Cooperative Works between UzSCSD and KSD December 14, 2001 Tashkent, Uzbekistan James J.W. KIM

2 Market Trends Competition Integration & Convergence Shift to….. Building a stable, efficient, and reliable Securities Infrastructure Building a stable, efficient, and reliable Securities Infrastructure

3 Front-Office Vs Back-Office  Front-Office  Monopoly  Global competition  Under pressure to be more specialized, competitive  Back-Office  Increase in settlement costs & risks resulting from large-volume transactions  Global Standardization  In the process of integration  Economy of Scale & More Efficiency

4 Outline  Overview of Uzbekistan securities market & deposit and settlement system  Issues to be dealt with further  What we can expect from this project?

5 Uzbekistan securities market  RSE Toshkent & Elsis-Savdo  Not as active as other off-exchange markets  Listed companies : approximately 1,200  Daily average of transactions : 8.2  Daily average of trade volume : 28,000 shs.

6 Deposit & Settlement system  Settlement Cycle  Toshkent : T+5 / Elsis-Savdo : T+2  Preliminary requirements  Blocking of the securities from disposal  Many institutions related to the settlement process  UzSCSD – Securities Delivery  Elsis-Kliring – Clearing  Commercial Banks – Cash Transfer  2 nd Level Depositories - Custody  Brokers - Intermediation  Entitlement Processing

Issues to be dealt with further  Settlement Cycle  Complicated Settlement Process  Implementation of Entitlement Processing

8 Settlement Cycle  Higher Settlement Risk due to Longer Settlement Period  G-30 Recommendations  T+5 by 1990  T+3 by 1992  ISSA Recommendations  T+1 in a form that does not increase operational risk  Essential for foreign investment T+5 ???

9 Complicated Settlement Process  Simultaneous Settlement  BIS, G-30, ISSA  Cash Settlement  Final, Irrevocable, Immediately available to Investors  Settlement Fund through Central Bank  ISSA Recommendations 2000 Toshkent Elsis-Savdo UzSCSD Elsis-Kliring Settlement Bank (Commercial Bank) Settlement Bank (Commercial Bank) Broker Clearing Data / Settlement Instruction 2nd level Depository Trade Order Blocking & Delivery Instruction Securities Blocking & Delivery Cash Transfer Transaction Data Transfer Instruction Transaction Data

10 Economy of Scale & Scope Economy of Scale & Scope Ongoing move for Integration & Linkage Intensive Competition Independent & Specialized from trading part Independent & Specialized from trading part Integration of back-office sector

11 Current Status of back-office integration StateContent U.S.-Integration of settlement related organizations dealing with stocks, corporate bond, ABS, and MBS into DTC -DTC-initiated integration of DTC and NSCC into DTCC(1999) ­System integration of two organizations is to be completed by the first quarter of Ongoing integration of settlement-related organizations dealing with Government Bond(GSCC), MBSCC and Emerging Market Bond(EMCC) into DTCC Canada - Integration of WCCC(Clearing House) and WCDTC(Deposit and Settlement Entity) into CDS(1996) German- Integration of various Deposit and Settlement Entities into DBC(1989) - Integration of DBC(CSD) and Cedel International(ICSD) into Clearstream(2000) France-Transfer of Government Bond settlement system(Saturne) of Central Bank to Euroclear France (CSD)(1995) British- Transfer of the Deposit and Settlement system covering Government Bond and short- term financial instrument to CRESTco(June, 2000) Switzer land - Integration of SEGA(CSD) and Intersettle(Cross-Border Settlement Entity) into SIS SegaIntersettle Japan- Integration of the Deposit and Settlement Entities divided by types of securities into JASDEC(CSD) (2005) HK- Transfer of Custody operation by the Central Bank to HKSCC(CSD)

12 Comparison of Settlement Costs between European and U.S Markets Source : Merrill Lynch(1999), Murray(2000)

13 Implementation of Entitlement Processing Distribution of Bonus Issues Beneficial Owners Information Dividends Payment Subscription to Rights Issues Stable Entitlement Processing System  Essential for Foreign Investment

14 What we can expect from this project? Strong & Efficient Infrastructure for Deposit & Settlement System Vitalization of Stock Market Vitalization of Stock Market Foreign Investments Foreign Investments Successful Privatization Successful Privatization Funding from Issuing Market Funding from Issuing Market Strengthening Financial Status Strengthening Financial Status Enhancing Uzbek Economy Enhancing Uzbek Economy

15 Future Development  Memorandum of Understanding  Mutual visits between UzSCSD and KSD  Final Consultative Report  Training Program

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