G-30 Self Assessment CDS “A Case Study” Bruce Butterill Vice-President, Product Management The Canadian Depository for Securities Limited November, 2003

2 November p. 2 On The Agenda…. w Introduction w Why Self-Assess? w A Self-Assessment Program w Stage 1: Original Content Review w Stage 2: Content Organization & Document Map w Stage 3: Abridged Content w Stage 4: Content Summaries w Stage 5: Assessment Metrics w Stage 6: Self Assessment w Framework w Issues

3 November p. 3 IntroductionIntroduction w Various organizations are “competing” to set a standard for securities markets to pursue: u Group of Thirty u CPSS/IOSCO Recommendations l CPSS/IOSCO Assessment Guide u ISSA w We are left with the reality of having to interpret the objectives, rationalize the content, interpret the priorities, assess our status and plan for global harmony

4 November p. 4 Introduction (cont’d.) w In our opinion, the Group of Thirty Report is not necessarily the authoritative reference source: u Regulators and central banks may find the CPSS/IOSCO report more relevant u There is no clear consensus of support for the G-30 Report in total w But, it cannot be ignored. Instead, we must consider all of the intellectual inputs as we go through a self-assessment process

5 November p. 5 Why Self-Assess? w We need to be able to respond authoritatively to various stakeholders including media agencies, regulators, industry stakeholders and other interested parties w Acquired knowledge contributes to the body of intellectual property being compiled by other industry organizations w We need a baseline to establish planning priorities

6 November p. 6 Why Self-Assess? (cont’d.) w Our stakeholders expect us to pursue global best practices w We must understand the issues and gaps in order to develop the business case for change

7 November p. 7 A Self-Assessment Program w CDS embarked on a self-assessment path early in 2003 w In high level terms, here is how we proceeded: G-30 CPSS/IOSCO ASSESSMENT CPSS/IOSCOISSA STAGE 1: ORIGINAL CONTENT REVIEW STAGE 2: CONTENT ORGANIZATION STAGE 3: ABRIDGED CONTENT STAGE 4: CONTENT SUMMARIES STAGE 5: ASSESSMENT METRICS STAGE 6: ASSESSMENT, GAP ANALYSIS, ACTION PLAN ORIGINAL REPORTS

8 November p. 8 Stage 1: Original Content Review w Comprehensive review of original reports w Review all background materials w Interviews with key stakeholders

9 November p. 9 Stage 1: Original Content Issues w G-30 document is lengthy and complex –It tends to “ramble” across issues –Is very prescriptive w CPSS/IOSCO document is well-organized –More practical in nature –Relatively brief –Contains assessment criteria w ISSA report is very brief –Is a sub-set of others

10 November p. 10 Stage 2: Content Organization w The key is to organize the information around key processes and industry infrastructure w Key report content can be “mapped” to organized content structure w Develop a ‘process chain’ which can be used and recognized as a logical grouping of objectives/recommendations w We chose the following process map: CCP/ Netting Settlement Securities Lending Business Recovery Legal & Regulatory Governance & Access Matching Demat./ Immob. Asset Servicing Transparency & Reporting Corporate Actions Settlement Payment Tax Foreign Ownership Map Abridged Content

11 November p. 11 Stage 2: The Document Map w Topics/headings selected to accommodate global source material categories w Process chain reflects logical data/information/processing flows ISSA No material ISSA R 1,6 ISSA R 7,8 ISSA R 2 ISSA R 4 ISSA R 3 ISSA R 4 ISSA R 3,5 ISSA R 8 CPSS/IOSCO R 16,17 CPSS/IOSCO R 13,14 CPSS/IOSCO R 1,18 CPSS/IOSCO R 9,11 CPSS/IOSCO R 12 CPSS/IOSCO R 6,12 CPSS/IOSCO R 5 CPSS/IOSCO R 2,3,7,8,10 CPSS/IOSCO R 4 G-30 No material G-30 R 10,17,18,19 G-30 R 9,14,15 G-30 R 12,13 G-30 R 8 G-30 R 1,2,3 G-30 R 7 G-30 R 2,3,4,5,11 G-30 R 6,16 CORPORATE ACTIONS, TAX, FOREIGN OWNERSHIP MATCHING, SETTLEMEN T, PAYMENT SUB-CATEGORIES TRANSPARENC Y & REPORTING GOVERNANC E & ACCESS LEGAL & REG. BUSINESS RECOVERY ASSET SERVICING DEMAT./ IMMOB. SECURITIES LENDING SETT.CCP/NETTING PROCESS CHAIN DIMENSIONS

12 November p. 12 Stage 3: Abridged Content w Edit source documents and map to “process chain” w Use original content, but re-organized w Filter out “filler” content in original reports w Edit source materials and formats for easier reference and generalized, ongoing use w Define the format for status reporting and action planned reporting w Define the basic framework for content creation which can be used in whatever distribution/communication format desired

13 November p. 13 Stage 3: Abridged Content (cont’d.) w Compile all materials into a logical architecture w Define the administrative management for the completion and maintenance of the knowledge base w Recommend content population alternatives and tasks

14 November p. 14 Abridged Content Example

15 November p. 15 Stage 4: Content Summaries w The organized content is now summarized into 4 categories: –Operational implications –Risk management implications –Legal & regulatory implications –Cross-border implications w The result is an abbreviated set of objectives and direction

16 November p. 16 Content Summary Example

17 November p. 17 Stage 5: Assessment Metrics w The starting point is the CPSS/IOSCO Assessment Guide –This must be addressed at a minimum, as regulators will use this template w Additional metrics were drawn from: –Internal resources –Global surveys (e.g. AGC) –Thomas Murray Review –National stakeholder groups w Metrics were grouped against source material summaries

18 November p. 18 Assessment Metrics Example

19 November p. 19 Stage 6: Self Assessment w Objective assessment of current status vs. objectives using key metrics w The temptation is to be optimistic: –Desired state vs. actual state –Assumed that planned initiatives are in place –Tendency to de-emphasize importance of some issues where non-compliance exists w Needs “clinical” evaluation with external input

20 November p. 20 Stage 6: Self Assessment (cont’d.) w Engage internal expert resources –Process is instructive w This is not a negative exercise w Consistent style is important, as results will be transparent

21 November p. 21 FrameworkFramework w Hyper-linked references from index to: –Edited source material –Status reports –Action planned reports..\CDS CD 2\_REPORT INDEX\REPORT INDEX.doc..\CDS CD 2\_REPORT INDEX\REPORT INDEX.doc

22 November p. 22 IssuesIssues w Resource availability/constraints Internal & external w Deadlines Imposed by regulators Expected by organizations such as G-30, CPSS/IOSCO w Consistency of content Multiple authors will require disciplined editing & formatting

23 November p. 23 Issues (cont’d.) w Change management Ongoing updates w Administration Technical requirements & resource availability

G-30 Self Assessment CDS “A Case Study” Bruce Butterill Vice-President, Product Management The Canadian Depository for Securities Limited November, 2003