- Missing RELA — for audit trail, always reference the original MT503 / MT504 via RELA. Without RELA, the substitution is orphan in the ETL systems.
ISO 20022 equivalent
- colr.007 — Collateral Substitution Request.
- colr.008 — Collateral Substitution Response.