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
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2. Recommendations, Barriers or Regulations
What is meant
by a
Single Protocol for
Clearing and Settlement?
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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
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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”
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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)
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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
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7. A Single Protocol for Clearing and Settlement
What
is being
proposed?
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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.
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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
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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
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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!
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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
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14. uestions
&
Answers
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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
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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
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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
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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
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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
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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.
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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
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