Transcript OUTLINE OF CREST DOMESTIC STRATEGY

The Euroclear Single
Platform Project
S&II – Operations Forum
Michael Kempe
Director
May 4, 2006
Agenda

General overview of the aims of the project

Governance Structure

How does this overlap with the Giovannini process

Examples of progress - Custody achievements

Questions
Why has harmonisation become
important?

Globalisation of investment strategies has intensified awareness of
market fragmentation in recent years:
– Multiple systems
– Widely differing functions & market practices


Europe is (rightly) seen as a complicated place to do business
Increased focus by the authorities and market constituencies on
overcoming the inefficiencies which result:
–
–
–
–
Giovannini Group
G30
ECB-CESR
SMPGs etc
Delivering a domestic market for Europe
Why are we involved in harmonisation?
Consolidating
cross-border
settlement
“internal book-entry
settlement”
Systems
Creating a
single
platform for
Europe’s
domestic
settlement
Delivering
a domestic
market for
Europe
Consolidating
domestic
settlement
& custody
Harmonisation
Why are we involved? - Harmonisation

“Markets are defined by their post-trade infrastructure” – Alberto
Giovannini
– Harmonisation and infrastructure change go hand in hand

We can represent and achieve neutrality between
– all segments of market players
– all types of market structure
… and therefore provide leadership to the market

We have key relationships with all the key non-customer
stakeholders, eg
–
–
–
–

Regulators & government bodies
Issuer agents
Lawyers
Stock Exchanges & Clearing Houses
Pressure from European Commission
– If we do not harmonise ourselves then the Commission will do it to us !
Why are we involved? - Systems

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Harmonisation is inherent in platform consolidation post merger
… we don’t want to build a new system that performs the same
function in five different ways
Doing the right thing
– Classic role of the market infrastructure provider

Contribute to creating a genuinely Single Market
– Transforming cross-border settlements into book entry settlements
– “Delivering a domestic market for Europe” is now the Mission
Statement
Full Integration
Customer
Agent
Common User Interface
CREST
Euroclear
France
Euroclear
Nederland
Euroclear
Belgium
Domestic Service
Euroclear
Bank
Full Service
Full integration of legacy systems and functionality
Single Settlement Engine
The Business Model, recognising the different
market/user needs, is based on choice

Choice of service levels, between
– Domestic Service packages, typical CSD service
– Full Service package, typical Euroclear Bank service

Choice of access to services (direct account)
– directly
– through agent bank
– through Euroclear Bank

Choice of payment mechanism for settlement between
– Central bank money
– Commercial bank money
– Open questions about where these payment services are
delivered
What harmonisation isn’t

Signs of customer concerns in early 2004:
– Paris opinion was that harmonisation is an evil Anglo-Saxon
conspiracy
– London opinion was that harmonisation is an evil French conspiracy

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We had no preconceived notions about specific outcomes at the
start
Not an exercise in picking components from each location to
ensure a balanced distribution of pain
– Compromise is inevitable from time to time
– … but it is not a goal

High risk that politically driven process results in compromise
solutions based around sub-optimal and inconsistent design
– Crucial to minimise that risk if we want a stable and coherent system
capable of lasting several years
Harmonisation
Migration towards a single platform
Ambitious timetable
2005
2006
2007
2008
2009
2010
SSE
Market by market
TARGET2
ESES
30 months
Market by market
SP Phase I
Gradual rollout for custody
Market by market
SP Phase II - Gradual
rollout for settlement
CCI &
Standards
Market by market
Early
harmonisation
ESES
Single
Custody
Gateway
Legacy & SAP
Settlement
Agenda

General overview of the aims of the project

Governance Structure

How does this overlap with the Giovannini process

Examples of progress - Custody achievements

Questions
Delivering a domestic market for Europe
Euroclear plc
Board
Cross-border Market
Market Steering
Management
Advisory Committee
Committee
Committee
Custody Settlement
Legal
Tax
Payment
Communication
Domestic
MACs
Business
Model and
Harmonisation
Cross-border Harmonisation WGs
French
Harmo. Group
Project
delivery
divisions
Euroclear divisions
Belgian
MEC
Local Harmonisation Groups / initiatives
Dutch
DACSI
Other
industry bodies
governance
involvement
Harmonisation
Consultation process
Harmonisation proposal by Working Group
Consultation process
Service descriptions
Detailed Service descriptions
Implementation
Where are we in this process?
Phase
ESES
SP
Proposals discussed with WG
100%
100%
Consultation paper
11 out of 11
21 out of 24
Service Description
9 out of 11
4 out of 21
Detailed service description
As from early
2006
As from early 2007
Implementation
End 2007
As from end 2008
Agenda

General overview of the aims of the project

Governance Structure

How does this overlap with the Giovannini process

Examples of progress - Custody achievements

Questions
Working in a European context



Consciously working in a framework which is broader than
Euroclear group
Neither right nor in our interests to develop a “Euroclear
standard” which is incompatible with the rest of Europe
Close collaboration with other initiatives:
– ECSDA
– FBE
– ESF
– SWIFT
– (in future) Nordic CSD (VPC + APK)

Proving to be highly effective

What does this mean for Euroclear?
Agenda

General overview of the aims of the project

Governance Structure

How does this overlap with the Giovannini process

Examples of progress - Custody achievements

Questions
Euroclear - Objectives for custody



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To provide a single, harmonised platform for corporate actions in Belgium, France,
Ireland, The Netherlands and The United Kingdom
That the solution be in line with Giovannini initiatives (ECSDA, FBE) and with other
harmonisation efforts (ESF, SMPG)
– However, timing is different
To provide harmonisation for all parties without removing choice for issuers
Harmonisation of all corporate actions processes that affect both holdings and
transactions including data and its provision, timing, election processing,
resources, payment mechanisms and transaction management
Reduce cost and risk through harmonisation and removal of paper processes
Harmonisation of processes on both the operational side of corporate actions
processing and the governance aspects embedded in them e.g. shareholder
rights
Allow for a harmonised process for issuers to gain transparency of their
shareholders throughout the security’s lifecycle
Types of events

Distributions

Reorganisations Meetings
- Which type of event a corporate action is will be
announced to clients for processing reasons. Considered by
clients as a large cost saving.
Announcements
Issuer /
Agent
Euroclear
Investor /
Agent
Client
– Made as soon as information is public
– Objective is that the issuer (agent) will input formatted details
directly to CSD
– Single database within SP
– Sent to all holders in real time
– Sent to all new holders or those with open transactions in real time
– Changes sent to all previous recipients in real time
– If no holding?
Entitlements
Issuer /
Agent
Euroclear
Investor /
Agent
Client
–
–
–
–
Sent on close of business on record date
Only actual holdings taken into account in domestic service
No reminders or alarm bells in domestic service
Entitlements only for mandatory events
Elections
Issuer /
Agent
Euroclear
Investor /
Agent
Client
–
–
–
–
–
–
–
Elections without paper
Cash and stock moving in the system
Investor inputs MT565 but message to issuer agent unclear (MT 508?)
MT567 used for technical validation
‘Acceptance’ message unclear
One issuer agent rather than many
Co Domiciles will continue to exist
Proceeds and confirmations
Issuer /
Agent
Euroclear
Investor /
Agent
Client
– Way of distribution depends on type of event
– Messages to be used by issuer agent unclear
– MT566 for debit and credit
Euroclear Business Model
• Progress is being made
• It is recognised that there are barriers to implementation
• Although primarily a European / Euroclear process it will affect
the template for all markets
• All markets are being asked to change to bring benefits to all
• All markets have been willing to change so far and momentum is
high
• Harmonisation will occur… Delivering a Domestic Market for
Europe
Agenda

General overview of the aims of the project

Governance Structure

How does this overlap with the Giovannini process

Examples of progress - Custody achievements

Questions
Appendix 1 - Domestic and Full Service
Full Service
Domestic Service
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Harmonised CSD services, based on
harmonised market practices but with local
specifics where needed

STP and standardised custody and settlement
services

For group securities

Securities holding under security Home asset
protection law

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Standardised customer support

Very low risk, CSD-type liability

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Priced on cost+ basis (not bundled with higher
cost services)

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
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Typical Euroclear Bank services
Higher valued added services (eg in custody)
Access to 35 markets on a DvP basis (bridging
complexity and diversity gaps)
Banking and credit services
Automated Lending and Borrowing and
Triparty Collateral Management
For group and non-group securities
Securities holding under a single legal regime
(Belgian law)
Active customer support
Commercial Bank Money Settlement
Competitively prices
Central bank money settlement and cross-quality payments