1. Creating ASD – Asian Settlement Depository
INFINITUM
COMPANY GROUP
ASSI – Asian Securities Settlement Initiative:
Creating ASD – Asian Settlement Depository
Boris Cherkasskiy
Tashkent, September 2018

2. A GLOBAL SETTLEMENT AND SAFEKEEPING SYSTEM - WHY?
National CSD-based systems are fully operative
National CSDs cover local securities settlement and safekeeping
Cross border transactions are a problem: they are more expensive and sofisticated
Globalisation goes on despite all difficulties and setbacks
Our world has no global securities settlement system
Growth of value and volume of international securities transactions calls for better settlement and clearing procedures
So far the task of creating a global securities settlement system has not been set but next decade will make it vital

3. HOW CROSS BORDER SAFEKEEPING WORKS
A deponent directly opens their account with a foreign custodian or CSD/ICSD
A client’s custodian opens a correspondent account with a foreign CSD (ICSD) or with a foreign custodian
An account is opened with a global custodian
Bilateral correspondent accounts between CSDs and ICSDs are opened
Until recently CSDs, ICSDs and global custodians were supposed to be rendering all relevant service
However, we grew to believe that current tools are too expensive and not efficient enough. In Europe this idea was so strong that it gave birth to the T2S project
Gradually we are coming to understand that current methods of cross border settlement and safekeeping are too expensive and not efficient enough

4. REGIONAL SETTLEMENT CLUSTERS
European background for the first settlement and safekeeping cluster include:
Euro - a single European currency
the European Commission - the chief regulator in Europe
ECB stands behind Target 2 and its success
The T2S project, a securities settlement system, was launched and supported by ECB. The project started in 2008 and its first transactios occurred in 2015
A union between Euroclear and Clearstream could have turned into ECSD - a European CSD instead of T2S, however, it did not happen
An alternative to T2S was expansion of Euroclear, LinkUPMarkets, but support of ECB was desicive for T2S's victory
Although the T2S project has been subjected to serious criticism being far from perfect, the system is working, and we can enjoy the first big settlement and safekeeping cluster
CSDR regulation in Europe successfully accompany T2S
Up to now this is the only example of existing big settlement and safekeeping international clusters
Buildig up a global settlement and clearing structure will begin with regional clusters

5. Asia Must Keep up with Europe
The time has come for
ASSI – Asian Settlement and Safekeeping Initiative to build
ASD – Asian Settlement Depository

6. ASIA IS A REGION OF FAST GROWING ECONOMY
Asia is a region of fast growing economy and drastically rising financial markets
Asian financial markets are not so integrated as those of Europe. Solving this problem shall facilitate economical development of the region
Unlike European countries in Asia are very different both in the level of development and in political systems
Asia does not possess a regional Central bank, a common currency, a single financial regulator or a general set of regulations for financial markets. This hinders setting up regional structures but does not make the task hopeless
A shared interest for efficient infrastructure together with united effort of the main countries in the region for its creation gives ASSI a good chance
Developing Asian settlement and safekeeping cluster must become important task for nearest few years. Success of tis project will produce new growth driver in the regional financial markets.

7. ASSI: SETTING UP ASD – ASIAN SETTLEMENT DEPOSITORY
ASD - Asian Settlement Depository May become one of the main Asian infrastructure institutions
The method used for setting up T2S, when ECB pushed its way, is impossible. ASD can be created only on the basis of consensus between the main regional CSDs
ASD shall be founded by main CSDs in the region with the support of regional and workdwide CSDs associations – ACG, AECSD and WFC, central banks, govenments of tthe countries, World Bank (WB), Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB)
For the purposes of ASSI we ignore actual Asian geographic borders and when we say Asia we also mean Russia, the CIS and the Pacific countries
Beginning from the mid-2000 the initiative for creating an Asian analogue of Euroclear and Clearstream (AsiaSettle or AsiaClear) has been discussed). However, nothing apart from publishing materials actually happened.
The CSIF project is of some interest, but they take their time solving some local questions and the prospect of the project is still vague
So aren't we wasting the time?
Isn't it high time ASSI actually got started ?!

8. ASSI-ASD is to become a project of ambition
Let us get through with prudent compromises and small steps. We shall get everything for cross border settlement in Asia better than in Europe and find efficient and handsome solutions. Opportunities are abound

9. ASD – ASIAN SETTLEMENT DEPOSITORY
ASD is an international organisation with a special status such as EBRD (European Bank for Reconstruction and Development) or ADB (Asian Development Bank)
ASD has the right for safekeeping and clearing, also the right for a limited set of bank transactions in ASD member countries
The core function of ASD is efficient cross-country securities settlement for member countries
ASD is going to solve “the third time zone problem” adding Asian time zone to the two dominating “financial time zones”, European and American
ASD is going to offer proper international access to a much wider range of Asian securities than that provided by ICSDs and global custodians
ASD is going to improve the position of Asian financial markets and provide easier access to securities circulating in these markets

10. Apart from its core function ASD is also able to:
ASD – MORE FUNCTIONS
Apart from its core function ASD is also able to:
- act as central depository for IPOs of Asian version of eurobonds (asiabonds);
- execute forex transactions
- contribute to development of national clearing and settlement systems as well as to harmonization of national legislations;
- participate in CSDs’ software development and implementation;
outsource national CSDs.
ASD’s main objective is not gaining profits but providing necessary infrastructure
ASD should get enough income to ensure development and high level of maintenance and operations and also to pay out a reasonable interest on investment made by members
ASD makes its contribution to standartization of transactions and harmonization of legislation in the markets of member countries
ASD is an efficient infrastructural organisation with a wide range of functions, posessing a potential for development and maintaining high technological level

11. CSDs OF THE FOLLOWING COUNTRIES ARE WELCOME TO BE ASD‘s MEMBERS:
ASD – MEMBERS
Setting up ASD without participation of CSDs of all of these countries or at least most of them is impossible:
Australia, China, Hong Kong, India, Japan, Kazakhstan, Pakistan, Russia, Singapore, South Korea, Turkey
CSDs OF THE FOLLOWING COUNTRIES ARE WELCOME TO BE ASD‘s MEMBERS:
Indonesia, Iran, Israel, Malaysia, New Zealand, Saudi Arabia, Taiwan, Thailand, the UAE, Ukraine, Uzbekistan, Vietnam
Some of these countries are on sanctions lists, there are also countries which have hard relationship. However, this should not hinder reasonable and gradual broadening of ASD membership list.
ASD can be created only on condition of general consensus. Setting up ASD is going to benefit all countries
The further away ASD leaves politics, the better chance to succeed it has

12. ASD – CORE TRANSAСTIONS-1
Core transactions in ASD imply FOP and DVP transfers for accounts in ASD. First comes DVP-1. Later DVP-2 and DVP-3 when become practical
DVP transactions shall be available via money accounts opened in ASD and also with the money of national banks via connection of ASD with RTGS systems
ASD shall offer safekeeping and transactions for Asiabonds like Euroclear and Clearstream do it
Later ASD shall gradually broaden its range of transactions to the level of standard ICSDs: repurchase, crediting, collateral agreements and so forth
ASD shall possess omnibus correspondent accounts in all member CSDs. All member CSDs shall possess omnibus correspondent accounts in ASD
A retail model of safekeeping may be offered to the members. ASD’s recording structure is both wholesale and retail
ASD has the purpose to perform securities transactions in FOP and DVP modes with different currencies

13. ASD – CORE TRANSAСTIONS-2
ASD executes DVP in the currencies of all chief ASD members and in two world-spread currencies - US dollar and Euro
For efficient DVP operations foreign currency accounts should be opened in corresponding CSD, if they have the right to keep money accounts, and/or interact with national RTGS systems of central banks in member countries
ASD garantees main set of operations for its own accounts in national markets. These operations shall cover core services for crediting and debting ASD accounts in CSDs and ICSDs
ASD also provides acces to national trading systems and performs settlement for transactions in these systems via ASD's accounts
ASD covers a standard set of corporate actions for markets of all its main depositors
ASD covers a basic set of corporate actions

14. Most important decisions in ASD are made by consensus of opinion
THE BASICS OF ASD
ASD is a multipolar company. It shall not be dominated by a single CSD, all members have their say.
Mostly decisions are made by consensus of opinion. Only as a last resort the majority could force their opinion on the minority
ASD’s chief depositors are CSDs and ICSDs, maybe together with regional central banks. ASD and T2S have to have a way of cooperation worked out
Admittance fee for ASD membership cannot be low. ASD founders are elite infrastructural organisations in the region. ASD membership is of premium value. ASD members are reliable CSDs with a wide range of quality services, risk management and position in world ratings
ASD membership shall have two levels. The CSDs which are not ready for direct ASD membership financially or structurally shall have an opportunity to become indirect members, sponsored by one of direct members. This model can give start to formation of local settlement and safekeeping clusters
Most important decisions in ASD are made by consensus of opinion

15. Storage system based on DLT may turn best for ASD
ASD – ACCESS
The host country cannot be one of potential ASD leaders. At present Hong Kong, Kazakhstan and Singapore look best for the purpose.
Two options shall be considered when choosing ASD's data storage system: centralized storage vs DLT
The traditional variant of centralized storage has a number of advantages: reliability, efficiency, low cost of transactions
DLT with blocks spread among chief ASD members represents a better policy. This means equality and full control of all processing to all ASD’s members
A combined system is possible, when chief members function as DLT nodes, and the others operate traditional omnibus accounts opened in ASD
The main language for the purpose of ASD operations is English.
ASD also has a complete documentation package, user interface and reports in the languages of every member. ASD members hold the responsibility for translating all relevant texts into their language and carry the corresponding expenses
Storage system based on DLT may turn best for ASD

16. ASD –SOFTWARE, COMMUNICATION, TECHNOLOGY
Modern technical and software architecture, wisely combining own local resources with world best cloudservice is going to ensure ASD’s reliability and effectiveness
ASD should communicate their customers via SWIFT and ISO messaging system. ASD should also have its own communication system
Most ASD operations shall be based on STP
Common sense prompts a flexible approach which enables manual execution of particular operations if necessary
ASD shall perform a standard set of transactions and use standard public interactive interface for communication with their depositors
ASD can be accessed via standard STP interface. Anyone in possession of matching “plugs and sockets” can use such “standard connector” directly or with an “adaptor”
ASD operates 24/7
Software, communication and technology in ASD is going to be of best quality. This is not the position for saving money

17. ASD operates as a repository
ALSO IN ASD
ASD operates all types of securities which circulate in the region: shares, bonds, rights, equities and so forth
ASD has the right to distribute international identification codes such as ISIN, CFI, LEI and so forth
ASD operates as a repository
Options of safekeeping derivative by ASD shall be given due consideration
ASD has to implement all requirements of KYC, taxation, anti-laundering measures, listing and disclosing owners and so forth
ASD is the Asian centre of corporate information
Cryptocurrencies and ICO? Possibly. As they are recognized by financial society and become practical
FinTech and digital intelligece? Sure! All real advances when the initial exessive excitement settles down
ASD performs clearing functions but does not operate as CCP.
When ASD is set up or while the project is still in progress the issue of ACCP - Asian Central Counterparty should be considered
Activity should not be limited to settlement and safekeeping only. ASD shall render all relevent services within its scope

18. Are we going to take our time or shall we begin ?
ASD – HOW DO WE BEGIN?
At present it is not possible to estimate time and costs of ASD start up
The project is based on current technologies and hard effective work can see it implemented within years
The most difficult problem with ASSI-ASD is to reach agreement between leading CSDs of different countries, garantee financing and take relevant structural decisions
Implementation of ASSI and setting up ASD is going to provide a new level for Asian financial infrastructure
Should the general idea be agreed upon by several big Asian CSDs, ASD designing could start up in 2019
A workgroup is required with the objective of having the ASD start up project prepared by the end of 2019
Are we going to take our time or shall we begin ?
Sooner or later ASD or a similar structure will have to appear anyway

19. Let’s think about creating ASD together
INFINITUM
COMPANY GROUP
Let’s think about creating ASD together
THANK YOU!

20. ACG + AECSD = ASD