post-trade linkage models 7th international sase conference; october 19, 2012 necla kucukcolak,...

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Post-Trade Linkage Models7th International SASE Conference; October 19, 2012

Necla Kucukcolak, Takasbank International Markets - Manager

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– Building Blocks• Concepts• Direct Linkage• Indirect Linkage• Comparison: Direct vs. Indirect

– Expanded and Hybrid Models• Global Custody• ICSD• Asian ICSD• SIX SIS of Switzerland• Link-up Markets• Euroclear Group- Single Platform• ESES Markets• Target 2S• Comparison: Focus

– Conclusion

AGENDA

Necla Kucukcolak, Takasbank International Markets - Manager

Necla Kucukcolak, Takasbank International Markets - Manager 3

Building Blocks:Basic Direct and Indirect Linkage


Direct Linkage Model Account Set-upOmnibus Account Structure Segregated Account Structure

CSDI (Intermediary CSD)

Client I-2

Client I-1

CSDP (Primary CSD)

CSDI

Other clients

CSDI (Intermediary CSD)

CSDP (Primary CSD)

Client I-2

Client …

Client I-1

CSDI

Client I-1

Client I-2

Client …

Other clients

Primary-CSD Intermediary-CSD Result

Segregated omnibus Segregated: Intermediary-CSD opens segregated accounts at Primary-CSD

Omnibus segregated Omnibus: Intermediary-CSD opens an omnibus account at Primary-CSD, and segregate at its own accounts.

Omnibus omnibus Omnibus: Intermediary-CSD opens an omnibus account at the Primary-CSD

Segregated segregated Omnibus: If the segregation level is the same, CSDs might operate on omnibus. The CSDs can develop a process so that they can mirror their account holdings.

• Primary-CSD: securities are primarily deposited. • Intermediary-CSD: intermediates holding, transfer and all related operations of the securities through an account at the Primary-CSD

or at a local custodian bank.


Indirect Linkage Model: Sub-Custody Account Set-up

Omnibus Account Structure Segregated Account Structure

a.

Country of Primary CSD

Country of Intermediary CSD

CSDI (Intermediary

CSD)

Client I-2

Client …

Client I-1

Local Custodian

Bank

CSDI

Client I-1

Client I-2

Client …

Other clients

CSDP (Primary CSD)

Loc. Cust. Bank

CSDI

Other clients

Other clients

Client I-1

Client I-2

Client …

Country of Primary CSD

Country of Intermediary CSD

CSDI (Intermediary

CSD)

Client I-2

Client …

Client I-1

CSDP (Primary CSD)

Local Custodian

Bank

Loc. Cust. Bank

Other clients

Other clients

CSDI

Local custodian bank: Agent bank of the Intermediary-CSD at the country of Primary-CSD; sub-custodian of the Primary-CSD at the target country, provides sub-custody services to the Intermediary-CSD

• Value-added sub-custody services: tax services, enhanced corporate action notifications, market claims, proxy voting, cash sweep service, integrated FX or PvP services.


Comparison: Direct vs. IndirectDirect Linkage Indirect Linkage

Infrastructure set-up cost high lowEase of account opening procedures shorter more assistance

Ease of communication higher initial set-up costs standard but limited scope

Level of operational know- how on settlement and corporate action processing in the target market

higher lower

Timeliness of notifications from source with delayUninterupted flow of information yes no

Strictness of instruction deadlines real market deadlines Stricter deadlines

Enhanced value added services less available in many cases typically available


Expanded and Hybrid Models

• Link-up Markets• Global Custody• ICSD• Asian ICSD• SIX SIS of Switzerland• Euroclear Group- Single Platform• ESES Markets• Target 2S


Link-Up Markets

Source: Link-up Markets, July 2011 Publication

- Founded as joint venture by the CSDs of Germany, Greece, Spain, Austria, Switzerland, Denmark and Norway in April 2008.

- Aim of the joint venture is to establish and maintain a conversion technology which standardizes the communication among CSDs, consequently enables effective and cost efficient interoperability of CSDs.

- CSDs of Cyprus (2008), South Africa (2009) and Egypt (2010) has participated later on.

Link-up model: - Participating CSDs have direct links to each other via bilateral agreements. - A technical functionality that eases the direct CSD to CSD links by enabling standardized format conversions.

Settlement is done through direct accounts of CSDs at one another and cash settlement is done via correspondent banks or T2S.


Global Custodian Banks

Client Level

Banks Financial Institutions

Institutional Investors

Intermediary- CSDs

Individual Investors

Global Level

Global Custodian Bank

Local Level

Primary Depository Level

Agent Bank

Own Agent … …

Primary- CSD

Primary- CSD

Primary- CSD

…

Primary CSDs are national CSDs and ICSDs

A global custodian is a single point that gives settlement, custody and related cash and FX services in addition to tax and reporting services.

A global custodian establishes

- sub-custody links to national markets either

• by using any local custodian bank operating in the country or

• by incorporating its own sub-

custodian bank, which is indeed a local custodian bank.


ICSD• Two ICSDs of Europe Euroclear Bank,

Clearstream Banking Luxemburg.

• Primary and exclusive service of ICSDs is Eurobond safekeeping and settlement.

– Today Eurobonds are issued in Euroclear Bank Brussels or in Clearstream Banking Luxemburg and settlement is completed real time internally within the ICSDs or in batches (15 batches per day) between the two ICSDs.

• ICSDs today also offer global custody services.

– They have established direct and indirect links to the local markets.

– ICSDs are leading institutions for market integration and post trade consolidation in Europe.

ICSD Clients

Banks Financial Institutions

Institutional Investors

Intermediary- CSDs

Individual Investors

ICSDs Euroclear

Bank

Common Depositories

Issuers

Common Depository

Issuer

Clearstream Bank

Common Depository …

… Issuer … Issuer …


Asian ICSD • ASEAN ICSD Link– Exclusively designed for ASEAN+3

• Bonds• Securities Markets

– Not live yet

• ASEAN Trading Link– Aim is to connect exchanges throughout

Southeast Asia.

– went live on September 2012 with a link-up between the Singapore Exchange and Bursa Malaysia.

– Stock Exchange of Thailand is expected to link-up from in October.

– Viet Nam's two exchanges will participate at a later date, together with stock exchanges in the Philippines and Indonesia.

– As of September, 31 brokers from across Malaysia, Singapore and Thailand have joined ASEAN Trading Link.

Source: ABMI Group of Experts Final Report, Part II, Evaluation of the Feasibility of Regional Settlement Intermediary Options for the ASEAN+3, June 2010


SIX SIS International Custody Hub

Source: SIX SIS internet site

SIX SIS Business Model: Combination of local and international settlement and custody models.- SIX SIS takes settlement instructions for market settlement of Swiss Exchange and other European Markets

like SWX Europe, Eurex directly or through SIX x-Clear. - Settlement instructions for OTC trades are sent to SIX SIS via SWIFT or proprietary messaging systems . - SIX x-Clear is the Clearing House and CCP for Swiss market. It is also interoperable in UK market as CCP. - SIX SIS has direct links to ICSDs and some CSDs. To some other CSDs it uses local custodian banks as agents. It

is the Primary-CSD for Swiss securities and Intermediary-CSD for all others. It is one of the founding participants of Link-Up Markets.


Euroclear Single Platform

Source: “EUI Single Platform Implementation Forum” Publication, April 2008

• Idea is to harmonize Euroclear markets in terms of legal and functional structure.

• Aim was to create a single platform for issuers and investors, in which they can issue securities, get issuer and investor services in corporate actions and tax issues.

• High technical cost, difficulties in harmonizing country specific procedures and regulations were the main obstacles. After the financial crisis of 2008, the project is postponed to an unknown future.


Euroclear ESES Markets

ESES Clients

Belgian Market Participants

-Trade confirmation - Settlement -Custody -Collateral Management -New Issues

Euroclear Netherlands

Euroclear France

French Market Participants

Dutch Market Participants

International Clients (links)

Euroclear Belgium

Group Securities

Eligible Foreign

Securities Foreign CSDs ICSDs

ESES PLATFORM

ESES Issuers

Issuers

ESES, Euroclear Settlement of Eurozone Securities- is a harmonized

system of trade confirmation, settlement and custody for securities listed in Euronext market place kept in Euroclear France, Euroclear Belgium and Euroclear Netherlands.


Target 2S

Source: European Central Bank, “T2S Settling Without Borders” Broucher, November 2009

• Aim is to settle all securities traded in Europe on a single platform and to eliminate the difference between domestic and cross-border settlement in Europe.

• The core service that T2S provides is the “real time DvP settlement in central bank money” for securities traded in Europe

• “Optimization of settlement” is achieved by optimization algorithms and real time technical netting functionality.


Comparison: Focus

Focus Global Cust. ICSDs SIX SIS Link-up Single Platf. Target 2S

Sub-custodian Processing * * *

Direct Links * * *

Interoperability *

Harmonization and integration of markets * *


• Post trade linkage models– First step to internationalize capital markets

• Globalization and interoperability of markets

– Inspirational and modeling examples for regional and international linkage projects

• Cost-benefit analysis and feasibility studies need to be completed

CONCLUSION


Takasbank• Central Clearing and Settlement Institution of Turkey

– providing post-trade securities services as well as banking facilities for the Turkish Capital Market participants

• Enhance integration with international settlement and clearing systems– Euroclear Bank (direct link, since 1997)– Other links in progress

• with CSDs and ICSDs (e.g. SIX SIS, Clearstream)• With global custodians (Citibank London)


TakasbankŞişli Merkez MahallesiMerkez CaddesiNo:6 34381 Şişli İstanbul

+90 212 315 25 25

Thank you

[email protected]

post-trade linkage models 7th international sase conference; october 19, 2012 necla kucukcolak,...

Documents

intermediary csd

custody account

markets source

account holdings

s necla kucukcolak

country of primary

indirect linkage model

custody services