CPSS-IOSCO Task Force Beyond the November 2001 Report P. Parkinson ACSDA Seminar Lima, Peru November 15, 2002

Exhibit 1 The November 2001 Report 1.Recommendations for Securities Settlement Systems* Twenty recommendations that address -- the legal framework -- risk management (especially by CSDs, CCPs) -- governance and access -- efficiency and communications procedures -- transparency and oversight Minimum standards Intended to be applied universally 2.Implementation of Recommendations To be promoted through assessments of observance -- self-assessments by national authorities -- FSAPs -- other (CSDs, CCPs, system participants) Consistent assessments to be fostered by development of an assessment methodology by CPSS-IOSCO Task Force * (Spanish)

Exhibit 2 Forthcoming Assessment Methodology 1.Determination of the Scope of an Assessment by National Authorities 2.Assignment of Rating Categories 3.Follow-up to Assessments

Exhibit 3 Scope of an Assessment by National Authorities 1.Multiple Systems (SSSs) Example: In U.S., separate CSDs, CCPs for U.S. government securities, other securities Priority: SSS that processes highest average daily value of trades Other considerations: use of system for monetary policy operations 2.Exchange-Traded Derivatives Recommendations were not really designed with derivatives clearing in mind May or may not be covered If CCP for derivatives also clears securities trades may need to evaluate management of derivatives risks If CCP for derivatives is separate from securities CCP, recommendations need not be applied to derivatives CCP (national discretion) 3.Functional Approach Recommendations focus on functions performed, not institutions that perform them CCP recommendations should be applied to stock exchanges that guaranty trades CSD recommendations may need to be applied to custodians that internalize a significant share of settlements

Exhibit 4 Assignment of Rating Categories 1.Rating Categories Observed Broadly observed Partly observed Non-observed Not applicable 2.Key Issues and Key Questions Key issues cover the “headline” recommendations and the “below-the-line” discussions For each key issue the answer to the corresponding key question should indicate whether the issue has been addressed 3.Assignment of Rating Categories Specific guidance on how answers to key questions should translate into assignment of a rating category Guidance not intended to be applied in a purely mechanical fashion But, if assessor assigns a different rating category than indicated, should explain clearly why that rating was more appropriate Assessors expected to take a conservative approach

Exhibit 5 Example – Recommendation 3 Settlement Cycles 1.Observed a. rolling settlement occurs no later than T+3 b. fails are not a significant source of added risk or risks from fails are effectively mitigated c. if T+3, a cost benefit analysis of a shorter settlement cycle is performed 2.Broadly Observed a. 1a and 1b are satisfied b. but 1c is not satisfied 2.Partly Observed a. 1a is satisfied b. but 1b is not satisfied 4.Non-Observed a. settlement on an account basis or on a rolling basis longer than T+3

Exhibit 6 Follow-up to Assessments 1.Identification of Actions to Achieve Observance Where a recommendation is not observed, the assessment should identify actions to achieve observance If improvements are already under way, that should be noted but not reflected in the rating Together with SSS operators (including the CSD), authorities will need to develop plans to remedy any deficiencies identified by self-assessments 2.Formal Action Plan May be necessary if deficiencies are severe No simple recipe for setting priorities Should specify timetable, who is responsible for instituting necessary steps Authorities to take lead in pursuing legislation, regulatory or supervisory changes Where deficiencies involve the CSD, it may be asked to take the lead

Exhibit 7 Future work of CPSS-IOSCO Task Force Risk Management Standards for CCPs 1.CPSS-IOSCO Recommendation 4 Calls for a CCP to vigorously control the risks that it assumes “Below-the-line” text discusses risk control issues but does not set out detailed or comprehensive standards for CCP risk management Refers to private sector efforts to develop risk management standards 2.Private Sector Efforts European Association of Clearing Houses (EACH) released standards in March 2001 CCP-12 was expected to revise and foster international acceptance of EACH standards CCP-12 work seems to have lost momentum CPSS and IOSCO expected to ask Task Force to develop international standards for CCP risk management in 2003