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A Single Protocol for Clearing and Settlement

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Presentation on theme: "A Single Protocol for Clearing and Settlement"— Presentation transcript:

1 A Single Protocol for Clearing and Settlement
2nd AECSD Conference, Moscow - 5th October 2005 A Single Protocol for Clearing and Settlement John Falk Securities Market Infrastructures SWIFT AECSD_

2 Recommendations, Barriers or Regulations
What is meant by a Single Protocol for Clearing and Settlement? AECSD_

3 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………” Other recommendations Creating a strengthened, interoperable global network Eliminate paper and automate communication, data capture and enrichment Develop and implement reference data standards Automate and standardize asset servicing processes Mitigating risk Ensure effective business continuity and disaster recovery planning Improving governance Promote fair access to securities clearing and settlement networks AECSD_

4 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_

5 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 (ISO Standards convergence) AECSD_

6 UNIFI (ISO 20022) Overview of existing initiatives
EPC/ECBS Payments Treasury EACT CHIPS TCH RosettaNet/PMP IFSA TWIST OAGi NACHA FPML ISTH W3C Fedwire X12 OMG ISDA TC68/SC6&7 CEFACT/ TBG5 TC68/SC4&7 IFX ISO/TC68 UNIFI - ISO 20022 FIX UN/CEFACT TC68/SC4 WG8 & WG11 CEFACT/ TBG15 Bolero BMA SMPG OASIS Why do we need standards convergence? There are numerous message development initiatives addressing financial information flows, driven from both inside and outside the financial industry itself. This trend is unavoidable and is not likely to change over time, with different constituencies facing different standardization challenges and priorities. The inner circle shows the « de jure » international standards setters, which are leading the global standardisation, such as ISO and UN/CEFACT, and guide the industry towards the standard use of methodologies and tools, such as XML (W3C) or UML (OMG). They are directly responsible for global standards convergence. FISD/MDDL e-bMoU IIBLP SIA IFSA G30 EAN/UCC ISSA ISITC-IOA ICC Giovannini UNCITRAL Securities Trade Finance AECSD_

7 A Single Protocol for Clearing and Settlement
What is being proposed? AECSD_

8 Protocol framework Proposed recommendation
The original 9 element framework should be simplified into 6 elements over 2 layers Original framework has network and messaging/interfaces as separate layers. Advisory group believes that this is an unnecessary complication and it is sufficient to discuss about the data later and the transfer layer, i.e. the mechanism for moving the data. The transfer layer obviously contains both network and messaging/interface elements. AECSD_

9 Protocol scope - Proposed
- Long Term - Short Term Institutional (buy) Side Street (sell) Side Trade Date Order IMI B/D B/D Pre-trade Space 1 / Trade Trade 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 Exchange 1 VMU / ETCP CCP Pre-Settlement Post Trade / Space 2 Trade Date + X GC 2 Short term scope is clearing and settlement space plus asset servicing for Equities, Fixed Income, Listed Funds and potentially Exchange Traded Derivatives Long term scope for a single protocol is the entire lifecycle for all tradable instruments It is also useful to note that the final recommendation is likely to include domestic as well as cross border clearing and settlement SC SA SA Clearing & Settlement Space 3 (I)CSD 3 Non Trade Related Activity Space 4 - Asset Servicing AECSD_

10 Focus on the Data Layer: How far from common data standards are we?
European CSD’s This represents the results of a survey of CSD’s in 2003/2004. At that point, the EU only comprised 15 States so the survey was of 15 CSD’s plus the 2 ICSD’s. The results represent the answers provided by 12 of the 17 organisations surveyed. Whilst use of common standards is more prevalent in the cross border environment than in the domestic environment, it is still apparent that we are a long way from a harmonised approach. Since this survey, the EU has been enlarged by the inclusion of the 10 Accession states. It is unikely that this extension of the EU will have contributed to improving the situation. A further review will be conducted in 2005 to identify the current position AECSD_

11 Common Data Standards - AECSD

12 Securities Market Infrastructures on SWIFT
Euroclear Euroclear NL Euroclear France Clearstream London SE CREST FMC DTCC NDC & DCC, Russia Omgeo ECSDA Tokyo SE Iberclear SIS Hong Kong FE LCH.Clearnet DIFX Monte Titoli Singapore SE CBLC Sydney Futures Exchange Strate JSE Securities Exchange CAJVAL …and others! AECSD_

13 Communicating with Securities Market Infrastructures using SWIFT
institutional (buy) side street side Benefits for system owners Order/Trade Mission critical levels of >>> reliability, security and support Pre-Settlement Post-Trade/ Time to market is >>> short Low entrance barriers for Settlement >>> 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_

14 uestions & Answers AECSD_

15 A Single Protocol for Clearing and Settlement?
2nd AECSD Conference, Moscow - 5th October 2005 A Single Protocol for Clearing and Settlement? John Falk Securities Market Infrastructures SWIFT AECSD_

16 Securities Market Infrastructures - FIN
Argentina Caja de Valores Australia SFE Austria OEKB Belgium CIK Euroclear Bank MTS Brazil CBLC Canada CDS Croatia Sredisnja Depositarrna Agencija Denmark VP Finland HEX France Euroclear France Euronext Paris – MATIF Germany Eurex Clearing Deutsche Boerse 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 Lebanon Midclear Luxembourg Clearstream Mexico S.D. Indeval Netherlands Euroclear Netherlands MTS Norway VPS Poland National Depository for Securities Portugal MTS Russian Depository Clearing Company Federation The National Depository Center Singapore Central Depository Singapore Exchange Slovenia Central Securities Clearing Corp South Africa STRATE JSE Securities Exchange Spain Iberclear MEFF Sri Lanka Securities Settlement System Sweden VPC AB Switzerland SIS SIS x-clear Taiwan Securities Central Depository UK (& Ireland) CREST LCH.Clearnet USA ISCC DTCC Omgeo AECSD_

17 Communicating with Securities Market Infrastructures using SWIFT
Infrastructure Update Euclid CREST HOME Communicating with Securities Market Infrastructures using SWIFT institutional (buy) side street side 1 Trading: connecting Exchanges Order/Trade Exchange IM Order B/D B/D 2 Clearing: connecting Clearing Institutions and Central Counter-parties Pre-Settlement Post-Trade/ VMU CCP 3 Electronic Trade Confirmation: connecting to VMU providers GC SC SA SA Settlement 4 Settlement & Custody: connecting Central Securities Depositories and International Central Securities Depositories (I)CSD IM: Investment Manager B/D: Broker Dealer GC: Global Custodian SC: Sub-Custodian SA: Settlement Agent AECSD_

18 Proposed protocol: Still to do…
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_

19 What Can and Does SWIFT bring to the Securities Markets?
Standards Security, Reliability and Risk Resilience Co-Operation Services Provides VALUE to the whole market SWIFT has done it before AECSD_

20 Other G30 Recommendations
Creating a strengthened, interoperable global network Eliminate paper and automate communication, data capture and enrichment Develop and implement reference data standards Automate and standardize asset servicing processes Mitigating risk Ensure effective business continuity and disaster recovery planning Improving governance Promote fair access to securities clearing and settlement networks 2 8 AECSD_

21 SWIFTStandards Securities Other markets
UNIFI (ISO 20022) (syntax = XML, such as Investment Funds, Cash Reporting, Bulk Credit Transfers, …) ISO (syntax = enhanced FIN, such as MT 502, MT 54x, …) Traditional FIN (e.g. MT 103) ISO 7775 (syntax = traditional FIN, such as MT 521, MT 500, …) Traditional FIN (e.g. MT 100, MT 202, …) This slide shows the evolution of the relationship between SWIFTStandards messages and the ISO message schemes. SWIFT started by defining its own series of messages in « traditional » FIN syntax. Several of them were thereafter contributed to ISO The first securities messages, implemented on the network in 1984, were the result of a joint SWIFT-ISO development: it gave birth to an ISO (7775) standard using the traditional SWIFT FIN syntax. ISO can be considered as a first step towards a more formal and business-centric message development approach using a unique and unambiguous list of business elements listed in a central Data Field Dictionary. With UNIFI, SWIFT will use the same methodology for all new developments whichever the market, aiming to a progressive cross-market convergence, at the pace of the community. AECSD_

22 Communicating with Securities Market Infrastructures using SWIFT
Infrastructure Update Euclid CREST HOME Communicating with Securities Market Infrastructures using SWIFT institutional (buy) side street side Benefits for system members Order/Trade Technical standardisation: Single window access to domestic and international systems through one interface Pre-Settlement Post-Trade/ >>> cost efficiency Settlement 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_


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