1. Introduction to SWIFT and the value it provides to the Securities Industry - Presentation for the Chartered Institute for Securities & Investment
Richard Young
30th June 2010

2. Agenda SWIFT Overview SWIFT Initiatives in the Securities Industry
Clearing and Settlement
Asset Servicing
Fund Distribution

3. SWIFT: A Global «Community Inspired » Financial Utility
Not for profit industry utility
9,304 financial institutions
209 countries
3.8 billion business msgs
Registrar for ISO
No corrupt, misrouted, lost msgs
Industry
Standards
Financial
Community . IP
Platform
Cost – Risk – Revenue

4. SWIFT: Connecting the Global Financial Community
Banks
Corporates
Payment Systems
Insurance Companies
Clearing & Settlement Systems
Custodians/ Depositories
Broker-Dealers
Government Institutions
Stock Exchanges
Regulators
Market infrastructures
Investment
Managers
Trustees/
Administrators

5. Operational Threats Increase
High risk manual ops
Slow processing model
Open architecture pressures
Multiple proprietary links
Spiralling Costs
Compliance
Client Dissatisfaction

6. SWIFT Community: Harnessing Economies of Scale
Price (EURcent/msg)
Volumes (Millions of messages)
Banking, Trade Finance, Capital Markets, Asset Management, Insurance

7. Agenda SWIFT Overview SWIFT Initiatives in the Securities Industry
Clearing and Settlement
Asset Servicing
Fund Distribution

8. Cash Clearing systems/ Non trade-related activity
SWIFT in Securities – Bringing Standards to the Securities Ecosystem
Institutional (buy) side
Street (sell) side
IMI: Investment Manager
B/D: Broker Dealer
VMU: Virtual Matching Utility
ETCP: Electronic Trade Confirm Provider
GC: Global Custodian
SC: Sub-Custodian
SA: Settlement Agent (Clearer)
CCP: Clearing House/ Central Counterparty
ICSD: (Int‘l) Central Securities Depository
Trade date
Order
Pre-trade/ Trade
Space 1
IMI
B/D
B/D
Trade
Exchange 1
VMU / ETCP
Pre-Settlement
Post Trade/
Space 2
Trade date + X GC
CCP 2 SC SA SA
Clearing &
Settlement
Space 3
Cash Clearing systems/
Central Banks
(I)CSD 3
Non trade-related activity
Space 4 Asset Servicing

9. Standards used on SWIFT
‘MTs’
Message standards on the ‘FIN system’ (SWIFTNet FIN)
Payments & other
markets
Securities
markets
70s
Traditional FIN
MT 100, MT 202, etc
80s
ISO 7775
syntax = traditional FIN
MT 521, MT 500, etc
90s
Late 90s
Traditional FIN
MT 103, MT 103+, etc
ISO compliant
syntax = enhanced FIN
MT 502, MT 54x, etc
Message standards on the ‘SWIFTNet system’ (SWIFTNet)
Early 2000’s
UNIFI (ISO 20022)
syntax = XML
Investment Funds, Cash Reporting, Bulk Credit Transfers, etc
‘MXs’
An Introduction to Sds 2

10. Securities Industry is changing (Driven by MiFID & Code of Conduct)
Trading
Yesterday’s situation:
‘Place of trading’ send their trades to one CCP
Typical silos (LSE-LCH, Euronext-Clearnet, Borsa Italiano-CCG, etc) for each country with active CCP
Exchanges
Clearing
CCPs
New landscape in EU building:
Many new trading venues (Turquoise, Chi-X, NasdaqOMX Europe, BATS, Equiduct, Smartpool, NYSE Euronext Arca, etc) and new clearing venues (EMCF, EuroCCP, etc)
Desire to create links with multiple counterparts
Trading
Exchanges and MTFs
Clearing
CCPs

11. SWIFT in the Clearing Space2
Business Areas
Communication between Trading Venues with CCPs or related routing and netting engines
Communication between matching facilities and CCPs
Communication between CCPs, GCMs and ICMs (the clearing members) and NCMs (the non-clearing members)
Inter-CCP communication (support to Code of Conduct)
Post-clearing CCP communication with CSDs and settlement agents, and CBs and cash correspondents
Reporting from CCPs to regulators
Trading role
(NCM)
Market place
(SEs, MTFs) 1
Matching venues
Trading role
(ICM) 3
Clearing role
(GCM)
CCP
CCP 4
Central
Bank
Regulators
Settlement Agents
Cash corres-pondents
CSD 6 5

12. Using existing solutions
Providing solutions for the Clearing industry Bringing communication efficiency to GCMs and ICMs
Developing ISO msgs specifically for clearing industry.
MX-based solution
Using existing solutions
On demand of some CCPs and CMs:
Using ISO and/or prop stds.
FIN and FileAct.

13. SWIFT in Settlement: (15022 MT flows)
Trading
Venue
Investment Manager
MT 502
Broker’s
Counterpart
Broker
MT 502 cl
MT 513
MT 576 cl
Market
side cl
MT 518
MT 513
MT 514
MT 517
MT 515
MT 545
MT 509
MT 584
MT 541
MT 543
MT 547
CCP
IMI’s
Custodian
Broker’s
Custodian
MT 541
MT 545
MT 543
MT 547
MT 547
MT 541
Sub-
Custodian
Settlement
System (e.g. CSD)
MT 545
MT 535/536/537/548/578

14. Infrastructure for communications within the Euroclear Group
Back Office Applications
FIN/MX
Interface
File
Transfer
Interface
CREST
Interface
EUCLID Server/ PC
SWIFT Alliance
Gateway
WSHA
SWIFTNet
Common Communication Interface
Euroclear Single Platform
EUI
Euroclear BE
Euroclear NL
Euroclear
Bank
Euroclear FR

15. Giovannini Barriers
SWIFT was asked to ensure the definition of a protocol for the removal of Barrier 1 through the Securities Market Practice Group (SMPG), the protocol had the aim of:
Eliminating national differences in the information technology and interfaces used by clearing and settlement providers and defining an EU-wide protocol in its place.
SWIFT consulted widely with participants in the European space in the definition of this protocol
Protocol was published by SWIFT in March 06 for implementation by March 2011
Work to remove other Barriers was assigned to industry groups, e.g. ECSDA, whilst the removal of some barriers was recognised to be dependent on action by national governments, with help from the EU Commission.

16. Giovannini Barrier 1 - Protocol Scope
Not applicable
Mandatory use of ISO15022/20022 for x-border
Optional for domestic
SWIFT to complete ISO15022/20022 gap analysis & fill gaps
Other initiatives adopt protocol, e.g. MiFID
Available in TARGET opening hours
Satisfy local business, regulatory performance & resilience needs
Message/file log, guaranteed delivery, delivery once & only once
ISO15022/20022 compliant
Internet Protocol (IP)
Message, file transfer & GUI
Authentication/ Data integrity via PKI
Non-repudiation
Time stamping
F&A October

17. The TARGET2-Securities (T2S) project
TARGET2-Securities can be defined as a central securities settlement utility, delivered by the Eurosystem and to which CSDs can outsource settlement.
It will promote harmonised settlement between participating CSDs and their users and be in line with SMPG recommendations.
It will be Giovannini compliant and will make use of ISO messages such as:
Settlement and Reconciliation
Cash and Liquidity management
Reference Data messages (Securities, Cash and Securities Accounts, Party)
Collateral management (interaction with CCBM2)

18. T2S connection options
T2S parties have choice between direct and indirect connection to the platform.
Source: ECB website and T2S URD 18

19. SWIFT in Post Trade Matching (Prime Broker/Executing Broker) Industry Challenges
3. Poor reporting from Prime Brokers
Hedge Fund
Executing Broker
1. Mistake in Trade details
Daily Trade report
2. Pre-matching is manual
Prime Broker
Settlement Agent
Settlement Agent
4. Risk of Settlement fails
CSD

20. Solution for PB/EB Industry Challenges
Hedge Fund
Executing Broker
MT 515
2. Real time status updates
Daily Trade report
Accord
MT 998
MT 515
Prime Broker
MT 998
1. Automated pre-matching, status and exception handling
Settlement Agent
Settlement Agent
3. Removes Settlement Risk
CSD

21. Agenda SWIFT Overview SWIFT Initiatives in the Securities Industry
Clearing and Settlement
Asset Servicing
Fund Distribution

22. Asset Servicing
Asset Servicing is the processing of events (Corporate Actions) related to holdings of securities assets. Examples of such events include:
Distributions
Distributions (without Options):
Cash Distributions (e.g. cash dividends, interest Payments)
Securities Distributions (e.g. stock dividend)
Distributions with Options (e.g. dividend Options)
Reorganisations
Mandatory Reorganisations with Options (e.g. conversion)
Mandatory Reorganisations without Options (e.g. stock split)
Voluntary Reorganisations (e.g. tender offer)

23. Corporate actions frequently originate with detailed free-text documents
One Horrific Example
300+ pages to describe an ‘Exchange Offer’
38 separate updates were published from Dec 08 to May 09, as new information was made available
Validation took 12 separate sources of data
Five resources worked on it extracting 63 data elements, amassing 44 pages of audit trail changes
The challenge is to find the right data, in the right pages, buried alive somewhere in the free-text document 23

24. Corporate Actions processing often involves multiple versions, of what should be the same information, passing between multiple parties 24

25. Multiple CAs produce multiple Documents - leading to further multiples of messages downstream
Quantification:
~1,000,000/yr
Unique CA
Events
= ~5,000,000
Documents
published
Issuers and their agents
~1,000,000 events annually for ~85,000 companies and funds
Documents
Intermediaries, Market Infrastructures
~20 global custodians hold 95% of all assets under custody
= ~ 2,800,000,000
Messages
ISO & ISO 20022
Investors, investment/fund/asset managers
Many millions of investment accounts at many layers

26. SWIFT’s Current Corporate Actions Offering
Professional Services
STaQS & Market Practices
Training
ISO Messaging for Corp. Actions (MT560s) ISO Messaging for Proxy V. Data Distribution
Drive for standardisation & automation to reduce risk, loss & cost, working with XBRL for data capture

27. SWIFT in the Funds Market
Automating Distribution Across Mutual, Hedge, Money Market & Pension Fund Processing

28. Executive Summary
“SWIFT is now the trusted brand sitting at the heart of the platforms’ and fund managers’ strategy to more effectively distribute multi asset class products and provide enhanced, value add services to their global client base”

29. Holistic Fund Distribution Enablement
Account opening
Order placement
Settlement
Reconciliation
Price report
Transfers
Switches
Cash Forecast
Corporate Actions,
Payments
End investors
Other intermediaries &
platforms
Portfolio managers
Fund accounting
agent
Institutional investors
Investors’ intermediary
Distributor
Transfer Agent
(I)CSD (when applicable)
Cash agents
Distributor-side
Cash agents
Fund -side
500 Fund Players, 40 Countries, 25 Million Messages
Payments

30. Summary

31. Next steps to automation…
How SWIFT Helps the Securities Industry
Solutions
Connectivity
Consulting Services
Training 31

32. Thank you & Questions