Transcript Thomas Murray's presentation

Depository Risk Controls
Jim Micklethwaite
21 April 2006
Page 1
Thomas Murray
Contents
Contents
1.
Introduction to Thomas Murray
2.
Capital Market Infrastructure ‘Classic
Model’
3.
Depository Risks
4.
Conclusion
5.
AMEDA White Label Site
Page 2
Thomas Murray
Introduction to Thomas Murray
Thomas Murray has four principal businesses surrounding its primary research, analysis and information group
RATINGS AND ASSESSMENTS
NETWORK MANAGEMENT AND INFORMATION SERVICES
• Global custody ratings
• Agent bank network management support/outsourcing
• Domestic custody ratings
• Evaluation and risk rating of local markets
• Market and CSD risk ratings
• Surveillance of network arrangements
PRIMARY RESEARCH, ANALYSIS AND
INFORMATION
Thomas Murray - Private Domestic Custody Ratings Report
Outloo k: Stable/ Watch
XYZ Ban k, Un ite d Kingd om
Domestic Custody Rating: AA+
Overall
OverallAssessment
Assessment
Depository Review and Risk Evaluation Service
XY
XYZZBBank
ank isis the
the principal
principal subsidiary
subsidiary of
of XYZ
XYZ Group.,
Group., one
one of
of tthe
he largest
largest publicly
publicly quot
quoted
ed bank
bank holding
holding companies
companies inin Europe.
Europe. XYZ
XYZ Bank
Bank
ranks
ranks as
as tthe
he UK’s
UK’s largest
largest glglobal
obalcustodian
custodian by
by asset
assets,s, with
with over
over USD
USD 44 trillion
trillion of
ofassets
assets under
under cust
custody
ody as
as at
attthe
he end
end of
of Oct
October,
ober,2001,
2001, of
of
which
which USD
USD 1.2
1.2 trillion
trillion are
are domestic
domestic UK
UK assets.
assets. There
There are
are 5,000
5,000 ststafafff inin tthe
he worldwide
worldwide global
global custody
custody businesses
businesses of
of tthe
he Bank,
Bank, of
of which
which
2,500
2,500 work
work inin tthe
he UK
UK domestic
domestic business.
business. The
The global
globalcustody
custody business
business has
has been
been developed
developed significantl
significantlyy inin recent
recent years
years both
both by
by organic
organic
growth
growth and
and aa series
seriesof
of acquisit
acquisitions,
ions,with
with tthe
he most
most recent
recent being
being AB
ABCC Bank
Bank inin tthe
he US
US inin December
December 2000.
2000. These
These acquisitions
acquisitions have
have resul
resulted
ted
inin over
over 40%
40% of
of the
the client
client base,
base, ofof over
over 4,500
4,500 client
clientss now
now being
being located
located out
outside
side tthe
he UK.
UK. XXYZ
YZ Bank
Bank isis aa major
major fforce
orce inin bot
bothh tthe
he global
global
custody
custodybusi
business
nessacross
acrossvirtual
virtuallylytthe
he enti
entirere spectrum
spectrumof
ofclient
clientttypes
ypesand
and geographies,
geographies, and
and tthe
he domest
domesticic UK
UK custody
custody business.
business.
aa very
very strong
strong track
track record,
record, and
and having
having identified
identified tthe
he cust
custody
ody business
business as
as aa sisignifi
gnificant
cant ffee
ee generator,
generator, iitsts
commi
commitment
tment toto tthihiss field
field isis demonst
demonstrat
rated
ed on
on aa number
number of
of levels,
levels, wit
withh high
high iinvestment
nvestment into
into custody
custody specif
specificic IT
IT developm
development
ent (US
(USDD 320
320
million over t he next 3 years), consistently expanding assets (bot h by organic growt h and acquisitions) and a wide range of core and

Equities

Cor porate Debt
InIn the
the UK,
UK, XXYZ
YZ Bank
Bank ofoffers
fers alalllcore
core services
services and
and handles
handles all
all instrument
instrumentss traded
traded inin the
the market
market.. Securities
Securities are
are segregat
segregated
ed according
according ttoo
client
client requirements,
requirements, and
and overnight
overnight investment
investment services
services are
are available
available for
for excess
excess account
account ffunds.
unds. Alt
Although
hough the
the cut-off
cut-off times
times for
for cli
client
ent
inst
instructions
ructions are
are early
early both
both on
on corporate
corporate acti
actions
ons and
and corporat
corporatee governance,
governance, tthis
his isis tthe
he main
main short-coming
short-coming of
of the
the otherwise
otherwise very
very strong
strong
offering,
offering, which
which isis ffuelled
uelled by
by multiple
multiple data
data sources
sources that
that provide
provide information
information whi
which
ch automaticall
automaticallyy updates
updates the
the Bank’s
Bank’s systems.
systems. BBotothh
standard
standard and
and non-standard
non-standard operat
operational
ionalreports
reports are
are available,
available, and
and there
there iissan
an eff
effective
ective client
client rel
relatationshi
ionshipp management
management apparat
apparatus
us inin place
place
toto deal
dealwith
with client
client enquiries
enquiriesiinn aa timely
timely and
and sensitive
sensitive manner.
manner.
Custody and Settlement
Infrastructure Risk Report
BUYER
Greece
SELLER
Equities Settlement System
(Dematerialis ed Securities )
Custody and Settlement
Core Services
AA+
76
79
80
81
-
Financial Risk
- CRES TCo is essentially a non-profit organisation which retains incom e necessary for invest ment needs and sufficient
cash for the payment of a fixed dividend. The remainder is ret urned to part icipants (not shareholders) in t he form of
rebates or fee reduct ions. This suggests that CRESTCo has some flexibilit y in sett ing fees t o meet its investment and
Co pyr ight © 2 00 1 Tho m as M ur ra y
operational needs. Financial risk exposure is consequently low.
Operational Ri sk
- CRES TCo maintains a well-defined and comprehensive system of i nt ernal controls and procedures. Deposit ory and
data-processing controls are in place to support CREST and CMO sett lement. These controls appear to be
consistent wit h CRESTCo’s business activities and have been satisfactorily t ested by independent ext ernal audit ors.
CSD on CSD Credit Ri sk
- CRES TCo maintains a number of direct and indirect links to f oreign CS Ds but is required to hol d non-UK securities in
the f orm of CREST Deposit ory Interests (CDIs). The legal and regulatory struct ure for holding CDIs is di fferent to t hat
applying to UK securities.
A-
AA AAA AA+
STANDARD SE RVI CE OFFERINGS
98
97
98
96
72
79
81
77
82
85
84
83
89
85
90
89
-
-
70
72
70
71
-
Im proved P osi ti on Stable Posi ti on
In ter na l Op er atio ns
(score out of 100)
Q1 (Jan-Mar)
Q2 (Apr - June)
Q3 (Jul y - Sept)
Q4 (Oct - Dec)
A+
Taxa tion
- For RTGS sett lements CRE ST off ers si mult aneous irrevocable, unconditional and f inal DVP in cent ral bank f unds for
which there is no counterparty risk. However, where securities are repoed under sel f col lat eralisat ion arrangement s,
then a purchaser has counterpart y risk on their settlement bank. For USD settlements there i s signi ficant count erpart y
risk exposure bet ween the set tlement banks arising from assured sett lem ent for net sellers wit hin CREST.
Counterparty risk from non-assured set tlement in t he CMO system is even great er with exposure to both t he
set tlement banks and t heir part icipants.
AA-
Risk s
- Liquidit y risk exposure within CRE ST arises in two parts. For securities, liquidi ty risk is moderat e to low due to a Contractual Positi on
sophist icated set tlement system and an active external securities lending market which compensates f or the hi gh of XYZ
liquidity demands of near real-tim e gross securit ies settlement. For cash, liquidi ty risk is carried by the set tlement
banks due t o RTGS sett lement in central bank funds which requires pre-funding although t his risk is off set by t he selfKey Performance Indicators
collat eralisati on f acilit y.
Counterparty Risk
Ca sh/FX M an ag em en t
Liquidit y Risk
Co rpo ra te Gov ern an ce
AA-
AA+ A+
Sec urit ies L en din g
- Sett lement of GBP and E UR t ransact ions within CRE ST is on a si mult aneous RTGS basis with im mediate f inalit y. XYZ Bank, UK
Asset commit ment for bot h a buyer and sel ler is negligi ble. Sellers usi ng assured or non-assured set tlement methods
Domestic Custody Rating:
can incur significant intra-day exposure.
In com e Colle ction
Cr ede nt ials
AA+
Risk Summ ary
Asset Commit ment Ri sk
Co rpo ra te Action s
Ov era ll Ra ting
AA+
Saf eke epin g
Domestic
Cust ody Rating
Set tlem en ts
The London Clearing House (LCH) acts as the cent ral counterpart y for those trades execut ed on t he London S tock Exchange’s (LS E) electronic order
Private
matchi ng system S ETS. virt-x trading part icipants have the option to rout e their sett lements either through CRES T, S IS or E uroclear Bank.
AA+
AA+
AA
AA
94
85
90
91
-
Worse Position
Pu bl ica tio n Dat e: Au gu s t 2 002
F). T+1 by obligat ions
8.00pm Trade
ass igned t(2).
o
c lient ’s
c us todian
Agent
Agent
Bank
Bank
C). TD- Trade
F). T+1 by and Settlement
Custody
Pu bl ica tio n Dat e: Au gu s t 2 002
8.00pm - Trade
details for
sentCSD SA settlement
Infrastructure
Report
Payment System - Cash
i sass
transferred
d on deposit
at Alpha Bank, a private
igned t o and helRisk
c lient ’scredit rating from S&P, whi ch is around the minimum
commercial bank. Al pha Bank has a low BBB+ long-term
c us todian
rati ng required by many instituti onal investors. S&P recently
(10th July) put Alpha Bank on ‘Negati ve’ credit watch,
citing its drasti cal ly reduced revenues
and Inherent
questionsinover
quali
ty of
core capital . Investors
are exposed to
the the
Greek
Mar
ketitsInfrastructure
and Procedures
CSD SArisk exposureRisks
intra-day cash deposit
on this bank between the time of pre-funding until cash is finall y settled.
CSD SA
Greece
Agent
N). Confirmation of
s ec urit ies t ransf er
up to 9pm T+3
I). Pre-funding
of s ettlement
acc ounts by
beginning of
rel ev ant bat ch
obligat ions
developing a
Additi onally,
there
isSettlement
systemic riskRisk
exposure
for the whole
equities and corporate debt market due to its
H). of the Greek
Agent
H).
Clear ing
and
(continued)
Bank
dependence on thi s single bank.
Sett lement
Sett lement
Bank
D). TD - Trade data f rom ASE proc es sed and
rmation
affi rmation
D). TD - Trade
proc es
sed and
(4).data f rom ASEDVP
Level:
Physical - Foraffithe
approximate 5% of government bonds stil l hel d physically, settlement must be
hed.
by T+3
by Clear
T+3 ing &matc
Settlement
Risk
matc hed.
outside
as off-exchange transactions. Counterparties will be ful ly exposed to the operati onal
K). Batc h proc es sing of gross s conducted
ec urit ies t ransf
ers in 4of CSD SA
1.30pm
1.30pm
K). Batc h proc es sing of gross and
s ec urit
ies t ransf ers risks
in 4 rel ated to decentralised physical settlement (e.g. fraud, theft, loss, prol onged counterparty
counterparty
batches daily at 8. 30am - 9.00am,
1. 00pm
- 1.30pm,
batches daily
at 8. 30am
- 9.00am,
1. 00pm
- 1.30pm,ly pre-matched on T+1 by telephone or fax before bei ng entered i nto the
(3).
Level:
CSD
-risk
Trades
4.00pmDVP
- 4.30pm
& 8.
00pmSA
- 8.30pm
SD are manual
exposure
unti l finali ty).
4.00pm
- 4.30pm
& 8. es
00pm
- 8.30pm SD
Central
Securiti
Depository
(‘CSD SA’) system. Risk of human error resul ting i n i ncorrectl y matched instructi ons
being (5).
entered into the settlement
system exists.
Cash Settlement
Alpha Bank - Additi onal to the concerns over cash deposit risk exposure to Al pha Bank (see
Risk Note (2)) and the timing of cash settlement cycles (see Risk Note (3)), Alpha Bank does not extend credit/
N). Confirmation
of
There appears to be grant
a degree
of manual
i nteracti
on
involved
thesettlement
cl eari ng operations
conducted
by local
overdrafts
to participants.
Accounts
forin
cash
can be topped
up throughout
the day at Alpha Bank to
s ec
urit
ies t ransf
er
custodian banks as ‘ Account
operators’
. Account
operators
record
i nfor
theinvestors
system tothe
securities
accounts
of the
cover net
obligations.
It i s up
essenti
al,T+3
therefore,
use
an intermedi
ary, such
as a local custodian, to
to 9pm
investors whi ch wil l be provide
creditedthem
and debited
by facil
a specific
with credit
iti es. transaction. Thi s manual anal ysis which consti tutes a key
O).remain relati ve to human error and
part of the clearing process must be completed by 1.30pm T+3. Risks
Confi
rmation
opportuni
thi s process,
while any- Although
physical iitnteraction
in the
ement
process
reduces
(6).ty for fraud inSettlement
Assurance
i s mandatory
forcsettl
all ASE
trades
to settle
(withStraightthe exception of specifi c case
through-Processing (STP) rates. Account operators bear full responsibil ity of
for ash
the securi ties transfers conducted as
rec eipt up to there are no fai ls procedures empl oyed which wil l
J ). Confirmation of a result of the process. under Arti cl e. 29, Law 2579/1998 in relation to bankruptcy),
L). Conf ensure
irmati on of
transactions settl e on contractual settlement
c as h balance prior
9pmdate.
T+3 Therefore risk of consequential losses exist where
s ec urit ies
subsequent
activities have been li nked to the ti mely receipt of securities or cash (e.g. FX deals). Thi s risk may be
to batc h
delay
between contractual
the settlement
of securities
n the from
CSDthe
SAl ocal
system,
and the
s et tlement
proc es si ng There is generall y a 30min
miti
gated
by obtaining
settlement
(where withi
possible)
custodian.
A combination of buy-in
Operational Risk Evaluat ion
Delivery
Deliveryversus
versusPayment
Payment
--Interbroker
Interbroker settl
settlement
ement
--Broker
Brokerto
tocustodi
custodian
an
Net
Net or
orGross
GrossPayment
Payment
--Interbroker
Interbroker settl
settlement
ement
--Broker
Brokerto
tocustodi
custodian
an
Money
MoneySettlement
Settlement
--Interbroker
Interbroker settl
settlement
ement
--Broker
Brokerto
tocustodi
custodian
an
Market
Market Asset
Asset Commi
Commitment
tment Risk
Risk
Stock
StockLending
Lending for
for Trade
TradeFails
Fails
Settlement
Settlement Assurance
Assurance
Settlement
Settlement Cycle
Cycle
Forms
Formsof
of Securi
Securities
ties
Registration
Registration of
of Transfer
Transferof
of Titl
Titlee
Cash/FX
Cash/FXRestrictions
Restrictions
FiFinanci
nancialalbacking
backing of
of CSD
CSD
CCP
CCPOption
Option
Asset
Asset Servi
Servicicing
ng
Tax
Tax Recl
Reclaims
aims
Segregation
Segregation of
of Assets
Assets
Retri
Retrievabi
evability
lity of
of securities
securities
List
List of
of key
key servi
services
ces not
not inin avail
available
able inin market
market e.g,
e.g, Securiti
Securities
es
Lending.
Lending.
Indonesia
Agent Bank
Hong Kong Shanghai Banki ng Corporation
Credi t Ratings
Fitch
Settl em ent
Moody’s
Local Currency
Any
Anyother
other market
market speci
specific
fic items.
items.
Indonesia
Foreign Currency
Risk Assessment - Key Indicators
Alpha Bank
T+ 3.
It has al so not been clearl y establ ished what level of synchroni ci ty between securiti es and cash transfers there is.
Co pyr ight © 2 00 1 T ho m as M ur ra y
communicati on of confirmati
from wil
alll act
settlement
Greece
be or
done
by fax,are
opening
upable.
Bank ofons
Greece
as l enderagents
of last in
resort
i f theappear
requiredtocash
securities
not avail
significant potential operati onal risk exposures. Addi tional ly, participants’ cash accounts have several net credit and
several net debi t movements
at thesecuriti
end ofesthetraded
day, not
expected
woul d resul
t from the
3 able. Where sufficient
Government
OTCtheagain
have 6
nomovements
settlement that
assurance
procedures
avail
normal batches. Hencesecuri
it is not
sel f-evident to participants as to when cash has been
processed
the and the consequenti al
ties
settlement
mayand
faitherefore
l altogether,
Page
8
pyr ight © 2 00 2 T ho m as M ur
ra y or cash liquidi ty is not avai lable to cover the fai l,
exactCo
intra-day
risk i s difficult
determine.
cash
and extent
of DVP
of securiti es
lossesto
associ
ated wiThe
th the
fail processi
wil l needng
to procedures
be settled directly
between
thel inkage
counterparties.
and cash transfers needs more transparency.
(7).
Co pyr ight © 2 00 1 Tho m as M ur ra y
Model
Model11
Model
Model22
Central
Central Bank
Bank
Commercial
Commercial Banks
Banks
17.5
17.5hours
hours
Yes
Yes
Yes
Yes
T+3
T+3
Demateriali
Dematerialised
sed
No
No
No
No
Yes
Yes
Yes
Yes
Yes
Yes
No
No
At
At CSD
CSD
Yes
Yes
OUTLOOK
OUTLOOK SCALE
SCALE --The
The scal
scaleeindi
indicates
catesthat
that the
the Country
CountryCustody
Custody Risk
RiskScore
Score going
goingforward
forward isis
•• Stable:
Stable: There
There are
are no
nofactors
factorsthat
that Thomas
ThomasMurray
Murrayiissaware
awareof
of at
at this
thistime
timethat
that woul
woulddaffect
affect the
the country
countryrisk
riskscore.
score.
•• Positive:
Positive: The
The factors
factorsthat
that Thomas
ThomasMurray
Murray isisaware
awareof
of may
mayresult
result inin an
animprovement
improvement inin the
the country
countryrisk
riskscore.
score.
•• Negative:
Negative: The
The factors
factors that
that Thomas
ThomasMurray
Murrayisisaware
aware of
of may
mayresult
result inin aadeteriorati
deterioration
onof
of the
thecountry
countryririsk
sk score.
score.
•• On
OnWatch:
Watch: The
The factors
factorsthat
that Thomas
ThomasMurray
Murray isisaware
awareof
of may
mayresult
result inin aachange
changeiinnthe
thecountry
country ririsk
sk score,
score, but
but the
the directi
direction
onof
of the
the
change
changeiissuncertain
uncertain at
at this
this time.
time.
United States
May 2001
DISC
DISCLAI
LAIMER
MER
Copyright
Copyright ©© 2002
2002 Thomas
Thomas Murray.
Murray. Reproduct
Reproduction
ion inin whole
whole or
or inin part
part isis prohibit
prohibited
ed except
except by
by permission.
permission. Al
Alll rights
rights reserved.
reserved. The
The services
services and
and
analysis
analysis provided
provided by
by Thomas
Thomas Murray
Murray are
are provided
provided on
on an
an “as
“as is”
is” basis
basis and
and Thomas
Thomas Murray
Murray make
make no
no representat
representations
ions or
or warranties,
warranties, express
express or
or
implied,
Page 1 adequacy
implied, as
as ttoo tthe
he accuracy,
accuracy,
adequacy or
or complet
completeness
eness of
of its
its analysis
analysis oror results
results toto be
be obtained
obtained ffrom
rom accessing
accessing and
and using
using tthis
his report
report (or
(or any
any
Copyright ©informat
Thomas Murray
Ltd 2001 ttherein),
ion
informat
ion included
included
herein), including
including wit
without
hout limitation,
limitation, any
any warranti
warranties
es of
of merchantability
merchantability or
or fitfitness
nessfforor any
any particular
particular purpose
purpose oror use.
use.
Market Profile
*Serv ices are p rov ided by KPEI
Co pyr ight © 2 00 1 T ho m as M ur ra y
Stock Lending: Equities - Although l egislati on i n the Greek market allows stock l ending through the l ending pool
of the Athens Derivatives Exchange Clearing House (ADECH - which acts as pri nci pal), i t is li mi ted to short sale
strategies only, and neither the CSD SA or the Bank of Greece operate a lendi ng programme for fai ls management
purposes.
DVP/RVP
DVP/RVP
DVP/RVP
DVP/RVP Qual.
Qual.
Contact:
Contact: Thomas
Thomas Murray
Murray Lim
Limited,
ited, 199
199 Piccadilly,
Piccadilly, LONDON,
LONDON, W1J
W1J 9HA
9HA
Tel:
Tel: +44
+44 (0)
(0) 207
207 830
830 8300,
8300,Fax:
Fax:+44
+44 (0)
(0) 207
207 287
287 1549,
1549,EE-mail:
-mail: securiti
securitiesinfo@thomasmurray.
[email protected],
com, Web-site:
Web-site: www.t
www.tminvest
minvestorservices.
orservices.com
com
CUBA
Co pyr ight © 2 00 2 Tho m as M ur ra y L td
Ch ara cte ristSec
ics urit
– Part
icipa
nts for
r equ
e-efun d th eirNo
ies le
nd ing
fa ire
ils dcotoverprag
se ttle me nt As
ac cou
o ne
set nts
Servaticin
g o f the t hre e de sign at ed
pa ym en t b ank
be fotion
re sSD Th er e is an a uto ma tic fun dsYes
No stifica
tr an sfer fr om KSEI’s m e mo ran du m ope ra ting a ccou nt to
Sec urit ies p ro cess ing
Yes
se llers ’ op erPay
atining
g a cco
age unt
nt s a t th e end o f th e day on SD,Ye s
alt ho ugh m an
truistra
ctionr s c an be in itiate d du ring t heNo
Ceua
ntrl alinsr eg
da y t o tr an sfe
bleg se
funrvic
ds.es
Pror axyvaila
v otin
Yes
Co mmun ic at ion
Elec tro nic c om mu nica tion s
Ye s
Re po rtin g Servi ces
Elec tro nic r ep or ting
Yes
Re por tin g o f e ver y m ove me nt
Yes
Re gula r stat em en t of se cur ities dep osit ed Ye s
Thomas Murray Country Ranki ng
Equi ti es
Fi xed Income
3
3
G30 Com pliance -Clarifications
Tier 1: 8 - 10 recommendations
Tier 2: 5 - 7 recommendations
Tier 3: 2 - 4 recommendations
Tier 4: 0 - 1 recommendations
Tier 5: Non-compliance/no data available
corresponding net settlprocedures
ement of cash
obligations
Alpha Bank
corporate
securities
corporate
and fines
on the at
defaulting
brokerforshoul
d discourage
fails,(equities
while theand
ASE’s
Guarantee Fund i s utilised in
debt), resulti ng in a smal
l risk ofexposure.
However,
where a counter-value
not i mmediately avai lable, the
the event
a confirmed
broker bankruptcy
(see Risk Noteis(9)).
securi ties/ cash bal ance would continue to be frozen in CSD SA/ Alpha Bank for settlement in a subsequent batch.
Hence, intra-day
counterparty
lastlable
si gnifi
cantly l onger
thancustodian
the usual splits
30mins.
Alpha
Bank
Partial exposure
settl ementmay
is avai
provided
the l ocal
and properly al leges the failing trade by 1.30pm
ABC Bank
Securities Market and Agent Bank Evaluation
Tier
M). Gros s c ash t ransf ers at 9.00am, 1.30pm, 4.30pm & 8.30pm
M). GrosCSD
s c ashSA
t ransf
ers that
at 9.00am,
1.30pm,
4.30pm
&securities
8.30pmmethods
state
they
not transfer
until cash
considerations
confirmed
as settled,
but for HDAT trades. The
Nodo
settlement
assurance
are employed
in thehave
Bankbeen
of Greece
settlement
process
Support Banks
Operational Risk Evaluat ion
As set Co mmitme nt Ri sk - Ke y Ind ic at ors
B/Negative/C
CCC/Negative/C
KS EI undert akes its processing of securities and cash si mult aneously, operat ing on an
In te rn a l sa fe ty mea su re s
effective DV P basi s as f unds and securit ies m ove simultaneously and any cash movements
Ir re voca ble com m itm ent to th e p roc essin g c ycle
Sub Custody Agreement
Regi onal Agreement compl eted April 2001
Lending
within KSEStock
I S ystems
are replicated in part icipant accounts at one of the payment banks.
Parti cip an t eli gi bi lity c rit eria
Baker & Mackenzie
St ar
t nd ar ds F inish
M inim um ca pita
l sta
Yes
Currency
Indonesian Rupiah I DR
Safekeeping
On ma rk et Fseinttan
leme
A Stock Lendi ng and Borrowing (S LB ) facil ity was launched by K PEI, the local clearing
cia lnta sp ec ts
ru ny to ra ise
7. 00
house, on 30 July 2001. Initially direct participati on has been rest ri cted t o cl earing members Mo rn ingAbilit
capam
ital/ bor ro w8.0 0a m
Yes
Currency status of KP EI (brokers). I t is intended
Full y Converti
on mm
ru nitte d 1lines
2.3 0p
.30 pm
hat townership
heble
serviceiswill
become
to custodian banks Afte rnoCo
Securities are held in a demateriali sed form tand
recorded
byavail
bookable
entry
of mcre dit in p1lace
No
before the end of 2001. Initially t he SLB has been limited to 5 stocks with the intent ion t o
Pub lish aud it f inan cials
Yes
Soverei gn Rating add more stocks to the program
Long Term
OT C set tle men
on a st aggered Short
basis.Term
T aket lie n o n s tock he ld
No
Regi strati on
Fitch
Ce ntr al Ba nk Gua ra nte e
No
6. 00
Moody’s
Ot he r th ird pa
rty am
gu ar ant ee 3. 00p m
No
Securities KP
areEIregistered
theralname
oferparty
the deposit
ory lenders
and held
accounts opened
by
will act asincent
count
t o both
andin borrowers
and maintain
a pool
F OP
6 .00
5 .00 pm
S&P
T hir d p art y in
sur am
anc e
Ye s
the system
t oopen
whichsegregated
lenders can
heir accounts.
stocks and borrowers can access to check
part icipant within
s. Participants
may
oroffer
omnitbus
Saf eg u ard fac ili tie s
the availabilit y of st ocks. The minimum deposit for lending is 50,000 shares while the
Co mm en ts (Of
I.ef .,siton
-f und
e bpre
ackup ing an d ir re voca bility ).
Yes*
Group 30 Compli ance
Corporateminimum
Actions am ount for borrowing is 500 shares for non-banking st ocks and 5, 000 shares for
Dis as te r re co very
e tr an
sact
ions
sett
le o n a n et b at ch b asis
banking stocks. The minimum period t o borrow the stock is 5 days and the m aximum is On
90-e xcha ngDisa
ste
r
r
eco
ver
y
p
lan
Yes
Equi ti es
Fixed I ncom e
wh ile o ff- exc
hank ge
tr ad
es g sett
on an RT G S ba sis.
Corporate days.
actions are ident ified by investors through the stock exchange and by local
Bac
up po
wer
ene le
ra tor
Ye s
Trade comparison by T+1 for direct market participants
Yes
Yes
Sec urit ies an
d ca sh m ust b e in acc oun ts by SD. F u nd
newspapers no official independent source is available in the market.
UPS
Yes
Trade comparison f or indirect participants
Yes
Yes
tr an sfer s ar e m ade fro m KSEI’s o pe rat ing a cco unt s at
Borrowers
provide sufficient
collat
eral inprior
the ftoorm
eit herecash
or securiti
es t o initi atthee th re e de sign ate d p aym en t ba nks t o th e se lling
The market
standardmust
f or announcement
is 1-2
weeks
theofex-dat
however,
issues
Central S ecurit ies Depository
Yes set at 125 per cent
Yesof market valuat ion
*Disas ter Re cove ry Cen tre is p lan ned to be op er atio na l
any
The collateral
requirem ent has been
can be notifi
ed borrowing.
only days before
vex-date.
pa rt icipa nts’bya cco
unt 00
s at
Trade Netting Systcalculat
em
Yes
Yes
3rd Q2
1. the en d o f SD. Howe ver in
ed on a mark to market basis.
so me ca ses the p roc ess can ta ke a f urt her d ay to mo ve
Deli very versus payment
(A, B or C - see below)
A
A
Income Guarantee Fund
ca sh fr om T ab
thele of
payServi
me ntce bs ank
p rov tidoedth: e de sign at ed
Same day funds
Yes
Yes
pa rt icipaPROPRIETARY
nt ba nk wh&enCONFIDENTIAL
cle ar in stru ctio ns ha ve no t be en
Roll ing settlement on T+3
Cash M anagement
KP EI manages the guarant ee fund f or on-exchange t rades. The purpose of the f und is giv
t o en to theMpaatym
ch ent
in g ba nk.
Securities lending and borrowing
Yes
enable K PEI to complete any failed exchange t rade. The size of the f und i s IDR 140 billion
Pre -m at chin g se rvic es
No
Sec
urit
ies
p
ro
cess
ing
cycle
(s)
:
Taxation (US $ 16.2 million). The fund i s f inanced by a . 01% st ock exchange levy on every trade
M atc hing Ser vice s
Ye s
conducted on the exchangeDel
. ivery Versus Paym ent (DVP) – Clarificati ons
Cle arin g
Ch ara cte ristCle
ics arin
- Tw
o rvic
ba tch
g Se
es p ro cess ing cy cles fo r o n-No *
Payment
.DVP /RVP
withoutSystems
qualificat ion. A sett lement syst em offering a simult aneous and irrevocable exchange of securities
t he
delivery
si .de)Effand
ex cha nge(on
trSec
ad
es
ttleSet
metlnt
uritseies
emen t ectiv e RT G S for of fatory
Environm
cash value (on theRegul
payment
si de)
to settleent
a transaction.
ex cha nge t ra
nsfe
he ttle
se ttle
Boo
k-ers.ntr yTSe
me me
nt nt sys tem is o pe n to
Ye s
KS EI
hasqualification.
designated t hree
banks
as payment
banks
through
whichand
all f unds
sett lem
ent
pm fo r F OP
m ocash
vem envalue,
ts o f o ff-but
exch an ge tra nsf ers .
.DVP /RVP
with
A setlocal
tlement
system
not offering
a sim
ult aneous
irrevocabl
e exchange
of5: 00
securities
and
F ails Ma nag em en t
Ye s
The
Indonesian
Securities
Market
isfunds
regulat
by account
the
Capital
Market
Agency
mustcondi
take tions
place.
Partici
pants
can repatriate
t oed
tement
heir
s with
other
banksfound
as under
which offers
or
saf
eguards
providing
clearing
and
settl
condit
ions
close
to tSupervisory
hose
DVP /RVPCa
without
sh Set qualificat
tle men t ion.
Ca
p ro cess
ingna
cycle
tline
(BAPE
PAM).
Thethe
regulatory
f or allional
mataccount
ters pertaining
inanci
al shvalue,
soon as
I has
credited
sale
proceeds
tohas
the responsibil
designat
edityoperat
with thet o fand
In
ter
l cas ou
h se
ttled:me nt
No
No DV P/RVP.
A KSE
sett
lem
ent
syst em
not
off ering
aagency
simultaneous
and irrevocable
exchange
of securities
cash
and
without
conditions
securit
ies.
payment
bank,
thanks
to
the
introduction
of
a
national
RTGS
payment
system.
Sto
ck
L
en
d
ing
or safeguards providing clearing and settlement conditi ons close to t hose found under DVP/ RV P without qualif icati on
Pu bl ica tio n Dat e: Au gu s t 2 002
Inves
Inves
The
The XY
XYZZBank
Bank isis regulated
regulated inin the
the UK
UK by
by the
the Fi
Financial
nancial Services
Services Authority
Authority and
and the
the Investment
Investment Management
Management Aut
Authority
hority and
and tthe
he Securities
Securities
Investor
tor
Investor
tor
Infrastructure Risk Report
Greece
Money Markets
G over nment D ebt
and
and Investments
Investments Board.
Board. There
There have
have been
been no
no material
material issues
issues raised
raised by
by the
the regulators
regulators toto date.
date. Report
Reportss are
are provided
provided throughout
throughout tthe
he year
year


by
by its
its own
own internal
internal audit
audit tteam,
eam, and
and KKPMG
PMGcarry
carry out
out external
external audit
auditss annually.
annually. AA FRAG
FRAG 21
21 internal
internal controls
controls report
report isis produced
produced annuall
annually.y.
1. TD G).
A). TD G)).
Athens
The
Sale
The XY
XYZZGroup
Group has
has aa llong
ong tterm
erm credit
credit rati
ratings
ngs inin 2001
2001 of
of AA
AA ffrom
rom S&P
S&P,, Aa3
Aa3 from
from M
Moodys
oodys and
and AAAA from
from Fitch.
Fitch. The
The credit
credit ratings
ratings of
of The
The Sett lement
Athens
Purchase
Sett lement
Risks
Inherent in the Greek
Mar ket Infrastructure
and Procedures
Broke
St ock
Broke
Order
XY
order
inst ruc tions
XYZZ Bank
Bank (cont
(contracting
racting party)
party) are
are slightly
slightly higher
higher tthan
han ititss parent,
parent, wit
withh SS&P
&P at
at AAA+,
A+, Moodys
Moodys atat AA2
AA2 and
and Fit
Fitch
ch at
at AAA+
A+ inin 2001.
2001. Tier
Tier 11 inst ruc tions
Broker r
St ock
Broker r
T+2
Exchange
T+2
CRES TCo operates two main syst ems: The CREST system for equities, government debt (Gilt s) and corporate debt and the Central Moneymarketsregulatory
Off ice capit
regulatory
capital
alststood
ood at
at 9%
9%as
as at
at31
31 Oct
October
ober 2001.
2001.
Exchange
Custody & Settlement Infrastructur
e
(CMO) syst em for money m arket instrument s. CREST eligible securiti es under the US R must be demat erialisable and are recorded electronicall y in
E). Brok ers
E). Brok ers
informed of
registers maintained by independent registrars (transfer agents) on behalf of UK issuers. CMO eligible securities are in bearer form and are immobili sed at
B). TD
- Trade
informed of
(1).s et tlement
CCP - The l ack
B).ofTDa -central
Trade counterparty (CCP) exposes participants to direct counterparty risk exposure to each
exec ut ion
s et tlement
the Bank of England. Unit trust s, OEIC securit ies and some CREST ineligible securiti es are sett led physically via a residual sett lem ents service.
other during the
process. Greece’ s CSD SA has recently announced that it is in the process of
execsettlement
ut ion
Securities are transferred throughout the day in near real t ime on a gross irrevocable basis wit h DV P in cent ral bank funds for GBP and E UR.
Quick
Quickview
view
Outline
Outline the
the settlement
settlement types.
types.
Outline
Outline of
of BIS
BISModel.
Model.
Payment
Payment inin Central
Central Bank
Bank or
orCommercial
Commercial Bank
Bank money.
money.
Market
Market asset
asset commitment
commitment risk.
risk.
S&P
million over t he next 3 years), consistently expanding assets (bot h by organic growt h and acquisitions) and a wide range of core and
CRESTCo Limited
value
value added
added services
services being
being off
offered
ered inin the
the UK.
UK.
Instruments Supported
Country Custody Risk Score: 67.8
Outloo k: Stable/ Watch
Over
Overall
all As
Asses
sessme
sment
nt
Operational Risk Evaluat ion
Indonesia
XY
Bank
XY2ZZ002
Bank demonstrates
demonstrates
Publ ica tion Dat e: 14 M arch
United Kingdom
The Role of CRE STCo in the UK Market Infrastructure
CRES TCo Limited provides the central sett lement service for the UK market covering equities,
corporate and government debt and money market securities from the UK, Jersey, Guernsey and
the I sle of Man. It also provides a similar servi ce for I rish equit ies and corporate debt. Irish
government debt is set tled via Eurocl ear Bank. CRES TCo is a private l imited company
est ablished in December 1993, essentially non-profit making with 97 shareholders. I t is a
Recognised Cleari ng House under the Financial Services Act 1986, is regulated by the Financial
Services Authority (FSA ) and is currently t he only approved operat or of a relevant cleari ng
system under the Uncert ificated Securities Regulat ions 2001 (USR).
Securities Market Information
Australia
MONTH 2000
Co pyr ight © 2 00 1 T ho m as M ur ra y
P age 1
Page 10
Co pyr ight © 2 00 2 T ho m as M ur ra y
Due to the account structure and the restriction on free-of-payment deliveries, agent banks cannot provide thei r own
programmes. Al l securities movements must be part of an on-exchange against value transacti on, thus being
subject to the appropriate settlement and re-registration costs. The lack of free deli very functional ity and stock
lendi ng facil iti es in general, li mi ts the liqui dity of stock avail ability generally, and reduces the range of methods
availabl e to the market to cover fails.
Page 11
Co pyr ight © 2 00 2 T ho m as M ur ra y
ALTERNATIVE INVESTMENTS
INVESTOR SERVICES
• Private and public rating of service providers
• Evaluation, selection and monitoring of service providers
• Global custody reviews for institutions
• Private custody risk ratings and
operational benchmarking
Data management
e-platform
• Request for Proposal Tool
Thomas Murray - Private Domestic Custody Ratings Report
Outloo k: Stable/ Watch
XYZ Ban k, Un ite d Kingd om
Domestic Custody Rating: AA+
Overall
OverallAssessment
Assessment
PROBE
Representations
4.3 Core Services
Private Custody Ratings & Operational Benchmarking Report
4.3.15 Will all corporate governance information be supplied to clients in English?
2.5.13 What is your cut-off time prior to the meeting by which the client must instruct?
Horizont al
Vert ical
VOTING IN STRUC TI ON R EQ UIRED WITHIN 1
DAY O F MARKET DEADL INE
Bank of Tokyo
Mitsubishi
Fuj i Bank Ltd
FB
7
5
No , t he ba nk sta tes th at Eng lish is m an da tor y o nly fo r tho se sto cks listed
on the Nikke i 2 25 , all ot he r cor po ra te g ove rna nce inst ruc tion s wou ld be
dis trib ute d in Ja pa nes e. D D
4
The clien t m us t ins tru ct t he ba nk 1 we ek b ef ore th e a ctu al m ee ting . D D
XYZ Bank, UK
Domestic Custody Rating:
AA+
AA+
AA-
AA+
76
79
80
81
-
Contractual Positi on
of XYZ
Key Performance Indicators
(score out of 100)
Q1 (Jan-Mar)
Q2 (Apr - June)
Q3 (Jul y - Sept)
Q4 (Oct - Dec)
AA+ A+
AA-
A+
A-
AA AAA AA+
STANDARD SE RVI CE OFFERINGS
In ter na l Op er atio ns
5
Produce d: 14 Ma rch 2002
Custodi an A (Appo in ted: 1 Ma rch 2001 )
Taxa tion
Yes , th e b an k will s upp ly in for ma tio n in Eng lish. DD
The ba nk’s cut- of f tim e is 8: 00 3 b usin ess da ys p rio r to th e m e etin g.
Risk s
The ba nk exp ect s vo ting in str uctio ns to be p rov ided 3 bu sine ss day s p rior
to th e m ee ting , 5 bu sine ss d ays in the cas e o f p art ial v ote s.
Ca sh/FX M an ag em en t
Yes , the b an k will s upp ly info rm at ion in En glish w ithin 24 h our s fr om it s
re ceip t o f t he info rm atio n. DD
5
10
Co rpo ra te Gov ern an ce
Citibank
5
10
Sec urit ies L en din g
Sumi tomo Mitsui
Banki ng Corporati on
Private Domestic
Cust ody Rating
AA+
AA+
AA
AA
94
85
90
91
-
Pu bl ica tio n Dat e: Au gu s t 2 002
Greece
SELLER
Equities Settlement System
(Dematerialis ed Securities )
Custody and Settlement
Inves
Investor
tor
Infrastructure Risk Report
Pu bl ica tio n Dat e: Au gu s t 2 002
Greece
1. TD G)).
Athens
Sale
Athens
Sett lement
Risks
Inherent in the Greek
Mar ket Infrastructure
and Procedures
Broke
St ock
Broke
Order
inst ruc tions
Broker r
St ock
Broker r
Exchange
T+2
Exchange
Custody & Settlement Infrastructur
e
A). TD Purchase
order
E). Brok ers
(1).informed of
s et tlement
F). T+1 by obligat ions
8.00pm Trade
ass igned t(2).
o
c lient ’s
c us todian
Agent
Agent
Bank
Bank
Core Services
Prepared for:
Piccadilly Pension Fund
In com e Colle ction
Standard Chartered
Bank
VOTING IN STRUC TI ON R EQ UIRED WITHIN
7 DAYS OF M ARKET DEADLI NE
Th e bank's stand ard r eporting items in English on Co rpora te Govern ance ar e:
Mee tin g date /place, m eeting t yp e, available holdings, agenda items a nd instr uction
dea dlin e. As t he b ank h as pr eviously me ntioned that Corpor ate Governa nce
services are classed as a value adde d service at additional cost, it is u nclear if
these it ems are in clud ed in the standar d custody fee . DD
Th e bank’s cut-o ff time is 9:00 (JST).
6
Cr ede nt ials
HSBC
Co rpo ra te Action s
ALL M EETIN G/
VOTING
INFO RMATIO N
SUPPLI ED IN
ENG LISH
The
The XY
XYZZBank
Bank isis regulated
regulated inin the
the UK
UK by
by the
the Fi
Financial
nancial Services
Services Authority
Authority and
and the
the Investment
Investment Management
Management Aut
Authority
hority and
and tthe
he Securities
Securities
and
and Investments
Investments Board.
Board. There
There have
have been
been no
no material
material issues
issues raised
raised by
by the
the regulators
regulators toto date.
date. Report
Reportss are
are provided
provided throughout
throughout tthe
he year
year
by
by its
its own
own internal
internal audit
audit tteam,
eam, and
and KKPMG
PMGcarry
carry out
out external
external audit
auditss annually.
annually. AA FRAG
FRAG 21
21 internal
internal controls
controls report
report isis produced
produced annuall
annually.y.
The
The XY
XYZZGroup
Group has
has aa llong
ong tterm
erm credit
credit rati
ratings
ngs inin 2001
2001 of
of AA
AA ffrom
rom S&P
S&P,, Aa3
Aa3 from
from M
Moodys
oodys and
and AAAA from
from Fitch.
Fitch. The
The credit
credit ratings
ratings of
of The
The
XY
XYZZ Bank
Bank (cont
(contracting
racting party)
party) are
are slightly
slightly higher
higher tthan
han ititss parent,
parent, wit
withh SS&P
&P at
at AAA+,
A+, Moodys
Moodys atat AA2
AA2 and
and Fit
Fitch
ch at
at AAA+
A+ inin 2001.
2001. Tier
Tier 11
regulatory
regulatorycapit
capital
alststood
ood at
at 9%
9%as
as at
at31
31 Oct
October
ober 2001.
2001.
Custody and Settlement
Infrastructure Risk Report
BUYER
Inves
Investor
tor
G).
Sett lement
inst ruc tions
T+2
The b ank ’s cu t- off tim e va ries b etwe en 0 -72 h ou rs de pe ndin g on r eq ues t
sig nifica nce fir st, follo wed by pr oce ssing tim e an d vo lum e. .
Saf eke epin g
SCB
S M BC
March 2002
Yes , th e b an k will s upp ly in for ma tio n in Eng lish. DD
Ov era ll Ra ting
HSBC
BTM
CITI
The ba nk’s sta nda rd de ad line to re ceiv e v otin g in str uct ions fr om th e clien t
is 4 b usin ess day s pr ior to the m ee ting da te.
Set tlem en ts
M EETIN G/VO TI NG
INFO RMATIO N NO T
SUPPLI ED IN
ENG LISH
The ba nk can p rov ide all info rm at ion in Englis h e xce pt Notic es of Age nda
du e to t he tim e r est rain ts. DD
4
XY
XYZZ Bank
Bank demonstrates
demonstrates aa very
very strong
strong track
track record,
record, and
and having
having identified
identified tthe
he cust
custody
ody business
business as
as aa sisignifi
gnificant
cant ffee
ee generator,
generator, iitsts
commi
commitment
tment toto tthihiss field
field isis demonst
demonstrat
rated
ed on
on aa number
number of
of levels,
levels, wit
withh high
high iinvestment
nvestment into
into custody
custody specif
specificic IT
IT developm
development
ent (US
(USDD 320
320
million
million over
over tthe
he next
next 33 years),
years), consistently
consistently expanding
expanding assets
assets (bot
(bothh by
by organic
organic growt
growthh and
and acquisitions)
acquisitions) and
and aa wide
wide range
range ofof core
core and
and
value
value added
added services
services being
being off
offered
ered inin the
the UK.
UK.
InIn the
the UK,
UK, XXYZ
YZ Bank
Bank ofoffers
fers alalllcore
core services
services and
and handles
handles all
all instrument
instrumentss traded
traded inin the
the market
market.. Securities
Securities are
are segregat
segregated
ed according
according ttoo
client
client requirements,
requirements, and
and overnight
overnight investment
investment services
services are
are available
available for
for excess
excess account
account ffunds.
unds. Alt
Although
hough the
the cut-off
cut-off times
times for
for cli
client
ent
inst
instructions
ructions are
are early
early both
both on
on corporate
corporate acti
actions
ons and
and corporat
corporatee governance,
governance, tthis
his isis tthe
he main
main short-coming
short-coming of
of the
the otherwise
otherwise very
very strong
strong
offering,
offering, which
which isis ffuelled
uelled by
by multiple
multiple data
data sources
sources that
that provide
provide information
information whi
which
ch automaticall
automaticallyy updates
updates the
the Bank’s
Bank’s systems.
systems. BBotothh
standard
standard and
and non-standard
non-standard operat
operational
ionalreports
reports are
are available,
available, and
and there
there iissan
an eff
effective
ective client
client rel
relatationshi
ionshipp management
management apparat
apparatus
us inin place
place
toto deal
dealwith
with client
client enquiries
enquiriesiinn aa timely
timely and
and sensitive
sensitive manner.
manner.
COMMENTS
5
10
XY
XYZZBBank
ank isis the
the principal
principal subsidiary
subsidiary of
of XYZ
XYZ Group.,
Group., one
one of
of tthe
he largest
largest publicly
publicly quot
quoted
ed bank
bank holding
holding companies
companies inin Europe.
Europe. XYZ
XYZ Bank
Bank
ranks
ranks as
as tthe
he UK’s
UK’s largest
largest glglobal
obalcustodian
custodian by
by asset
assets,s, with
with over
over USD
USD 44 trillion
trillion of
ofassets
assets under
under cust
custody
ody as
as at
attthe
he end
end of
of Oct
October,
ober,2001,
2001, of
of
which
which USD
USD 1.2
1.2 trillion
trillion are
are domestic
domestic UK
UK assets.
assets. There
There are
are 5,000
5,000 ststafafff inin tthe
he worldwide
worldwide global
global custody
custody businesses
businesses of
of tthe
he Bank,
Bank, of
of which
which
2,500
2,500 work
work inin tthe
he UK
UK domestic
domestic business.
business. The
The global
globalcustody
custody business
business has
has been
been developed
developed significantl
significantlyy inin recent
recent years
years both
both by
by organic
organic
growth
growth and
and aa series
seriesof
of acquisit
acquisitions,
ions,with
with tthe
he most
most recent
recent being
being AB
ABCC Bank
Bank inin tthe
he US
US inin December
December 2000.
2000. These
These acquisitions
acquisitions have
have resul
resulted
ted
inin over
over 40%
40% of
of the
the client
client base,
base, ofof over
over 4,500
4,500 client
clientss now
now being
being located
located out
outside
side tthe
he UK.
UK. XXYZ
YZ Bank
Bank isis aa major
major fforce
orce inin bot
bothh tthe
he global
global
custody
custodybusi
business
nessacross
acrossvirtual
virtuallylytthe
he enti
entirere spectrum
spectrumof
ofclient
clientttypes
ypesand
and geographies,
geographies, and
and tthe
he domest
domesticic UK
UK custody
custody business.
business.
E). Brok ers
B). TD
- Trade counterparty informed
of
CCP - The l ack
(CCP) exposes
participants to direct counterparty risk exposure to each
B).ofTDa -central
Trade
ut ion
s et tlement
other during exec
the
process. Greece’
s CSD SA has recently announced that it is in the process of
execsettlement
ut ion
obligat ions
developing a
F). T+1 by
C). TD- Trade
8.00pm - Trade
detailsfor
sentCSD SA settlement i s ass
Payment System - Cash
transferred
igned t o and hel d on deposit at Alpha Bank, a private
c lient ’s
commercial bank. Al pha Bank has a low BBB+ long-term
credit rating from S&P, whi ch is around the minimum
c us todian
rati ng required by many instituti onal investors. S&P recently
(10th July) put Alpha Bank on ‘Negati ve’ credit watch,
citing its drasti cal ly reduced revenues and questions over the quali ty of its core capital . Investors are exposed to
SArisk exposure on this bank between the time of pre-funding until cash is finall y settled.
intra-day cashCSD
deposit
CSD SA
Agent
Additi onally, there is systemic risk exposure for the whole
equities and corporate debt market due to its
H). of the Greek
Agent
H).
Bank
dependence on thi s single bank.
Sett lement
Sett lement
Bank
D). TD - Trade data f rom ASE proc es sed and
affi rmation
affi rmation
D). TD - Trade data f rom ASE proc es sed and
hed.
by T+3
byClear
T+3 ing &matc
Settlement
Risk
matc hed.
K). Batc h proc es sing of gross s ec urit ies t ransf ers in 4
1.30pm
1.30pm
K). Batc h proc es sing of gross s ec urit ies t ransf ers in 4
batches daily at 8. 30am - 9.00am, 1. 00pm - 1.30pm,
batches daily
at 8. 30am
-SA
9.00am,
1. 00pm
- 1.30pm,
(3).
Level:
CSD
- Trades
4.00pmDVP
- 4.30pm
& 8.
00pm
- 8.30pm
SD are manual ly pre-matched on T+1 by telephone or fax before bei ng entered i nto the
4.00pm
- 4.30pm
& 8.es
00pm
- 8.30pm SD
Central
Securiti
Depository
(‘CSD SA’) system. Risk of human error resul ting i n i ncorrectl y matched instructi ons
being entered into the settlement system exists.
N). Confirmation of
s ec urit ies t ransf er
up to 9pm T+3
I). Pre-funding
of s ettlement
acc ounts by
beginning of
rel ev ant bat ch
N). Confirmation
There appears to be a degree of manual i nteracti
on involvedof in the cl eari ng operations conducted by local
ec urit ies t ransf
er i n the system the securities accounts of the
custodian banks as ‘ Account operators’ . Accounts operators
record
up to 9pm T+3
investors whi ch wil l be credited and debited by a specific
transaction. Thi s manual anal ysis which consti tutes a key
O).remain relati ve to human error and
part of the clearing process must be completed by 1.30pm T+3. Risks
Confi
rmation
opportuni ty for fraud in thi s process, while any physical i nteraction in the
settl
ement process reduces Straightthrough-Processing (STP) rates. Account operators bear full responsibil ity of
forc ash
the securi ties transfers conducted as
rec eipt up to
J ). Confirmation of a result of the process.
L). Conf irmati on of
c as h balance prior
9pm T+3
s ec urit ies
to batc h
delay between the settlement of securities withi n the CSD SA system, and the
s et tlement
proc es si ng There is generall y a 30min
corresponding net settl ement of cash obligations at Alpha Bank for corporate securities (equities and corporate
debt), resulti ng in a smal l risk exposure. However, where a counter-value is not i mmediately avai lable, the
securi ties/ cash bal ance would continue to be frozen in CSD SA/ Alpha Bank for settlement in a subsequent batch.
Hence, intra-day
counterparty
Alpha
Bank exposure may last si gnifi cantly l onger than the usual 30mins.
Alpha Bank
98
97
98
96
72
79
81
77
82
85
84
83
89
85
90
89
-
-
70
72
70
71
-
Im proved P osi ti on Stable Posi ti on
Worse Position
It has al so not been clearl y establ ished what level of synchroni ci ty between securiti es and cash transfers there is.
M). Gros s c ash t ransf ers at 9.00am, 1.30pm, 4.30pm & 8.30pm
M). GrosCSD
s c ashSA
t ransf
ers that
at 9.00am,
1.30pm,
4.30pm &securities
8.30pm until cash considerations have been confirmed as settled, but
state
they do
not transfer
communicati on of confirmati ons from all settlement agents in Greece appear to be done by fax, opening up
significant potential operati onal risk exposures. Addi tional ly, participants’ cash accounts have several net credit and
several net debi t movements at the end of the day, not the expected 6 movements that woul d resul t from the 3
normal batches. Hence it is not sel f-evident to participants as to when cash has been processed and therefore the
Page 8
pyr ight © 2 00 2 T ho m as M ur ra y
exactCo
intra-day
risk i s difficult to determine. The cash processi ng procedures and extent of DVP l inkage of securiti es
and cash transfers needs more transparency.
Co pyr ight © 2 00 1 Tho m as M ur ra y
PRO PR IETAR Y & CON FI DENTI AL
Co pyr ight © Th om as M u rra y L td 200 2
Co pyr ight © 2 00 2 T ho m as M ur ra y
Page 10
Page 3
Thomas Murray
CMI ‘Classic’ Model
‘Classic’ Capital Market Infrastructure Model
Stock Market
‘Exchange’ Risk and Reward
CCP/ Clearing House
‘Centralise and Manage’ Risk
Central Depository
‘Minimise’ Risk
Payment System
Page 4
Thomas Murray
Depository Risks
Depository Risks

Asset Commitment Risk
- Minimising processing times

Liquidity Risk
- Managing ‘temporary’ fails

Counterparty Risk
- Managing full defaults

Asset Servicing Risk
- Managing corporate actions servicing

Financial Risk
- CSD’s financial security

Operational Risk
- Manage internal controls and systems
Page 5
Thomas Murray
Depository Risks
Summary Risk Containment Strategies

Asset Commitment Risk
- Real-time securities and cash transfers
- Intraday finality in settlement system (with legal basis)

Liquidity Risk
- Netting (with legal basis)/ optimisation
- Multiple processing cycles
- Stock lending
- Credit facilities
- Fails management (fines, buy-ins)
- High levels of immobilisation/dematerialisation
- Fast registration/ central registrar
Page 6
Thomas Murray
Depository Risks
Summary Risk Containment Strategies

Counterparty Risk
- DVP (market AND client-side)
- Central Bank funds
- Settlement assurance (CCP, collateral, guarantee fund)
- Strict participation criteria
- Surveillance of participant volumes/ risk modelling

Asset Servicing Risk
- Multiple sources (‘Official’ + verification)
- Timely, accurate and comprehensive event notification
- Timely, accurate and comprehensive event processing
- Proactive client servicing
- Straight-Through-Processing
- Clear statement of liability
Page 7
Thomas Murray
Depository Risks
Summary Risk Containment Strategies

Financial Risk
- ‘Adequate’ capital (FSA states GBP 5m+)
- Operationally profitable
- Comprehensive insurance
- Any principal activity fully collateralised
- Limited commercial activity

Operational Risk
- Comprehensive controls and procedures
- External operational audits
- Limit manual processing
- Asset segregation
- Secure and efficient interfaces
- DRP/BCP procedures
Page 8
Thomas Murray
Depository Risks
AMEDA Member Risk Assessments
Country
CSD
Egypt
Jordan
Kuwait
Lebanon
Morocco
Mauritius
Oman
Tunisia
UAE (DIFC)
MCSD
SDC
KCC
Midclear
Maroclear
CDS
MDSRC
STICODEVAM
DIFX
Overall Assessment (AAA to C)
AAN/R
A
AA+
BBB
AN/R
Page 9
Thomas Murray
Depository Risks
Risk Counterbalances

Does a risk-free CSD exist? Mitigating one risk may trigger another.
Risk Containment Mechanism
+
-
RTGS
Asset Commitment
Liquidity
Credit Facilities
Liquidity
Financial
Netting
Liquidity
Counterparty
Central Counterparty
Counterparty
Financial
Pre-funding
Liquidity/ Counterparty
Asset Commitment
Page 10
Thomas Murray
Depository Risks
Conclusions

International standards (ISSA, G30, CPSS-IOSCO) set the ‘base-line’ for risk mitigation

No ‘one size fits all’ approach. Strategies must account for local realities.

Risk minimisation strategies require constant evolution.

Risk solutions may need to be tailored for negative ‘side-effects’.

Must communicate how risk is managed. Transparency is critical.
Page 11
Thomas Murray
AMEDA WLS
AMEDA White Label Site

Aim is to share information between AMEDA members

Access to current TM information - full Data, summary Reports and Newsflashes.

Requires each AMEDA member to sign an agreement to authorise the release of their information to
other AMEDA members.

Private, secure zone established exclusively for AMEDA members to upload AMEDA specific
information, notices and run data collection exercises.

Option to upload AMEDA specific documentation

Created and administered by TM for the benefit of AMEDA members.
Page 12
Thomas Murray
AMEDA WLS
AMEDA White Label Site
Page 13