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2nd AECSD Conference, Moscow - 5th October 2005 A Single Protocol for Clearing and Settlement John Falk Securities Market Infrastructures SWIFT AECSD_20051005 Slide 1 Recommendations, Barriers or Regulations What is meant by a Single Protocol for Clearing and Settlement? AECSD_20051005 Slide 2 Recommendations, Barriers or Regulations 2001 CPSS-IOSCO Recommendation 16: “Securities Settlement Systems should use or accommodate relevant international communication procedures & standards…” 2003 G30, Recommendation 2 “Harmonise message standards & communication protocols” 2003 Giovannini, Barrier 1 “Define EU wide protocol to eliminate national differences in IT & interfaces used by Clearing & Settlement providers” 2004 ESCB-CESR, Standard 16 (draft) “Entities providing securities clearing and settlement services, and participants in their systems should use or accommodate relevant international communication procedures and messaging and reference data standards………” AECSD_20051005 Slide 3 G30 Global Clearing and Settlement: A Plan of Action - Recommendation 2 Harmonise messaging standards & communication protocols “All market participants should adopt ISO15022 as the global standard for straight-through securities messaging across the entire securities life cycle” “XML should become the language to describe standardised messages” “Market participants should support and use communication networks that adopt open, standardised, IP-based protocols for securities transactions” AECSD_20051005 Slide 4 SWIFT meeting the challenge Present and future Communication network – SWIFTNet (IP based service) Market Practice Standards worldwide – Securities Market Practice Group (SMPG) Data Standards – ISO15022 – SWIFT ISO XML Standards – UNIFI (ISO20022 - Standards convergence) AECSD_20051005 Slide 5 UNIFI (ISO 20022) Overview of existing initiatives Treasury Payments EPC/ECBS EACT CHIPS TCH RosettaNet/PMP IFSA NACHA OAGi ISTH X12 Fedwire TWIST FPML W3C OMG ISDA IFX ISO/TC68 UNIFI - ISO 20022 FIX BMA SMPG FISD/MDDL SIA G30 ISITC-IOA UN/CEFACT Bolero OASIS e-bMoU IIBLP EAN/UCC ISSA ICC Giovannini UNCITRAL Securities AECSD_20051005 IFSA Trade Finance Slide 6 A Single Protocol for Clearing and Settlement What is being proposed? AECSD_20051005 Slide 7 Protocol framework Proposed recommendation The original 9 element framework should be simplified into 6 elements over 2 layers Participant A A Participant Data Data Messaging Transfer Network AECSD_20051005 Participant Participant BB S TS 1 1ATA NN D 4 DA AR 4RDS 7 D S S ES 2 E 2 CC UU 5 RR I IT Y T 5 8 Y S ES 3 3RER VV I 6 IC CE S E 6 9 S Data Data Messaging Transfer Network Slide 8 ShortTerm Term - Long Protocol scope - Proposed Trade Date IMI Trade Date + X Space 3 Clearing & Settlement Space 2 Post Trade / Pre-Settlement Space 1 Pre-trade / Trade Institutional (buy) Side Order Street (sell) Side B/D Trade B/D Exchange 1 VMU / ETCP CCP 2 GC SC SA SA IMI: Investment Manager B/D: Broker Dealer VMU: Virtual Matching Utility GC: Global Custodian SC: Sub-Custodian SA: Settlement Agent (Clearer) CCP: Central Counterparty ICSD: (Int‘l) Central Securities Depository (I)CSD Non Trade Related Activity 3 Space 4 - Asset Servicing AECSD_20051005 Slide 9 Focus on the Data Layer: How far from common data standards are we? European CSD’s Available Standard Infrastructure use – Cross border Infrastructure use – Domestic BIC 42% 17% ISIN 92% 83% ISO Currency Code 83% 83% ISO Country Code 92% 92% ISO 15022 Data Dictionary 75% 17% ISO 15022 Message syntax 67% 25% ISO 15022 Message Set 33% 8% SMPG (local) Message Set IP Network 58% 92% 33% 92% AECSD_20051005 Slide 10 Common Data Standards - AECSD IP Network SMPG (local) Message Set ISO 15022 Message Set ISO 15022 Message syntax ISO 15022 Data Dictionary ISO Country Code ISIN BIC ISO Currency Code Available Standards Azerbaijan - National Depository Georgia - Central Securities Depository Kazakhstan - Central Securities Depository Kyrgyzstan - Central Depository Moldova - National Securities Depository Republic of Belarus - Republican Central Securities Depository Russian Federation - DCC Russian Federation - NDC Ukraine - Interregional Stock Union Ukraine - National Depository Uzbekistan Republic - State CSD AECSD_20051005 Slide 11 Securities Market Infrastructures on SWIFT Euroclear Clearstream Euroclear NL London SE Euroclear France FMC NDC & DCC, Russia DTCC CREST Omgeo ECSDA Tokyo SE Iberclear SIS LCH.Clearnet DIFX Hong Kong FE Monte Titoli Singapore SE CBLC Strate Sydney Futures Exchange CAJVAL JSE Securities Exchange …and others! AECSD_20051005 Slide 12 Communicating with Securities Market Infrastructures using SWIFT street side Order/Trade institutional (buy) side Benefits for system owners Post-Trade/ Pre-Settlement Mission critical levels of >>> reliability, security and support Time to market is Settlement >>> short Low entrance barriers for >>> remote members Access to all types of domestic and international players >>> increased internationalisation of client activities Global standards ISO 15022, XML, FIX for: >>> trading >>> clearing >>> settlement >>> DVP >>> custody AECSD_20051005 Slide 13 uestions &A nswers AECSD_20051005 Slide 14 2nd AECSD Conference, Moscow - 5th October 2005 A Single Protocol for Clearing and Settlement? John Falk Securities Market Infrastructures SWIFT AECSD_20051005 Slide 15 Securities Market Infrastructures - FIN Argentina Australia Austria Belgium Caja de Valores SFE OEKB CIK Euroclear Bank MTS Brazil CBLC Canada CDS Croatia Sredisnja Depositarrna Agencija Denmark VP Finland HEX France Euroclear France Euronext Paris – MATIF MTS Germany Eurex Clearing Deutsche Boerse MTS Greece Central Securities Depository Hong Kong HK Futures Exchange SEHK Options Clearing House Hungary Keler Italy Monte Titoli Borsa Italiana CCG Japan JSCC Kazakhstan Kazakhstan Stock Exchange Korea Securities Depository Latvia Central Depository AECSD_20051005 Lebanon Luxembourg Mexico Netherlands Norway Poland Portugal Russian Federation Singapore Slovenia South Africa Spain Sri Lanka Sweden Switzerland Taiwan UK (& Ireland) USA Midclear Clearstream S.D. Indeval Euroclear Netherlands MTS VPS National Depository for Securities MTS Depository Clearing Company The National Depository Center Central Depository Singapore Exchange Central Securities Clearing Corp STRATE JSE Securities Exchange Iberclear MEFF MTS Securities Settlement System VPC AB SIS SIS x-clear Securities Central Depository CREST LCH.Clearnet ISCC DTCC Omgeo Slide 16 Market Infrastructures Infrastructure Update Euclid CREST HOME Communicating with Securities Market Infrastructures using SWIFT street side 1 Trading: connecting Exchanges 2 Clearing: connecting Clearing Institutions and Central Counter-parties 3 Electronic Trade Confirmation: connecting to VMU providers 4 Settlement & Custody: connecting Central Securities Depositories and International Central Securities Depositories Exchange Order IM Post-Trade/ Pre-Settlement Order/Trade institutional (buy) side B/D VMU B/D CCP Settlement GC SC SA (I)CSD IM: Investment Manager B/D: Broker Dealer GC: Global Custodian SC: Sub-Custodian SA: Settlement Agent AECSD_20051005 SA Slide 17 Securities Industry SWIFTNet Solutions Giovannini Market Infrastructures HOME Proposed protocol: Still to do… Present draft recommendation: – 17 October 2005 – SMPG – 18 October 2005 – SWIFT Board – 24 October 2005 – CESAME monitoring group Pre-publication of protocol for industry consultation – October 2005 Close of consultation – January 2006 Expected final publication – March 2006 AECSD_20051005 Slide 18 What Can and Does SWIFT bring to the Securities Markets? Standards Security, Reliability and Risk Resilience Co-Operation Services Provides SWIFT AECSD_20051005 VALUE to the whole market has done it before Slide 19 Other G30 Recommendations Creating a strengthened, interoperable global network 1 Eliminate paper and automate communication, data capture and enrichment 3 Develop and implement reference data standards 8 Automate and standardize asset servicing processes Mitigating risk 12 Ensure effective business continuity and disaster recovery planning Improving governance 18 Promote fair access to securities clearing and settlement networks AECSD_20051005 Slide 20 SWIFTStandards Securities Other markets UNIFI (ISO 20022) (syntax = XML, such as Investment Funds, Cash Reporting, Bulk Credit Transfers, …) ISO 15022 (syntax = enhanced Traditional FIN FIN, such as MT 502, MT 54x, …) (e.g. MT 103) ISO 7775 (syntax = traditional Traditional FIN FIN, such as MT 521, MT 500, …) (e.g. MT 100, MT 202, …) AECSD_20051005 Slide 21 Market Infrastructures Infrastructure Update Euclid CREST HOME Communicating with Securities Market Infrastructures using SWIFT street side Order/Trade institutional (buy) side Benefits for system members Post-Trade/ Pre-Settlement Technical standardisation: Single window access to domestic and international systems through one interface Settlement >>> cost efficiency Mission critical levels of >>> reliability, security and support Business standardisation: ISO 15022, XML, FIX: >>> Market Practice standardisation>>> Straight Through Processing >>> Real-time DVP >>> shorter settlement cycles>>> risk reduction AECSD_20051005 Slide 22