1. ACSDA Seminar, Lima, November 14-15, 2002 “ Trends and Drivers of Financial Services And Their Impact on CSD Services” Giovanni Sabatini, Chairman of ECSDA and CEO of Monte Titoli

2. Marzo 2002 2 Agenda 1. ECSDA- Brief overview 2. Trends and drivers of C&S 3. Impacts on CSD Services 4. Europe: A lab for studying new challenges

3. Marzo 2002 3 1. ECSDA – brief overview ECSDA (European Central Securities Depositories Association) was founded in 1997 Present Steering Committee: Chairman: Giovanni Sabatini, Monte Titoli Vice-Chairman: Joel Mérère, Euroclear France Secretary: Jan Hellstrom, VPS Treasurer: Stéphane Bérnard, CIK

4. Marzo 2002 4 1. ECSDA - brief overview CSD SA: GreeceEuroclear CIK: Belgium CrestCo: GB Clearstream: Germany Euroclear FranceHEX: Finland Euroclear Netherlands Interbolsa: Portugal Iberclear: Spain VPS: Norway Monte Titoli: Italy OEKB: Austria SIS: Switzerland VP: Denmark VPC: Sweden Members

5. Marzo 2002 5 1. ECSDA - brief overview Drawing up technical standards for cross-border settlement (interoperability and risk minimisation) Representing a forum for exchanging common views and carrying out projects of mutual interests Adopting initiatives towards European Authorities Offering advise for legal, regulatory and fiscal matters: contribution to the decision making process shaping the future of European C&S ECSDA’s tasks

6. Marzo 2002 6 Agenda 1.ECSDA- Brief overview 3. Impacts on CSD Services 4. Europe: A lab for studying new challenges 2. Trends and drivers of C&S

7. Marzo 2002 7 2. Trends and Drivers of C&S Globalisation 1 Technology 3 Deregulation – Re regulation 2 Blurring of specialisation 4

8. Marzo 2002 8 Agenda 1.ECSDA- Brief overview 2. Trends and drivers of C&S 4. Europe: A lab for studying new challenges 3. Impacts on CSD Services

9. Marzo 2002 9 3. Impacts on CSD services Globalisation: increases cross-border activity 1 Source: US Treasury Investors going global at rapid rates US Gross acitivity in foreign securities, Sales/ Purchases Foreign gross activities in US securities, “

10. Marzo 2002 10 3. Impacts on CSD services Globalisation 1 Requires CSDs to serve new markets Requires CSDs to offer new products/ services Demands CSDs to reduce costs of cross border settlement and increase efficiency IMPACTS

11. Marzo 2002 11 3. Impacts on CSD services Deregulation – Re regulation 2 Demutualisation of stock exchanges and of post- trading services providers Higher attention paid by both European and non- European regulators (CPSS-IOSCO recommendation N°18) Consolidation process (both vertical and horizontal) IMPACTS

12. Marzo 2002 12 3. Impacts on CSD services Technology 3 Provide remote access Offer a single access point for clients operating both on domestic and foreign markets IMPACTS Offer realtime access Use new technologies

13. Marzo 2002 13 3. Impacts on CSD services Blurring of specialisation 4 Change of traditional roles of (I)CSDs, custodians, clearing houses Increasing competition among market operators Broadening of product ranges Need to focus on risk management/ transparency of risks IMPACTS Interaction with CCPs

14. Marzo 2002 14 3. Impacts on CSD services Focus: The interaction between (I)CSDs and custodians 4  (I)CSDs are expanding to low added value level services  Their added value services are aimed at increasing the efficiency of the settlement process Competition between (I)CSDs and custodians might exist for low added value services Custodians offer services at the highest added value level Cooperation is essential because custodians’ services are complementary to the CSDs’ ones

15. Marzo 2002 15 3. Impacts on CSD services Focus: The interaction between (I)CSDs and CCPs 4  Advantages of the CCP More efficient risk management Anonymity of counterparties Netting  Is it always necessary? CPSS-IOSCO recommendation N° 4: the benefits and costs of a CCP should be assessed  Capability of SSSs to interact with whichever market operator (trading platforms, CCPs, intermediaries, matching and routing engines)

16. Marzo 2002 16 Agenda 1.ECSDA- Brief overview 2. Trends and drivers of C&S 3. Impacts on CSD Services 4. Europe: A lab for studying new challenges

17. Marzo 2002 17 4.1 The European financial integration The two pillars of the integration 2001: Introduction of the Euro 1999: Adoption of the Financial Services Action Plan (FSAP) Strategic objectives to reap the full benefits of the Euro and to ensure continued stability and competitiveness of EU financial markets: N° 1: A single EU wholesale market N° 2: Open and secure retail markets N° 3: State-of-the-art prudential rules and supervision General Objective: wider conditions for an optimal single financial market

18. Marzo 2002 18 4.2 Present difficulties Technical barriers and market practice  Barriers of high importance  National restrictions and practical impediments to remote access  Differences in national rules relating to corporate actions, beneficial ownership and custody  Barriers of medium importance  Absence of intra-day settlement finality  National differences in settlement periods Tax barriers: S tamp duty in UK, withholding tax in Italy Legal barriers : C ompanies law, bankruptcy law

19. Marzo 2002 19 4.3 Progress already made Starting point: A fragmented environment: “Fragmentation in the EU clearing and settlement infrastructure complicates significantly the post-trade processing of cross-border securities transactions relative to domestic transactions" (Giovannini Report) Harmonisation process started: Investment Service Directive (ISD) 1993 Adoption of new directives: Settlement Finality Directive, Collateral Directive, 6 other legislative proposals and the updated ISD (to be approved within the end of 2002) Comitology procedure: making financial services legislation more timely and flexible

20. Marzo 2002 20 4.3 Progress already made Starting Point: Technical/Market practice: “The EU clearing and settlement landscape could be significantly improved by market-led convergence in technical requirements/market practice across national” (Giovannini Report) ECSDA WG 4: Technical specifications of minimum standards and messages (SWIFT ISO 15022) ECSDA WG 2: Model agreement ECSDA WG 3: ECSDA model for settling cross border transactions ECSDA WG 5: Standardisation of corporate actions and events processing Forthcoming Report 2 of the Giovannini Group

21. Marzo 2002 21 4.4 The way ahead: false issues 1.C&S as a natural monopoly 2.Consolidation versus integration 3.Religious war: verticalists versus horizontalists

22. Marzo 2002 22 4.4 The way ahead: real issues  Significant reduction in cross-border investment/ running costs  Risk reduction  Efficiency  Reliability, resilience, integrity and scalability

23. Marzo 2002 23 4.5 Steps for further rationalisation 1. What market participants need: 2. How to be achieved: Interoperability A B Effective Level Playing Field A single integrated “process” for European C&S rather than legal consolidation

24. Marzo 2002 24 4.5 Steps for further rationalisation A Interoperability  Capability of systems to interoperate with each other (e.g. also with payment systems)  Open architecture of clearing/ settlement systems  Minimisation of sunk costs for intermediaries  Independent from governance  Non preemptive with regard to a different long term solution

25. Marzo 2002 25 Interoperability: Network industries A good example is the telecommunication industry where different actors interact as a single integrated process without requiring consolidation 4.5 Steps for further rationalisation

26. Marzo 2002 26 4.5 Steps for further rationalisation Clarification of the rights of access to/choice of C&S facilities (EU Commission) 1 New ISD proposal Overcoming the main legal and fiscal obstacles (Giovannini report) Adoption of the “functional” approach 2 A directive on C&S ? Guaranteeing full transparency CPSS- IOSCO disclosure framework Common regulatory approach/ minimum standards 3 ECB/CESR standards Effective Level Playing Field B 4

27. Marzo 2002 27 4.5 Steps for further rationalisation Avoiding over-regulation: flexible regulatory framework Promoting a clear, unambiguous legislative framework (minimise conflicts of laws/ ensure level playing field) Ensuring transparency of risks Favouring continuous dialogue between European Authorities and market participants A directive on C&S? Source: Comments of the ECSDA regarding the Communication from the EU Commission, September 2002 Yes, but in line with the aim of:

28. Marzo 2002 28 5. ECSDA Contacts Giovanni Sabatini (Monte Titoli, Italy): g.sabatini@montetitoli.it Joel Mérère (Euroclear Fra.): joel.merere@euroclearfrance.com Jan Hellstrom (VPS, Sweden): jhe@vps.no Stéphane Bernard (CIK, Belgium): s.bernard@euronext.com ECSDA Website: http://www.ecsda.com For further information, please contact: or visit the: