A Single Protocol for Clearing and Settlement

Slide 1 AECSD_20051005

John FalkSecurities Market InfrastructuresSWIFT

A Single Protocol for A Single Protocol for Clearing and SettlementClearing and Settlement

2nd AECSD Conference, Moscow - 5th October 2005


Recommendations, Barriers or Regulations

What is meantWhat is meant

by aby a

Single Protocol forSingle Protocol for

Clearing and Settlement?Clearing and Settlement?


Recommendations, Barriers or Regulations

20012001 CPSS-IOSCOCPSS-IOSCO Recommendation 16Recommendation 16: “Securities Settlement Systems should use or accommodate relevant international communication procedures & standards…”

20032003 G30G30, Recommendation 2, Recommendation 2 ““Harmonise message standards & communication protocols”

20032003 GiovanniniGiovannini, Barrier 1, Barrier 1“Define EU wide protocol to eliminate national differences in IT & interfaces used by Clearing & Settlement providers”

20042004 ESCB-CESR,ESCB-CESR, Standard 16 (draft) 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………”


G30 Global Clearing and Settlement: A Plan of Action - Recommendation 2Harmonise 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”


SWIFT meeting the challengePresent 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 (ISO20022 - Standards convergence)


W3C

UN/CEFACT

e-bMoU

OMG

ISO/TC68

FIX

ISITC-IOAISSA

SMPG

SIA

FISD/MDDL

G30

GiovanniniTC68/SC4

WG

8 & WG

11

EPC/ECBS

ISTH

IFX

RosettaNet/PMP

OAGi

X12

BMA

EACT

FPML

ISDA

IFSA

OASISBolero

ICC

TC68

/SC6&

7

CEFACT/

TBG

5

IIBLP

UNCITRAL

IFSA

Securities Trade Finance

TC68/SC4&7

Payments Treasury

EAN/UCC

UNIFI - ISO 20022

CEFACT/

TBG

15

TWIST

Fedwire

CHIPSTCH

NACHA

UNIFI (ISO 20022)Overview of existing initiatives


A Single Protocol for Clearing and Settlement

What

is being

proposed?


Protocol frameworkProposed recommendation

The original 9 element framework should be simplified into 6 elements over 2 layers

Network

Messaging

Data

Network

Messaging

DataSTANDARDS

SECURITY

SERVICES

Participant A Participant B

1

4

7

2

5

8

3

6

9Transfer

Data

Transfer

Data

STANDARDS

SECURITY

SERVICES

1

4

3

6

2

5

Participant A Participant B


Protocol scope - Proposed

ExchangeExchange

VMU / ETCPVMU / ETCP

Tra

de

Dat

e

Sp

ace

1S

pac

e 1

Pre

-tra

de

/ T

rad

e

Sp

ace

3S

pac

e 3

Cle

arin

g &

S

ettl

emen

t

OrderTrade

IMI: Investment ManagerB/D: Broker DealerVMU: Virtual Matching UtilityGC: Global CustodianSC: Sub-CustodianSA: Settlement Agent (Clearer)CCP: Central CounterpartyICSD: (Int‘l) Central Securities Depository

Institutional (buy) Side Street (sell) Side

Sp

ace

2S

pac

e 2

Po

st T

rad

e /

Pre

-Set

tlem

ent

Tra

de

Dat

e +

X

GCGC

SASA

CCPCCP

SASA

IMIIMI B/DB/D

(I)CSD(I)CSD

SCSC

B/DB/D

Space 4Space 4 - Asset Servicing

Non Trade Related Activity

1

2

3

- Short Term- Long Term


Focus on the Data Layer:How far from common data standards are we?European CSD’s

Available StandardInfrastructure use –

Cross borderInfrastructure use –

Domestic

BIC 42% 17%

ISIN 92% 83%

ISO Currency Code 83% 83%

ISO Country Code 92% 92%

ISO 15022 Data Dictionary 75% 17%

ISO 15022 Message syntax 67% 25%

ISO 15022 Message Set 33% 8%

SMPG (local) Message Set 58% 33%

IP Network 92% 92%


Common Data Standards - AECSD

Available Standards

BIC

ISIN

ISO

Currency C

ode

ISO

Country C

ode

ISO

15022 Data D

ictionary

ISO

15022 Message syntax

ISO

15022 Message S

et

SM

PG

(local) Message S

et

IP N

etwork

Azerbaijan - National Depository

Georgia - Central Securities Depository

Kazakhstan - Central Securities Depository

Kyrgyzstan - Central Depository

Moldova - National Securities Depository

Republic of Belarus - Republican Central Securities Depository

Russian Federation - DCC

Russian Federation - NDC

Ukraine - Interregional Stock Union

Ukraine - National Depository

Uzbekistan Republic - State CSD


Securities Market Infrastructures on SWIFT

CREST

EuroclearEuroclear NL

Euroclear France

Clearstream

Strate

JSE Securities Exchange

SISLCH.Clearnet

Sydney Futures Exchange

ECSDA

…and others!

Hong Kong FE

Omgeo

Singapore SE

DIFXMonte Titoli

Tokyo SE

London SE

Iberclear

FMC DTCC

CBLC

CAJVAL

NDC & DCC, Russia


Communicating with Securities Market Infrastructures using SWIFT

Benefits for system owners

>>> increased internationalisation of client activities

Access to all types of domestic and international players

>>> trading >>> clearing >>> settlement >>> DVP >>> custody

Global standards ISO 15022, XML, FIX for:

Low entrance barriers for

Time to market is

Mission critical levels ofIM B/D B/D

VMU

(I)CSD

SC SA

Order

GC

SA

CCP

Exchange

>>> reliability, security and support

>>> short

>>> remote members

Ord

er/T

rad

eS

ettl

emen

tP

ost

-Tra

de/

Pre

-Set

tlem

ent

institutional (buy) side street side


&&uestionsAnswers


John FalkSecurities Market InfrastructuresSWIFT

A Single Protocol for A Single Protocol for Clearing and Settlement?Clearing and Settlement?

2nd AECSD Conference, Moscow - 5th October 2005


Securities Market Infrastructures - FINArgentina Caja de ValoresAustralia SFE Austria OEKBBelgium CIK

Euroclear BankMTS

Brazil CBLCCanada CDSCroatia Sredisnja Depositarrna AgencijaDenmark VP Finland HEXFrance Euroclear France

Euronext Paris – MATIFMTS

Germany Eurex ClearingDeutsche BoerseMTS

Greece Central Securities DepositoryHong Kong HK Futures Exchange

SEHK Options Clearing HouseHungary KelerItaly Monte Titoli

Borsa ItalianaCCG

Japan JSCCKazakhstan Kazakhstan Stock ExchangeKorea Securities DepositoryLatvia Central Depository

Lebanon MidclearLuxembourg ClearstreamMexico S.D. IndevalNetherlands Euroclear Netherlands

MTSNorway VPSPoland National Depository for SecuritiesPortugal MTSRussian Depository Clearing CompanyFederation The National Depository CenterSingapore Central Depository

Singapore ExchangeSlovenia Central Securities Clearing CorpSouth Africa STRATE

JSE Securities ExchangeSpain Iberclear

MEFFMTS

Sri Lanka Securities Settlement SystemSweden VPC ABSwitzerland SIS

SIS x-clearTaiwan Securities Central DepositoryUK (& Ireland) CREST

LCH.ClearnetUSA ISCC

DTCCOmgeo



1

2

3

4 Settlement & Custody: connecting Central Securities Depositories and International Central Securities Depositories

IM: Investment ManagerB/D: Broker Dealer

GC: Global CustodianSC: Sub-Custodian

SA: Settlement Agent

Ord

er/T

rad

eS

ettl

emen

t


Po

st-T

rad

e/P

re-S

ett

lem

ent

Trading: connecting Exchanges

Clearing: connecting Clearing Institutions and Central Counter-parties

Electronic Trade Confirmation: connecting to VMU providers

IMIM B/DB/D B/DB/D

VMU

(I)CSD

SCSC SASA

Order

GCGC

SASA

CCP

Exchange

Market Infrastructures Infrastructure Update HOMEEuclid CREST


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

Securities Industry SWIFTNet Solutions Giovannini Market Infrastructures HOME


What Can and Does SWIFT bringto the Securities Markets?

Standards Security, Reliability and Risk Resilience Co-Operation Services Provides VALUE to the whole market SWIFT has done it before


Other G30 Recommendations Creating a strengthened, interoperable global network

1 Eliminate paper and automate communication, data capture and enrichment

3 Develop and implement reference data standards

8 Automate and standardize asset servicing processes

Mitigating risk1 Ensure effective business continuity and disaster recovery

planning

Improving governance1 Promote fair access to securities clearing and settlement networks

2

8


Securities

ISO 7775 (syntax = traditional FIN, such as MT 521, MT 500, …)

ISO 15022 (syntax = enhancedFIN, such as MT 502, MT 54x, …)

UNIFI (ISO 20022) (syntax = XML, such as Investment Funds, Cash Reporting, Bulk Credit Transfers, …)

Traditional FIN(e.g. MT 103)

Traditional FIN(e.g. MT 100, MT 202, …)

Other markets

SWIFTStandards


>>> cost efficiency


Benefits for system members

>>> Market Practice standardisation>>> Straight Through Processing >>> Real-time DVP >>> shorter settlement cycles>>> risk reduction

Business standardisation: ISO 15022, XML, FIX:

Technical standardisation: Single window access to domestic and international systems through one interface

IM B/D B/D

VMU

(I)CSD

SC SA

Order

GC

SA

CCP

Exchange

Mission critical levels of

>>> reliability, security and support

Market Infrastructures Infrastructure Update HOMEEuclid CREST

Ord

er/T

rad

eS

ettl

emen

tP

ost

-Tra

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Pre

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Documents

A Single Protocol for Clearing and Settlement