SWIFT in the Securities Business Bagin Alex Senior Regional manager Middle East, alex.bagin@swift.com

Agenda SWIFT short intro SWIFT in the securities market SMPG scope Egypt and South Africa example

SWIFT’s mission SWIFT is a worldwide community of financial institutions whose purpose is to be the leader in communication solutions enabling interoperability between its members, their market infrastructures and their end user communities.

SWIFT - A customer centric user community Banks Corporates Payment Systems Clearing & Settlement Systems Insurance Companies Customer Government Institutions Broker-Dealers Stock Exchanges Securities MI’s Depositories Payments MI's IMI's Trustees

Traffic stats (1) August 2007 YTD

Traffic stats (2) August 2007 YTD

Agenda Pre-trade/trade Post trade/pre settlement Clearing and a settlement Custody Services Investment funds

Trade Confirmation – FIN and ISO 15022 Execution Allocation Confirmation Status requests Status Reporting

Agenda Pre-trade/trade Post trade/pre settlement Clearing and a settlement Custody Services Investment funds

Agenda SWIFT short intro SWIFT in the securities market SMPG scope Egypt and South Africa example

Example IMI B/D Custodian Clearer Bank CSD Trading and Confirmation Settlement Instructions Settlement Instructions Custodian Clearer Cash / FX Cash / FX Bank Settlement Instructions Cash / FX Settlement Instructions CSD

Example Equities Transaction Lifecycle IMI SWIFTNet FIX + FIN B/D FIN FIN Custodian Clearer FIN FIN Bank FIN FIN FIN CSD

Agenda Pre-trade/trade Post trade/pre settlement Clearing and a settlement Custody Services Investment funds

Reporting – FIN and ISO 15022 Statement of Transactions Statement of Holdings Settlement Status Request Settlement Status

Corporate Actions – FIN and ISO 15022 Account Service MT564 Notification MT565 Corp.Action Instruction MT567 Corp.Action Instruction status MT566 Confirmation of Account activity Account Owner Receipt of proceeds Announcement of the offer

Corporate Actions There are 3,000 institutions receiving and 1,000 institutions sending on SWIFT Users are in over 140 countries There were 45m corporate actions messages sent over SWIFTNet FIN in 2005 YTD Traffic growth is 18%

Agenda Pre-trade/trade Post trade/pre settlement Clearing and a settlement Custody Services Investment funds

In the Funds Space, Everyone wants to… - Drive Distribution gather assets & customers, increase share of customer wallet - Increase Efficiency reduce cost, risk, streamline staff, better customer service

SWIFT’s Value to the Funds Industry Partnering with SWIFT to: Drive Distribution Pension Fund automation Reduce proprietary links & internet Offshore Distribution More automation Better customer service Deliver Hedge Funds Products

SWIFTNet Funds Offering ISO 20022 standards built by the industry for the industry 55+ transaction flows linking entire marketplace Inclusive – Distributors, Fund Co’s, Brokers & TA’s Commitment confirmed by circa 120 major players Solution live, benefits already proven Domestic & X-border, institutional & retail Mutual, Pension & Hedge Fund processing

Direct Institutional Wholesale Supermarket/Platform SN Funds: Enabling End to End STP in Mutual, Pension and Hedge Fund Processing   SWIFT ISO Set of Messages to Automate 57 different Fund Transaction Flows: Orders - Subscriptions/Redemptions Confirmations/Cancellations/Status Cash flow/forecast Price reporting / NAV calculation Statement of executed funds transactions Statement of holdings Switches Transfers & Re-registration Account opening & maintenance Commissions Static data Requests for statements Statement of pending funds transactions Distributor Direct Institutional Wholesale Supermarket/Platform Fund Administration (TA, TPA) Fund Manufacturer (Fund Manager) LIVE TESTING 2007 DEVELOPMENT

Securities Strategic Priorities (set by the industry) Market Space Strategic Priorities Equity and fixed income Pre-trade / Trade Succeed in Pre trade /Trade messaging Be the messaging platform of choice for market infra-structures Drive Industry towards Standards convergence Post Trade / Pre-settlement Platform of choice for Post-trade / Pre-set. Clearing and Settlement Grow traffic in Clearing and Settlement and Custody services Custody Services Investment funds Become messaging platform of choice for the Funds industry in Middle East and Africa

SWIFT Market Share Traditional Spaces Market Space SWIFT Market Share Clearing & Settlement 55% Custody Services 16% Corporate Actions 3% Reporting 43%

ü ü ü ü ü SWIFT means value Straight-through-processing (STP) Scalability ü International Standards ü Cost effective solutions ü Security and reliability

SWIFT is used at a network layer level for the connectivity SWIFTNet and FIX? SWIFT is used at a network layer level for the connectivity Unilink is the hub providor for the inteface 1) So whats all this got to do with swift – really there are two significant activities, one is related to the a) standards behind electronic trading and the b) second is utilising the swift network to transport these messages. 2) Firstly regarding the standards - a) I mentioned earlier in the standards explanation that convergence of different financial standards is a major objective for swift. FPL is the trade association that owns and maintains the FIX standard. SWIFT & FPL reached an agreement a few years back to work together to try and achieve as much commonality between the swift ISO20022 standard and the FIX standard. b)_The most recent FIX release 4.4. (covers equity and fixed income and goes beyond just the pre trade and trade messages) is a significant step towards this convergence. The end goal is to make it easier for front and back office systems to be able to handle swift & fix messages so that front to back office integration can become a reality. c) And as we know not only is this important to investment managers and brokers but also to custodians who rely on obtaining the trade settlement details as quickly as possible after the trade is executed – from a settlement and acctg update perspective. And of course having common standards across the front, middle, and back offices in theory should make it easier for a custodian who has the outsourcing contract to run an IMI mid-back office. (If time permits – discuss OMS systems, fix engines) 3) the more commercial aspect – swiftnet FIX – new solution allows swift users to exchange fix messages across the swift network. swift acts as a HUB in between and because we are not just a telco provider like I have shown with the central FIN application, the FIX hub similarly adds value- message certification, mandatory field validation, archival, guaranteed delivery, authentication etc. A big advantage for IMIs and BDs in dealing with a HUB is the removal of multiple direct leased line connections, and cost & maintenance that goes with this.

Agenda SWIFT short intro SWIFT in the securities market SMPG scope Egypt and South Africa example

SMPG scope Create globally agreed harmonised market practices which, integrated with standards, will bring the securities industry closer to achieving STP. Standards STP Market Practice

SMPG tasks Organise national market practice groups Collate national market practice rules Define cross-border market practice rules Harmonise market practice differences Publish market practice rules Identify conformance mechanisms

SMPG organisation SMPG Steering Committee SWIFTStandards www.smpg.info SMPG Steering Committee National Market Practice Groups and Convenors SWIFTStandards Broker/dealers, investment managers, custodians, depositories, regulators, & vendors + In dialogue with many other groups, including ECSDA & ACSDA. List also includes: ECSDA & ACSDA EFS EFAMA ISITC ISSA ISO TC 68 Giovannini Barrier 1 IAG SWIFT HWGSS and SSC

SMPG meetings At National level: At Global level Whenever felt appropriate Minimum twice a year At Global level 2 times a year Amsterdam (28-30 March 2007) draft minutes available on smpg.info Boston (5-6 October 2007) + Third meeting ‘just for Funds‘

SMPG countries Americas: BR, CA, MX, US. EMEA: AT, BE, CH, DE, DK, ES, FI, FR, GR, GB, IE, IL, IT, LU, NL, NO, PL, PT, RU, SE, TR, ZA, ICSDs Asia/Pacific: AU, HK, JP, KR, NZ, SG, TH, TW, IN

Agenda SWIFT short intro SWIFT in the securities market SMPG scope Egypt and South Africa example

Egypt CSD market scope CSD Swiftnet Domestic VPN 131 Brokers (20 on SWIFT) 1114 Issuers Swiftnet Domestic VPN CSD 2) So as you can see – the commercial offering is the ability to send pure FIX orders across swift, great value for buy & sell side to remove multiple connections with counterparts – cost and maintenance of these 3) And Like the FIN application it’s the value added by the intelligent application in the middle 13 Primary Dealers 26 Custodians (4 on SWIFT) 26 Direct settlement members

Egypt CSD market on SWIFT today Broker and primary dealers (20 on SWIFT on branch codes ) SWIFTNet Swiftnet CSD 2) So as you can see – the commercial offering is the ability to send pure FIX orders across swift, great value for buy & sell side to remove multiple connections with counterparts – cost and maintenance of these 3) And Like the FIN application it’s the value added by the intelligent application in the middle Custodians (4 on SWIFT)

Egypt CSD market on SWIFT by end of this year Broker and primary dealers 50 NEW BIC codes SWIFTNet Swiftnet MI-CUG CSD 2) So as you can see – the commercial offering is the ability to send pure FIX orders across swift, great value for buy & sell side to remove multiple connections with counterparts – cost and maintenance of these 3) And Like the FIN application it’s the value added by the intelligent application in the middle Custodians (4 on SWIFT)

Egypt CSD market scope evolution 131 Brokers 1114 Issuers Swiftnet MI-CUG CSD 2) So as you can see – the commercial offering is the ability to send pure FIX orders across swift, great value for buy & sell side to remove multiple connections with counterparts – cost and maintenance of these 3) And Like the FIN application it’s the value added by the intelligent application in the middle 13 Primary Dealers 26 Custodians 26 Direct settlement members

Agenda SWIFT short intro SWIFT in the securities market SMPG scope Egypt and South Africa example

Settlement Process SFIDvP Sell Order 100/R20,000 Buy Order 100/R20,000 SETS/BDA Broker A on Behalf of Client A Broker B on behalf of Client B Confirmation Confirmation “Locked in Trade” CSD Participant CSD Participant SAFIRES Reservation of securities on S) Strate Ltd Status intimations Status intimations A: Security X B: Security X Confirmation 100 >100 >100 Confirmation Payment Order Payment Confirmation A Trade for 100 securities against a Rand amount of R20,000 is struck on the Exchange. The matching takes place in the SETS/BDA system. The JSE sends the trade details through to Strate Ltd. Strate sends a buy/sell allegement through to the respective Client's CSD Participant. The Client will also send an instruction through to his CSD Participant. The CSD Participant matches their Clients instruction with the allegement received from Strate. The CSD Participant sends a commit message to Strate for the trade settlement (according to stipulated cut-off times). The CSD Participant has the right, but not the obligation, to commit subject to availability of securities and/or cash. If this commit is not received the reverse substitution or fails process (voluntary or compulsory) is initiated. 8. Prior to each settlement run (on S), Strate will ‘reserve’ securities for settlement that day. CSD Participants must then fund their accounts in SAMOS (depending on whether they are Nett receivers or payers of money for that settlement run). Strate also sends SWIFT messages to SAMOS detailing the funds each CSD Participant is required to fund or receive for settlement (S). 9. On fulfilment of these obligations CSD Participants receive confirmation of settlement from Strate. This comes in the form of a ‘settled’ status intimation. The Client’s position is then updated in the CSD Participants internal system accordingly. 10. CSD Participants may send their Clients confirmation of settlement. SAMOS SARB Bank A Bank B R20,000 R20,000

On-Exchange Trade - SWIFT Message Flow Client A Broker A Broker B Client B MT515 MT515 JSE Trading System MT544/5/6/7 MT544/5/6/7 BDA System MT548-601 MT598-113 MT540/1/2/3 MT540/1/2/3 SAFIRES MT598-101 MT598-101 MT548 MT548 CSDP CSDP MT586 MT586 As per MT298-128 SAMOS As per MT298-128

ü ü ü ü ü SWIFT means value Straight-through-processing (STP) Scalability ü International Standards ü Cost effective solutions ü Security and reliability

SWIFT Pricing Challenge I Eurocent/kChar 30 Achieved 26.03 25 52.1.% 23.92 19.93 20 17.50 14.75 15 12.46 10 2001 2002 2003 2004 2005 2006

SWIFT Middle East regional conference 2008 17, 18 and 19 March, Conrad Hotel, Cairo, Egypt

Shoucran